Diet Coke has trumped Pepsi.

In a historic shift for the beverage industry, Pepsi, long the No. 2 carbonated soft drink in the country, has fallen to third place in the category behind both Coke and Diet Coke. Beverage Digest reported today that Pepsi lost 0.4 share in 2010, falling to a 9.5% share of the category. Diet Coke controls a 9.9% share of the market, while brand Coke holds a 17% share. The move has been long been in the making -- Pepsi barely nudged by Diet Coke in 2009 -- but the brand wasn't able to turn the tide. John Sicher, editor and publisher of Beverage Digest, said Pepsi had held the No. 2 slot for decades.

The shift calls into question Pepsi's well-watched and ambitious Refresh Project strategy. The program, which launched in early 2010, saw the brand focus on doling out $20 million in grants to consumers, rather than run its traditional celeb-studded marketing campaigns. That year the brand also bypassed the Super Bowl, not running ads for the first time in 23 years. (During this year's Super Bowl, PepsiCo pitched its Pepsi Max brand.) Coke, by contrast, has advertised during the last five Super Bowls, after a nine-year hiatus.

"In the cola wars, the Refresh Project by itself isn't enough to market Pepsi's cola brands," said Mr. Sicher. "They need, in addition, more product-oriented advertising and marketing. I think that the 2010 results are probably a wake-up call for Pepsi."

Pepsi has maintained that Refresh Project has been a success, particularly on the local level. And it's expanding the program this year, with tweaks in the U.S. and launches in additional countries. But there has been little to show what impact, if any, the program was having on the bottom line, until now.

"[Refresh Project] has provided an unbelievable response," said Joe Jacuzzi, a Pepsi spokesman. "The fact of the matter is it's a long-term play."

Mr. Jacuzzi added that the company would be ramping up ad spending across its beverage portfolio by 30% this year. That will include new ads for Pepsi, Diet Pepsi and Gatorade. The company is also sinking $60 million into its sponsorship and integration with "X Factor," the Simon Cowell-created music competition that is meant to compete with "American Idol," which is sponsored by Coke.

"I don't think that we'd view this as a blow," Mr. Jacuzzi said, of Pepsi sliding to the No. 3 slot. "We're looking at our total position. Consumers want a wide range of products for a wide range of occasions. And we're in a great position to satisfy them with that. Today we're fighting a totally different battle on a much bigger battlefield than just colas, though we are completely committed to carbonated soft drinks."

Even so, its fallback marks another turning point in a battle so legendary that, in 1986, then-Pepsi CEO Roger Enrico penned a book titled "The Other Guy Blinked: How Pepsi Won the Cola Wars." The question now is whether the "other" other guy blinked.

The shift is even more interesting given that while trademark Coca-Cola has long outspent trademark Pepsi, Diet Coke's spending pales in comparison to brand Pepsi. Diet Coke spent $36 million on measured media in 2010, according to Kantar, while Pepsi spent more than triple that, at $114 million. Because of the Refresh Project, Diet Pepsi and Pepsi Max were often featured alongside Pepsi in ads last year. Wieden & Kennedy handles advertising for Coke and Diet Coke. TBWA/Chiat/Day is Pepsi's creative shop.

Diet Coke has been steady in its marketing approach. One of its key annual efforts includes partnering with The Heart Truth to raise awareness for women's heart health. It also has a campaign dubbed "Stay Extraordinary," which just introduced a new spot during the Academy Awards. The brand has advertised during the last five Academy Awards. "We're consistently focused on the core attributes and the core qualities of the brand, that's taste and style," said Dan Schafer, a spokesman for Coca-Cola. "And for the last several years we've had a real focus on sustained marketing behind assets like the Academy Awards."

Mr. Schafer said the team in Atlanta is basking in the accomplishment of Diet Coke's No. 2 status but is just further motivated to "keep on doing what we're doing."

The news is not just a major blow to PepsiCo financially, as Pepsi sold 45 million fewer cases last year, but also psychologically. The beverage portfolio has been in the midst of a restage, which has had its fair share of hiccups, since 2009. The news that Diet Coke has surpassed Pepsi as the second leading brand caps a nearly three-year period in which Gatorade has stumbled, Tropicana has weathered an ill-fated redesign and new logos have come and gone across the portfolio.

"We are worried about the morale implications for PepsiCo's beverage people of having the company's namesake brand and its top beverage brand dropped to a tertiary spot within its category at a time that a tangible sign of brand momentum for the core brands would help," wrote Credit Suisse analyst Carlos Laboy in a research note. "From our perspective, strong core brands for Coke, upgraded marketing and a better partnership model will feed nutrition and innovation with lower risk and higher rewards to investors."

Mr. Laboy recently downgraded PepsiCo, saying "there is no U.S. beverage category problem, just a Pepsi problem."

"It took decades to get [Pepsi] to No. 2, and it is risky that PepsiCo cannot avert this slide, while brand Coca-Cola holds it together, Diet Coke rises and Coke Zero continues to play its role well," Mr. Laboy said. "Sure a Pepsi Max relaunch looks brilliant, but the core is ailing."