Bo Goodrich

Xuetao Shi
Econ 200 BA
Writing Assignment 1
23 October 2015
Article Title: The Decline of Big Soda
Source: Pasted Below but also: http://www.nytimes.com/2015/10/04/upshot/sodaindustry-struggles-as-consumer-tastes-change.html
Article Summary:
This article explores the change in US consumer preferences away from
carbonated soft drinks, how that change affects the consumption of these soft
drinks, and how that shift of preference affects the consumption of alternative
drinks (especially bottled water). Americans are turning away from sodas due to a
public perception that the article compares to the public perception of tobacco; That
its consumption is damaging to health. This change in public perception of soda can
be considered a result of the outspoken school and city campaigns on the impact of
the sodas caloric consumption in increasing obesity rates and the growing distrust
of artificial sweeteners. Because of this shift consumers have begun to consume
bottled water ever increasing rates (about 20% increase in consumption since
2007), while between 2007-2013 consumption per capita of soda dropped by 20%
nationwide. In response to this shift the large soda manufacturers have begun to
increase the number of products they produce (Coke at 700 vs. 400 in 2004),
especially in the growing markets of tea, sports drinks, and bottled water. The
change in consumption of bottled water is moving so quickly that the bottled water
industry is projected to overtake the soda industry in 2017.
Economic Analysis:
This article illustrates a real world example of what variables impact supply
and demand as well as the effect these changes have on the markets allocative
equilibrium as was learned about in chapter 3. As the article did not address any
price fluctuations in soda or water, so price will be assumed to stay constant (as
well as all other variables besides consumer preference and the predicted future
price of soda). Change in consumer preference to prefer consuming bottled water
shifts the demand curve to the right. At the same time as this change occurs the
firms that make up the soda industry see this increase in demand for bottled water
as an opportunity to offset the nearly equal decline in future price they predict in
soda as its consumption wanes. The suppliers therefore increase the number of
bottled water products they produce, shifting the supply curve to the right the same
amount that demand shifted to the right. These shifts combined cause the
equilibrium quantity to shift to a significantly higher level (to the right) while
maintaining the equilibrium price of bottled water as it was before.

The Market for Bottled

Water
S1
S2

Pric
e
P1 / P2

D2
D1
Q1

Q2

Quantit
y

The Decline of Big Soda

The drop in soda consumption represents the single

largest change in the American diet in the last decade.
OCT. 2, 2015
Margot Sanger-Katz
@sangerkatz
Five years ago, Mayor Michael A. Nutter proposed a tax on soda in Philadelphia, and the
industry rose up to beat it back.

Soda lobbyists made campaign contributions to local politicians and staged rallies, with help
from allies like the Teamsters union and local bottling companies. To burnish its image, the
industry donated $10 million to the Childrens Hospital of Philadelphia.
It worked: The soda tax proposal never got out of a City Council committee.
Its a familiar story. Soda taxes have also flopped in New York State and San Francisco. So far,
only superliberal Berkeley, Calif., has succeeded in adopting such a measure over industry
objections.
The obvious lesson from Philadelphia is that the soda industry is winning the policy battles over
the future of its product. But the bigger picture is that soda companies are losing the war.
Even as anti-obesity campaigners like Mr. Nutter have failed to pass taxes, they have
accomplished something larger. In the course of the fight, they have reminded people that soda is
not a very healthy product. They have echoed similar messages coming from public health
researchers and others and fundamentally changed the way Americans think about soda.
Scaling Back

Over the last 20 years, sales of full-calorie soda in the United States have plummeted by more
than 25 percent. Soda consumption, which rocketed from the 1960s through 1990s, is now
experiencing a serious and sustained decline.
Sales are stagnating as a growing number of Americans say they are actively trying to avoid the
drinks that have been a mainstay of American culture. Sales of bottled water have shot up, and
bottled water is now on track to overtake soda as the largest beverage category in two years,
according to at least one industry projection.
The drop in soda consumption represents the single largest change in the American diet in the
last decade and is responsible for a substantial reduction in the number of daily calories
consumed by the average American child. From 2004 to 2012, children consumed 79 fewer
sugar-sweetened beverage calories a day, according to a large government survey, representing a
4 percent cut in calories over all. As total calorie intake has declined, obesity rates among schoolage children appear to have leveled off.
The change is happening faster in Philadelphia than in the country as a whole. Daily soda
consumption among teenagers, a group closely tracked by federal researchers, dropped sharply
by 24 percent from 2007 to 2013, compared with about 20 percent for the country. Last
month, the city Department of Public Health reported a sustained decline in childhood obesity
over the last seven years.
Those reductions are not accidents. The soda tax didnt pass. But the debate about it, along with
a series of related city policies, helped discourage people from drinking soda.

