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Why the Soda Industry Is the Big Tobacco of Our Times

Soft drinks are a multibillion-dollar industry with a health-harming playbook straight from the cigarette companies.

Photo Credit: Marcos Mesa Sam Wordley / Shutterstock

The following is an adapted excerpt from the new book Soda Politics: Taking on Big Soda (and Winning)Copyright © 2015 by Marion Nestle and published by Oxford University Press. All rights reserved. Available for purchase from Amazon and IndieBound:

Coca-Cola, PepsiCo, and Dr Pepper Snapple are collectively Big Soda. The industry as a whole, however, is a massive enterprise involving thousands of companies and hundreds of thousands of people engaged in manufacturing beverage syrups or concentrates; in bottling, canning, preparing, or distributing finished products; and in selling soda cans, bottles, or fountain drinks to consumers everywhere in the world. Soda companies produce and sell the equivalent of nearly two trillion 12-ounce servings of fountain or packaged beverages every year.

In doing so, the companies engaged in this industry perform one or more of four distinct tasks: producing syrup, bottling or canning the drinks, distributing the syrup or drinks, or selling the drinks, bottles, or cans. Table 7.1 summarizes the supply chain for carbonated sodas.

Nearly 4,900 companies throughout the world are engaged in producing syrups or bottling sodas, and 1,350 of them are in the United States. Until recently, these companies could be divided neatly into two categories: those making syrup and flavor concentrates for packaged sodas or fountain drinks, and those engaged in bottling or canning the finished products. Coca-Cola, for example, was largely a syrup producer; it left the bottling almost entirely to franchise companies located everywhere sodas are sold. In 2009, however, PepsiCo bought out its North American bottlers, and Coca-Cola did the same the following year. In other regions, some bottlers continue to be separate companies. But producing the syrup controls the enterprise; every company further down the supply chain depends on getting syrup from the manufacturer.

Most finished soft drinks are sold directly to retailers. Nearly half of all U.S. sales are to supermarket chains and retailers such as Walmart and Target. The next-largest distribution channel is food service, which accounts for one-fifth of sales. McDonald’s, for example, is such an important customer that Coca-Cola has a special division for it. Then come convenience stores, drugstores, gas stations, and other such outlets, which collectively account for more than 10 percent of sales. Vending machines bring another 10 percent.

Even this brief description demonstrates that the soda business involves many companies with a vested interest in its success. The stakeholders in the soda business include the soda companies themselves, of course, but also those that supply sugar and other raw ingredients, make syrup, produce carbon dioxide, fabricate the cans and bottles, can and bottle the products, make dispensers and vending machines, deliver ingredients, and supply and service the factories, dispensers, and vending machines. Sodas help support the restaurants, convenience stores, grocery stores, sports facilities, and movie theaters that sell drinks to customers, as well as the advertising agencies employed to market the products and the media venues in which advertisements appear. A seemingly infinite number of individuals, nonprofit organizations, educational institutions, health and environmental groups, and business associations benefit from soda company philanthropy, partnerships, and marketing. Because all of these entities depend on sodas for their livelihoods or function, they constitute an unusually wide-ranging support system for Big Soda. Indeed, one of Coca-Cola’s guiding rules is to ensure that everyone who touches its products along the way to the consumer should make money doing so. This is a business strategy guaranteed to ensure deep and lasting devotion.

THE GLOBAL SOFT DRINK INDUSTRY

Although the two largest producers—and now bottlers—of sodas are American companies, this industry is decidedly global. In 2012, worldwide sales of all kinds of beverages (including bottled water) generated revenues variably estimated at from $200 billion to $800 billion, depending on the range of beverage products included in the analysis.

To see where international sales of sugar-sweetened beverages fit into this broad context, Table 7.2 lists the percent of total revenue generated by various categories of drinks.

Except for bottled water and diet cola, everything else on this list comes with added sugars. Together, sugary drinks account for 65 percent of worldwide sales of all beverages. According to one of the research firms tracking such things, the world’s three largest soft drink companies—Coca-Cola, PepsiCo, and Coca-Cola FEMSA (the Latin American partner)—generated $93 billion in sales in 2012, as shown in Table 7.3. This industry is famously profitable. These three companies averaged profits of 19 percent that year, but profits are now declining somewhat along with soda sales.

The international soft drink industry, according to business analysts, is moderately consolidated, mature (in the business sense), and highly globalized. Despite the dominance of Coca-Cola and PepsiCo, the remaining half of the global market is shared among countless small brands and private labels sold through supermarket chains such as Walmart in the United States and Sainsbury in the United Kingdom, or, in developing countries, in niche markets catering to local tastes. Consolidation is expected to increase as larger companies buy up the more successful smaller ones.

Reflecting the maturity of this industry, the number of companies involved in the business has been declining for years, and further declines are expected. Whereas sales of bottled waters, sports drinks, and energy drinks are increasing in industrialized countries, sales of sodas are falling. To compensate for this loss, soda companies are increasingly marketing to developing world economies. Although the United States, Canada, and Mexico together produce more than one-third of the world’s soft drinks, and European countries produce almost another third, the remaining third is shared among a great many other countries in which opportunities for sales expansion seem unlimited.

The United States may be the largest market for soft drinks, but other leading markets—notably those of China, Brazil, and Mexico—are middle-income countries. The soda industry expects future growth to derive from sales in those three countries as well as in India, Asia, and throughout Africa.

THE U.S. SODA INDUSTRY

In the United States, many of the companies engaged in beverage manufacturing belong to the industry trade group, the American Beverage Association (ABA). This association’s role, among others, is to promote the value of its member companies to the U.S. economy. The soda industry, it says, “has a direct economic impact of $141.22 billion, provides more than 233,000 jobs, and helps to support hundreds of thousands more that depend, in part, on beverage sales for their livelihoods.” Moreover, says the ABA, the companies and their employees pay more than $14 billion in state taxes and nearly $23 billion in federal business and income taxes, and contribute hundreds of millions of dollars to charitable causes. Although the ABA does not say so directly, its point is that any public health campaign to reduce soda intake will cost jobs and harm the economy. You may recall that cigarette companies set the standard for use of such arguments. But in promoting the value of their industries to the economy, neither considers the economic or personal costs of the diseases their products may cause.

This has been an adapted excerpt from the new book Soda Politics: Taking on Big Soda (and Winning). Copyright © 2015 by Marion Nestle and published by Oxford University Press. All rights reserved. Available for purchase from Amazon and IndieBound.

Marion Nestle is Paulette Goddard Professor in the Department of Nutrition, Food Studies, and Public Health at New York University, which she chaired from 1988-2003. She is also Professor of Sociology at NYU and Visiting Professor of Nutritional Sciences at Cornell. She is the author of Food Politics; Safe Food; What to Eat; Pet Food Politics; and Soda Politics. Her website is www.foodpolitics.com.

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