Coca-Cola Launches Vanilla Flavoured Soft Drink

Marketing chiefs at Coca-Cola's head office in Atlanta are said to be working on a vanilla-flavoured version of its core soft drink, described as the biggest innovation in the world's most valuable brand in almost 20 years.

The plans are the first fruits of an attempt to put some fizz back into Coke. The brand and the wider business have suffered a lacklustre couple of years, largely because of a morale-sapping internal re-organisation of the company.

Its arch-rival in the cola wars, Pepsi-Co, has been grabbing the headlines in the interim. The soft drinks group last week wrested the sponsorship of the US national football league from Coke for $160m, and edged out its rival for the contract to supply United Airlines - the second largest airline in the country.

During the Super Bowl, a day when the advertising is as scrutinised and debated as much as the game, Pepsi scored a touchdown with singer Britney Spears dressing up for a trip through the brand's best-known commercials from the 1950s onwards. Ms Spears plans to open a restaurant in mid-town Manhattan, and talks are no doubt under way to ensure that she avoids the glaring publicity blunder of serving Coke.

The Coca-Cola group lost 0.4% of crucial US market share, falling to 43.7% last year; it also suffered a 0.2% fall in sales, according to trade magazine Beverage Digest. Pepsi-Co gained 0.2% of market share, giving it 31.6% of the US soft drinks market and sales up by 1.3%.

Pepsi's gloves are clearly off. The five-year sponsorship with the NFL - the leading televised sport in the US - displaced Coke after 19 years. Pepsi is said to have offered more money than Coke, agreed to more NFL-themed marketing and promotion and a bigger ad spend.

In Britain Pepsi has swooped on probably the best-known sporting celebrity in the country, David Beckham, who is likely to spearhead a campaign tied to the World Cup. But as Coke backs the England football team, he will likely appear in its promotional material as well.

Coke attempted a broad restructuring during the mid-1990s and began to devolve more power to local divisions. The results were poor, with many marketers said to be uncertain of which direction to pursue without the former strict guidelines from Atlanta - causing a number of key personnel to quit.

The company is now rebuilding its central functions, although it aims to stop short of a return to the rigid control from Atlanta. An attempt to develop global advertising campaigns using the "Life tastes good" slogan was not judged to have been a success.

Reports of the development of vanilla Coke have appeared in two of the publications closest to the company - the Beverage Digest and the Atlanta Journal.

Coke has declined comment. The stewards of a brand as mighty as Coke don't make changes without a great deal of consideration beforehand. The last time a new flavour - cherry - was introduced was in 1985. And lingering in the back of their minds is the disastrous relaunch of New Coke, some 16 years ago.

Things have begun to look up for Coke. The group was buoyed up by its sponsorship of the Winter Olympics, an event that gained surprisingly good ratings in the US. A lemon-flavoured version of Diet Coke, launched last year, also proved popular. Last week, the group raised its sales forecasts for the first quarter to between 4% and 5%, and it expects to have regained momentum in North America.

Coke's shares are at half the level they were in 1998 but have rallied since the beginning of the year. They have climbed from $44 to almost $53. The emphasis on new brand development and the fresh shake-up in Atlanta have impressed Wall Street, and both Credit Suisse First Boston and Lehman Brothers raised their ratings on the group last week.

Over the past 12 months, the Pepsi share price has enjoyed a steady growth from $41 to $51.50.

But while the two companies slug it out for dominance in the cola market with ever-increasing marketing budgets, they are slowly being forced to confront an uncomfortable truth.

In the US, at least, there is little or no growth to be had in the cola market without some innovation.

Sales of both the core Coke and Pepsi cola brands have been faltering in recent years. Coke volumes fell by 2% last year and Pepsi dropped by 2.8%. The diet versions of both colas improved sales, but not by enough to make up the deficit.

With consumers becoming more health conscious, sweet fizzy stuff is losing share to plain old bottled water. But even there, Pepsi has been more nimble. It was faster to spot the growth than its competitor and is ranked number two in the US bottled water market after Perrier. Coke lies third.

Top 10 soft drinks in the US, 2001

Product Share Change

1 Coke Classic* 19.9% -0.5%

2 Pepsi-Cola** 13.2% -0.4%

3 Diet Coke* 8.8% +0.1%

4 Mountain Dew** 6.9% -0.3%

5 Sprite* 6.5% -0.1%

6 Dr Pepper*** 6.2% -0.1%

7 Diet Pepsi** 5.3% flat

8 7Up*** 1.9% -0.1%

9 Caff free Diet Coke* 1.7% flat

10 Barq's root beer* 1.1% flat

*Coca-Cola

**Pepsi-Cola

***Cadbury Schweppes