The Philadelphia school district forbids the sale of sugary beverages in schools and
limits their availability in public vending machines. The city provides financial
incentives for corner stores to highlight healthy foods. And it sends educators into
public school classrooms to teach children about nutrition.

Philadelphia, which also has one of the countrys strictest menu-labeling laws, for two years ran
radio and television ads encouraging parents to think twice about serving sugary drinks to their
children.
Its a fight every day, and you just have to stick with it, said Mayor Nutter, who will leave
office in January. You cant give up, because its just really important.
But while Philadelphias enthusiastic attention has led to outsize results, soda consumption is
declining even in cities and towns that have not made big local investments in obesity prevention
and public health. The public health community has coalesced around an anti-soda message, and
health officials and industry experts agree that public attitudes about soda and consumer tastes
are shifting in ways that may be permanent.
The beverage industry continues to fight these shifts and especially to fight taxes on its
products. But it is also aware that after decades of selling a handful of popular, iconic products,
changing public attitudes are leading to a profound change in the nature of the business.
The New Tobacco

This summer, executives from the beverage industry gathered at the Harvard Club in New York
City. The annual event, hosted by the trade magazine Beverage Digest, featured speakers from
the three largest soda makers Coca-Cola, PepsiCo and the Dr Pepper Snapple Group along
with smaller upstarts, like SodaStream, the home seltzer maker company, and Talking Rain,
which makes no-calorie carbonated fruit drinks called Sparkling Ice.
Along the wood-paneled walls, croissants, fruit and silver urns of coffee were laid out. But the
hot drinks were largely ignored. The industrys rapidly expanding bounty was displayed in the
center of the room. In an array of ice buckets were Snapple Sorta Sweet, Squirt, Tropicana
Farmstand juices, Lipton Sparkling Iced Tea. In a back corner, attendees could make their own
lime-basil and coriander apple blossom sodas with a SodaStream machine.
Such events give companies a chance to show their stuff and brag about their successes, but there
was nothing bubbly about the atmosphere. This is an industry grasping to master the shifting
market.
As John Sicher, Beverage Digests publisher, put it in his blunt opening remarks: Its been a
really challenging decade. It would have been a lot rougher if not for bottled water.
As sales of the companies mainstay products have declined in the United States,
the companies have scrambled to offer new products better suited to consumer

tastes. Iced teas, sports drinks and flavored waters are smaller but fast-growing
segments of the beverage industry. Coca-Cola, for example, has nearly doubled the
number of individual products it offers, to 700 this year from 400 in 2004. And
companies are increasingly experimenting with smaller packages for sodas, for
which customers will pay a higher price per ounce. At the Harvard Club, there was a
7.5-ounce Pepsi minican, which promised real sugar instead of high-fructose corn
syrup, and a diminutive eight-ounce bottle of Sprite.

Theres consumers out there that dont want to consume too much, said Regan Ebert, the
senior vice president for marketing at Dr Pepper Snapple Group, in her presentation on how the
company markets its products to Hispanic audiences. The small cans, she said, do a good job of
solving that need for consumers.

Water Is Gaining on Soda

In explaining the disdain for sodas sometimes called C.S.D.s, for carbonated soft drinks
industry executives have noted that consumers these days seem more interested in healthier or
natural products. They are also frank about other attitude changes that are a threat to their
businesses. Obesity concerns may reduce demand for some of our products was the first risk
factor for Coca-Colas business and profitability listed in the companys most recent annual
report filed with the Securities and Exchange Commission. PepsiCo and Dr Pepper Snapple
name similar concerns.
Health and wellness is a major enduring trend, and each brand has to compete in that
environment, said J. Alexander M. Douglas Jr., president of Coca-Cola North America, at a

