The next chapter in the cola-marketing wars could be influenced as much by science labs as TV commercials.
PepsiCo, in collaboration with San Diego-based biotech firm Senomyx, is in the late stages of developing a "taste modifier" that would essentially fool taste buds into thinking they are getting more sugar than delivered. The ingredient, which is called "S617" and still requires regulatory approval, would theoretically allow for PepsiCo to lower the amount of sugar and high-fructose corn syrup in full-calorie beverages such as regular Pepsi, while keeping the same sweet cola taste.
Coca-Cola, meanwhile, continues to experiment with steviol glycosides, which are the sweet, calorie-free extracts from South American stevia plants. The first cola version, called Coca-Cola Life, was launched in Argentina in the summer. In the U.S., the company is examining results from a recent test market of stevia-infused line extensions Sprite Select and Fanta Select.
New formulations could potentially serve as the basis for future advertising efforts for both companies, while providing shelter from health critics and politicians who blame soda for the nation's obesity epidemic. The negative attention has hurt sales: Soda consumption continues to fall. Last year it declined 1.2%, which brought the category to 1996 levels, according to Beverage Digest.
It could also help them better compete in the latest cola battleground: midcalorie sodas, which contain some, but fewer, calories than regular sodas. "Getting new sweetener technology appears to be absolutely critical," said John Sicher, editor and publisher of Beverage Digest. "Whether these companies can get natural sweeteners that bring the calories way down and preserve good taste is really going to be what people are looking for over the next year or two."
A recent Senomyx earnings statement heightened speculation about PepsiCo's plans. It said that regulatory filings for S617 are "on track" and that it anticipates that the ingredient will be introduced into products in 2014. The company also works with food and flavor companies, so it's possible that the launch might not involve PepsiCo. But Senomyx is wedded to the soda marketer through a four-year, $30 million deal struck in 2010 aimed, according to a press release issued at the time, at commercializing "sweet enhancers and natural high-potency sweeteners" in order to launch "lower-calorie, great-tasting PepsiCo beverages." (The pact includes an additional $32 million in "committed research and development payments.") Senomyx expects to book about $30 million in revenue for 2013.
PespiCo CEO Indra Nooyi on an October earnings call hinted at products coming to market in 2014, adding that "we are staying on the path of innovating along natural sweeteners and thinking about flavoring agents to make sugar taste more sugary." A PepsiCo spokesman told Ad Age that the company is pleased with Senomyx's progress.
"There is a greater than 50% chance that S617 is a part of PepsiCo's plans," Janney Capital Markets analyst Jonathan Feeney told investors in a recent note. Mr. Feeney, who covers Senomyx, also said that PepsiCo's "commitment to rejuvenating its large [carbonated soft-drink] platform suggests that [S617] would likely be marketed on a scale that could drive significant upside" to Senomyx's stock shares. Still, he noted that it is possible PepsiCo could change its product plans or include a competing ingredient.
PepsiCo's last significant cola-formula change occurred in late 2012 when the company tinkered with the artificial sweetener in Diet Pepsi, adding a second sweetener called acesulfame potassium, or ace-K, to the existing sweetener, aspartame. The change, which was aimed at keeping the sweetness at a consistent level, was accompanied by a major ad campaign called "Love Every Sip" starring Sofia Vergara.
Senomyx's S617 would seem geared toward use with drinks such as regular Pepsi or Pepsi Next because its purpose is to "restore the desired taste profile" of products whose levels of sucrose (sugar) and high-fructose corn syrup have been reduced, according to the company's website. (Diet Pepsi does not have sugar.)
Senomyx has deals with other food and ingredient companies including Nestlé and Firmenich, a Swiss flavor and perfume company that is in on the "sweet taste program" along with PepsiCo. Senomyx has several taste modifiers already in market, including S6973, which is designed to improve taste in products for which sucrose (table sugar) has been reduced, such as baked goods and powdered beverages. The company worked with Coca-Cola from 2002 to 2010, S6973, which is designed to improve taste in products for which sucrose (table sugar) has been reduced, such as baked goods and powdered beverages. The company worked with Coca-Cola from 2002 to 2010, but nothing was brought to market, according to a Coca-Cola spokeswoman. Coca-Cola moved on to collaborate with life-sciences company Chromocell. The New Brunswick, N.J. company's website describes its flavor programs as using "natural cells expressing native human taste receptors to discover novel flavor substances, with a focus on natural compounds." A Coca-Cola spokesman declined to elaborate on specifics.
Jonas Feliciano, a beverages analyst for Euromonitor International, said that leaning too much on complicated chemistry might carry risks as more consumers gravitate to raw, natural and organic products. Modern consumers are concerned about more than calories, he said in a statement. "Beverages innovations perceived as being made in a laboratory carry a stigma that may prove difficult when attempting to lure back lost customers."
On the October earnings call, Ms. Nooyi pointed to a recent plunge in diet drinks. "People say they don't want artificial sweeteners. They want natural sweeteners. They don't mind some calories. They want to go back to sugar in some cases."
Senomyx's S617 would seem to allow for that. The company estimated last year that it would allow for a reduction of as much as 35% of the high-fructose corn syrup and up to 50% of sucrose in prototypes.
Notably, S617 has gotten cautious support from the Center for Science in the Public Interest, a health-advocacy group that is a frequent critic of big food and beverage companies. "If they cut the sugar in half with this stuff, that's huge," said CSPI Executive Director Michael Jacobson.
While CSPI has not yet examined the research on S617, Mr. Jacobson said he thought one reason why it could be safe is that it would be likely used at low levels.
CSPI has petitioned the FDA to place a mandatory limit on added sugar in beverages, blaming soda and other sugary drinks for obesity, diabetes, heart disease and other health problems. The petition, filed in February, cites Senomyx's products as among the emerging technologies that "should make it increasingly easy to reformulate soft drinks in ways that preserve taste and reduce the added-sugars content."
To date, the biggest product response in the U.S. has come in the form of so-called midcalorie sodas such as Dr. Pepper Ten 10 and Pepsi Next, which have been supported with major marketing campaigns. The drinks are made from a combination of low-calorie sweeteners and lower levels of regular sugar.
Coca-Cola's alternative sweetener of choice has been stevia, which has the benefit of a natural image. It is typically blended with smaller amounts of regular sugar to improve its taste. Since 2008, Coca-Cola has introduced more than 45 products sweetened with stevia in 15 countries. Coca-Cola Life hit Argentina stores in June and is supported with green-colored packaging.
PepsiCo also has used stevia, putting it in orange juice, enhanced water and carbonated soda, although it has yet to introduce a stevia-sweetened soda in the U.S. Coca-Cola test-marketed stevia-sweetened Sprite Select and Fanta Select in a handful of cities, trying a couple different formulas, including one with 50% fewer calories than the regular brands and another at 33%. "Those tests have concluded, and we are currently assessing the test data to determine if these support our brand and business needs," a Coca-Cola spokeswoman said.
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