Strategy: Analyst says Pepsi is 'falling victim to media hype' as soda sales plummet (PEP, KO)

Americans are drinking less Pepsi and Coke than ever — but the death of soda isn't happening any time soon.

Americans may be drinking less Pepsi and Coke than ever before, but the death of soda isn't happening anytime soon.

In 2016, US soft drink consumption by volume dropped for the 12th year in a row, according to trade publication Beverage Digest. Instead of soda, Americans are drinking more bottled water, energy drinks, and coffee.

As a result, Coca-Cola and PepsiCo are increasingly investing in the development of new drinks such as sodas packed with fiber, premium water, and bottled coffee.

"Generating growth today can be like assembling a jigsaw puzzle," Duane Stanford, Beverage Digest's executive editor, said at the publication's Market Smarts conference in New York City on Monday.

While both PepsiCo and Coca-Cola are adding new brands to the lineup, Pepsi has been especially proactive in moving beyond soft drinks. In April 2016, the company announced that less than 25% of sales were from soda, as the company invests in snacks and non-carbonated soft drinks — something some analysts say has been to the detriment of Pepsi's sales.

"I think [Pepsi] is falling victim to media hype" in its soda strategy, RBC Capital analyst Nik Modi said on Monday. Soft drink sales "are growing when you do the right thing... It's about the relevancy of the brand."

Coca-Cola's president of North America, Sandy Douglas, made a similar point. While Coke's soft drink sales by volume have continued to drop, the company's soda sales have actually increased in 28 of the last 29 years.

"Recognizing the shift as an industry, we've been reshaping our growth model — all of us — to be more focused on value, or dollars," Douglas said. "Rather than growing volume, [Coca-Cola is] growing the amount the consumer is willing to pay, instead of how much we're asking them to drink."

Coca-Cola has managed to increase sales by selling smaller bottles of soda that cost more per ounce than traditional bottles and cans.

Modi, along with Goldman Sach's Judy Hong and Wells Fargo's Bonnie Herzog, said on a panel on Monday that they believed Coca-Cola's soft drink strategy is trumping PepsiCo's current plan of action. Coca-Cola has been gaining market share in soft drinks while PepsiCo has been losing share.

In 2016, the amount of Pepsi (the brand) purchased by volume decreased 5.3% in comparison to all beverages. In the same period, Coke dropped 1.5% by volume. Modi went as far as to say that the company had "given up" on the category — a claim Pepsi contested.

PepsiCo has made some major investments in carbonated drinks, including new lower-calorie IZZE soft drinks and sponsoring the 2017 "Pepsi Zero" halftime show.

"Our mission is to perform while we transform, which is why we continue to invest and innovate across our entire portfolio, including on CSDs," or carbonated soft drinks, a PepsiCo spokesperson said in a statement to Business Insider.

Ultimately, both PepsiCo and Coca-Cola performing a balancing act in 2017.

Drinks such as bottled water, coffee, and energy drinks are creating some of the biggest growth opportunities in the business. At the same time, increasing soda sales, even as volume continues to drop, is a multi-million dollar requirement for both PepsiCo and Coca-Cola — and both beverage companies know it.

Americans are drinking less Pepsi and Coke than ever — but the death of soda isn't happening any time soon. Read Full Story