Goldman Sachs investor event in May. He described a secular decline in carbonated soft
drinks.
The changing patterns of soda drinking appear to come thanks, in part, to a loud campaign to
eradicate sodas. School cafeterias and vending machines no longer contain regular sodas. Many
workplaces and government offices have similarly prohibited their sale.
Bottlers are feeling the changes. Were losing, I would say, 1.5 to 2 percent of our business
every year, said Harold Honickman, the chairman of the Honickman group of companies, one
of the largest soda distributors in the mid-Atlantic region.
Mr. Honickman was an active opponent of the Philadelphia soda tax, though he said he might
have supported a national sugar tax: People are blaming a lot of the overweight on sugarsweetened beverages, but theres ice cream and cake, and everything else that adds to the
problem.
For many public health advocates, soda has become the new tobacco a toxic product to be
banned, taxed and stigmatized. Its clear that sodas calories contribute to weight gain and
obesity, but whether its impact is greater than that of other unhealthy foods has not been
conclusively demonstrated. Nevertheless, the change is already underway.
There will always be soda, but I think the era of it being acceptable for kids to drink soda all
day long is passing, slowly, said Marion Nestle, a professor of nutrition at New York University.
In some socioeconomic groups, its over. Ms. Nestles latest book, which will be published this
month, is called Soda Politics: Taking On Big Soda (and Winning).
The subtitle reflects her view that Big Soda is an enemy to be vanquished, and that the industry
is already losing ground to its public health foes. Though the sharpest declines are happening
among richer, white populations, Ms. Nestle said she expected that poor and minority customers
would also reduce their soda intake over time, just as tobacco declines occurred first among
educated consumers and then spread to a larger population.
In Philadelphia, city officials are proud that the recently published reductions in childhood
obesity seem to be affecting minority children, and not just white children. The prevalence of
obesity among African-American boys declined by 11.3 percent, compared with 8.1 percent for
all boys from 2006 to 2013.
Dr. Giridhar Mallya, who was until recently the director of policy and planning for the citys
health department, credits that change to the efforts of the public schools, which educate a
disproportionate number of minority children. Schools have overhauled menus, removed sodas
from vending machines and introduced nutrition education programs.
Donna Smith, principal of John Wister Elementary School in North Philadelphia, has been
promoting that change for years. Her school is in one of the poorest neighborhoods in the city

more than 96 percent of its students qualify for free lunches. When she started there, children
often came to school carrying shopping bags from local corner stores, full of chips and sodas or
sugary fruit drinks.
She arranged for classroom breakfast service and banned junk food. She went to the corner store
owners and asked them not to sell anything to children in the early morning. She sent letters
home. She told her teachers they could not eat snacks in front of their students. While schools
citywide have changed their vending machine offerings, her school has no vending machines at
all, just water fountains. She told her students she would do whatever it is going to take to get
you not to eat that junk.
Water on the Rise

The current anti-soda sentiment has the big soda makers worried. Even diet sodas are
experiencing a sharp decline in sales.
At the Beverage Digest conference, an entire presentation was devoted to the diet soda problem.
John Faucher, an analyst at J.P. Morgan, described the situation as a crisis. The health-conscious
consumers who chose diet sodas in the past have become increasingly suspicious of anything that
seems artificial. Concerns about the safety of artificial sweeteners run high, despite scant
evidence they are dangerous. As consumers increasingly see soda as a vice or a luxury, they
appear to be fleeing the category altogether.
People go toward diet, and then other, said Barry M. Popkin, a professor of nutrition at the
University of North Carolina, who has measured the calorie declines. Lately, he said, people are
simply switching to water.
Water has been the runaway success story of the industry. Gary A. Hemphill, an industry
consultant, projects that in 2017, water will surpass soda in sales and become the largest
beverage category in the United States.
Turning away from soda does not always mean making a healthy choice. A young
customer at a corner store in Philadelphia buys a fruity drink sweetened with highfructose corn syrup. Credit Jessica Kourkounis for The New York Times

Although the big three soda companies all sell bottled water, they are not that excited about the
trend. Bottled water is a less reliable line of business for them. Single-serving bottles of water,
like Aquafina from PepsiCo and Dasani from Coca-Cola, earn margins similar to those of soda,
but customers appear to have less brand loyalty to water brands than to Coke or Pepsi. Its harder
for the companies to compete in the grocery store, where low-margin companies that specialize
in water are able to price large multipacks much lower than the soda bottlers want to sell them.
Less Soda, Fewer Calories

The daily total of calories consumed by children is falling, thanks mostly to changing beverage
tastes.

Generally, these companies worry about holding on to customers. The companies

are expanding sales overseas, which has helped buoy their stock performance over
the period. But in the United States, they all worry about losing even nontraditional
drink sales to a competitor. Someone might be a die-hard Coke fan, but prefer
Snapple iced tea to Honest Tea, which is a Coca-Cola brand.

