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After years of treating its other drinks as second-class beverages, Coke is about to attack its liquid liability. CEO Douglas Daft promises to flood the market with new products without taking his eye off the franchise, and the company has perhaps 100 concepts in development. The first to hit store shelves, just rolling out now, is KMX, a caffeine-and-herb-laced energy drink that, like Anheuser-Busch's new 180, is meant to compete with Red Bull, the increasingly popular underground drink used as a mixer in nightclubs and bars. "We have to guess a little bit, and it's a riskier proposition," says Jeffrey Dunn, group president of Coca Cola North America. "But I do think we can walk and chew gum at the same time." Not everyone in the industry is so sure. "Left to its own devices, Coke has proved horrible at creating new products," says Tom Pirko, head of industry-consultant Bevmark.
If Coke is going to return to its traditional pace of double-digit earnings growth, it has to diversify, as it has overseas, where it gets 75% of its business and puts Pepsi to shame. In Japan, for instance, where alternative drinks are more popular than sodas, Coke's ready-to-drink coffee leads the market--and even outsells the flagship brand itself. Daft, who is leading a turnaround after replacing Douglas Ivester a year ago, viewed Gatorade as a growth engine. But the board, led by Warren Buffett, thought the price for Quaker was too high--leaving many Coke bottlers to wonder if the price of not buying will be even higher.
On the other hand, the feeling at Pepsi, which has enjoyed five straight strong quarters and whose stock is up 50% in the past year, is one of jubilation. In the booming market for bottled water, its brand, Aquafina, became a leader without TV ads, ahead of Coke's Dasani. Likewise, Pepsi's Lipton iced tea is tops in its category.
With SoBe, which soared from $1 million in annual sales in 1996 to nearly $250 million this year, Pepsi bought a pioneering, distinctive brand with genuine street cred that can be used as a laboratory for new ideas. Add Gatorade to the mix, and Pepsi--which also owns thriving chilled-juice maker Tropicana--will increase its clout in supermarkets, where it already claims to be the single biggest contributor to the bottom line.
But in the crowded, fickle market for New Age, premium drinks, nothing is guaranteed. Brand equity doesn't carry the same weight it did during the cola wars; for instance, convenience-chain 7-Eleven, which once reserved most of its cooler space for the big two's products, has scaled back its marketing agreements with both. Noncarbs have surpassed sodas as the most popular soft drinks at the chain. "Consumers are becoming more promiscuous in their tastes," notes John Sicher, editor of Beverage Digest.
Considering the vast selection, that's understandable. Should you choose Odwalla's Think Drink, packed with gingko biloba and Lions Mane Mycelium? Or Arizona RX Stress Relief Elixir, including ginseng and kava-kava? What about Visionade, which claims to help prevent blindness? All these could turn out to be a fad--New Age snake oils for people who don't realize they're just downing a different kind of sugar water. But as far as Pepsi is concerned, these alternative drinks are the real thing.
--With reporting by Collette McKenna/Atlanta