That anxiety may help explain the industrys vehemence about fighting soda taxes. The three
largest soda manufacturers have entered a voluntary agreement that requires each company to
reduce the total number of calories per person it sells by 20 percent by 2025. They have also
made investments in obesity research and have spoken about their commitment to offering
healthy choices.

Executives at all the companies are eager to point to their lower-calorie and all-natural products
as profitable lines of business. PepsiCo, for instance, often says that carbonated soft drinks
represent only 25 percent of the companys net revenue. But the industry still fights any public
policy efforts to discourage customers from consuming sodas. Thats existential, said Hank
Cardello, a former food industry executive who is now a senior fellow at the conservative
Hudson Institute.
But there is another existential threat that could be much more hazardous to the soda makers than
a tax. Historically, beverage preferences are set in adolescence, the first time that most people
begin choosing and buying a favorite brand. But the declines in soda drinking appear to be
sharpest among young Americans.
Kids these days are growing up with all of these other options, and there are some parents who
say, I really want my kids to drink juice or a bottled water, said Mr. Hemphill, managing
director of research for the Beverage Marketing Corporation. If kids grow up without
carbonated soft drinks, the likelihood that they are going to grow up and, when they are 35, start
drinking is very low.
Change at the Corner Store

When Mr. Nutter was fighting the soda tax battle, he kept a bottle of Mountain Dew and a
container with 17 teaspoons of sugar the amount in the bottle on the table in the center of
his office. It was a good conversation piece, he said, about the surprising number of calories in
a typical soda.
Who in their right mind would ever put this much sugar into something youre going to drink?
he said.
Now the soda and sugar are tucked away in a back closet of his office. During a recent
interview, he had to ask an intern to hunt them down.
A prop has been shelved, but the city does seem to have changed. On a recent afternoon, I visited
the Corner Food Market, a store in a poor, largely African-American neighborhood in North
Philadelphia. Fresh apples, peaches, lettuce and green peppers were displayed on a counter near
the front of the store, in bright green baskets provided as part of a grant program. Signs attached
to the shelves highlighted low-sodium canned goods and whole-grain products.
Rosaria Diaz, the stores owner, said the story of her customers beverage tastes could be seen in
nine refrigerated cases. At the back of the store were her most popular items small, sugary
fruit drinks called Little Hugs and the cheapest soda for sale made by the Philadelphia-based
private-label company Days Beverages. Next was the case of traditional sodas. And then came a
similar-size display of bottled waters with products sold by a dozen brands. Next fruit juices,
and then fruit punches and iced teas.

Taped on the glass refrigerator doors were signs warning customers about the calories contained
in the products inside. Did you know it takes 65 minutes of dancing to work off a bottle of
soda? one said. The signs are part of the healthy corner store initiative sponsored by the Food
Trust, a local nonprofit that works to promote nutritious food and coordinates closely with the
city. (Choose water! urged another, handwritten sign.)
Many urban residents do their shopping in corner stores, and the Food Trust certifies stores,
helping them find and sell healthier foods.
We dont do much with campaigns to decrease soda, said John Weidman, the organizations
deputy executive director. These guys have such small profit margins that you have to couch
everything in terms of, This will help your bottom line. In other words, the organization
doesnt urge stores to stop selling soda. Instead, he said, the goal is to nudge customers toward
healthier options, like water and low-fat milk. Its mostly about getting them to try healthier
alternatives, he said.
Ms. Diazs customers are not health-obsessed. At the front of the store, shelves were packed with
cakes and cookies. There were racks of chips, an array of candy bars and a popular freezer case
of ice cream. They eat a lot of sweets, she said. Tobacco products, too, are a big part of Ms.
Diazs business.
But Ms. Diaz said that fresh produce, a recent addition, had been a hit. She restocks twice a
week. And when it comes to beverages, she said water sales were picking up. When we opened,
we didnt have the flavored water, Ms. Diaz said. Now we sell a lot of them.
Hanif Tucker, 17, stepped in and bought a large bottle of Rock Creek soda to take home. But he
said he had cut down on his soda drinking, at the urging of his football coach. I used to just
drink straight soda all day, he said. He was especially fond of cream soda. I started slowing
down about two years ago. Now he estimates he has about two sodas a week, and drinks mostly
water and juice. They said too much soda isnt good for you, he said.