Trends in U.S. soft drink consumption - demand implications for low-calorie and other sweeteners - U.S. Dept. of Agriculture, Economic Research Service report

Abstract: The U.S. soft drink industry is the largest single industrial user sweeteners.

Growth in soft drink demand, especially for diet products, has pulled the use of

sweeteners, primarily low-calorie sweeteners. Regular or caloric soft drink demand is also

growing, but at a slower pace. During the 1980's high fructose corn syrup (HFCS) was

substituted for sugar in regular soft drinks largely because of price. Prospects for continued

growth of soft drinks during the 1990's are good. Total use of sweeteners in soft drinks is

also expected to be up significantly by the turn of the century. Less certain is the

composition of sweeteners; reflecting use of low-calorie sweeteners not yet on the market,

substituting aspartame for HFCS, and blending various sweeteners.

Keywords: Soft drinks, low calorie sweeteners, aspartame, HFCS, sugar

Introduction

The U.S. soft drink industry is the largest single industrial user of sweeteners (high fructose corn syrup [HFCS], low calorie sweeteners, and sugar). Soft drink consumption in the United States is currently at record levels and prospects for continued growth during the 1990's are good, especially for the diet sector. U.S. soft drink consumption in 1990 totaled 47.4 gallons per person or 26.0 percent of total beverage disappearance. This contrasts sharply with 1980 and 1970 when soft drink consumption was estimated at 34.1 and 22.7 gallons per person, respectively (figure D-1). Much of the nearly 40 percent growth in per capita soft drink use during the 1980's was spurred by the expansion of diet products sweetened with low-calorie sweeteners, primarily aspartame. Volume growth in the regular (nutritive or caloric) soft drink market was less dramatic. But the sweeteners used in regular soft drinks changed significantly as bottlers, to a large degree, switched from sugar to HFCS. Prospects are strong that the 1990's will also be a decade of continued growth as well as change. Higher per-capita soft drink use levels are forecast for the expanding U.S. population that is expected to top 268 million by the year 2000. Moreover, changing sweetener price structures, the availability of new sweeteners, and opportunities for increased blending of sweeteners, illustrate why the soft drink market should continue as the pace setter for aggregate sweetener demand in the United States. However, the mix of sweeteners demanded is likely to be different.

Soft Drink Market--Recent Developments and Current Situation

According to the Beverage Industry report, soft drink sales increased 3.0 percent in 1990 over the preceding year (2, 11, 19).(2/) Nearly all of the sales growth came from diet and caffeine-free products, up 8.9 percent and 15.9 percent, respectively, over 1989. Without diet products, 1990 sales would have been up less than 1 percent. Total soft drink case volume for 1990 is estimated at 7.9 billion cases with diet soft drinks accounting for 29 percent or 13.9 gallons per capita (table D-1).(3/) Examining soft drink statistics over time provides some signposts as to the direction the market will likely take in the 1990's and in turn the demand implications for sweeteners.

* 1970's--Diet Stagnates, Regular Flourishes. America,

during the 1970's, had a soft drink market which grew at

an average annual rate of 4.9 percent per year. The

decade began with per capita soft drink use at 22.7

gallons (3.1 billion cases) and ended the decade at 33.3

gallons per capita (5.0 billion cases). Regular soft drinks

sweetened with sugar accounted for much of this growth.

Diet usage declined initially, as the Food and Drug

Administration's (FDA) ban on cyclamate in late 1969

left saccharin as the only low-calorie sweetener for soft

drinks. The sector rebounded later in the decade because

of consumer acceptance of reformulated diet soft drinks

(table D-1). * 1980's--Diet Expands; Regular Growth Slows. In the

1980's, the total soft drink market increased an average of

3.5 percent annually, but the diet sector jumped nearly 11

percent per year. Per capita soft drink use began the

decade at 34.1 gallons, and ended the decade at 47.5

gallons, a 39 percent increase (table D-2). During the last

decade U.S. population grew by 25 million to 250 million. Regular soft drinks sweetened primarily with sugar in the early 1980's, then HFCS after 1984, increased from 29.2 gallons per capita in 1980 to 33.6 gollons in 1990. Diet expansion was even more dramatic, jumping from 4.9 gallons per capita in 1980 to 13.9 gallons in 1990. Growth was particularly strong after 1984 when the low-calorie sweetener, aspartame, was approved by FDA for use in soft drinks. Bottlers found that consumers readily accepted aspartame. This, coupled with increased emphasis during the 1980's on diet or "light" foods and beverages, helped spawn the growth of a revitalized diet soft drink market (figure D-2).

Sweeteners in Soft Drinks--Composition and Use Levels

USDA estimates that in 1990 the soft drink industry was the largest market for sweeteners, utilizing an estimated 6.1 million short tons. This included 4.3 million tons of HFCS, about 1.6 million tons of low-calorie sweeteners, sugar-sweetness equivalent, and 0.2 million tons of sugar.(4/) This compares with an estimate for 1980 of 3.7 million tons of total sweeteners comprised of 1.7 million tons of sugar, 0.9 million tons of HFCS, and 1.1 million tons of low calorie sweeteners, sugar-sweetness equivalent. As indicated by these estimates, there was a two-thirds increase in total sweetener use as well as a significant change in sweetener composition.(5/) According to Marow and Dowling about 10 percent of the weight of a typical soft drink is sweetener (10). The major ingredient in a carbonated beverage is water, which is close to 90 percent of weight. Other ingredients, less than 1 percent, are typically flavor, acid (citric or phosphoric), color, carbon dioxide, and sometimes a preservative (sodium benzoate).

Sugar and HFCS in Soft Drinks. Typically, the traditional level of sugar used to sweeten a soft drink has been about 0.80 ounces of sugar per 8 ounce container. A soft drink sweetened with HFCS requires about 0.88 ounces of HFCS.(6/) Regular soft drink consumption levels at 4.4 billion cases in 1980, translated into approximately 2.6 million tons of sugar and HFCS disappearance. USDA reported that in 1980, sugar deliveries (assumed to be equivalent to consumption) to the entire beverage industry totaled 2.1 million tons, refined, of which soft drinks took an estimated 80 percent or 1.7 million. In addition, 870,000 tons of HFCS were utilized by the soft drink industry. By 1985, sugar deliveries to the beverage industry had dropped to only 340,000 tons, while HFCS jumped to 3.7 million tons (table D-3). This was the first full year after major soft drink bottlers announced their shift to 100 percent HFCS. Since 1986 sugar use in beverages has stabilized at between 210,000 and 270,000 tons annually. Sugar is still used for soft drinks, mainly for kosher needs, on a spot basis when HFCS is in short supply, and in Hawaii where locally grown sugar is less expensive than shipping HFCS from the mainland. Currently, HFCS is the predominant national sweetener of choice in regular soft drinks. While corn sweeteners have long been a part of the total U.S. sweetener picture, they played a modest role relative to sugar prior to 1980. In the late 1970's and early 1980's, high sugar prices and improved enzyme technology made the conversion of corn starch to a fructose syrup sweetener economically viable. The first product developed was HFCS-42 (42 percent fructose), and soon thereafter HFCS-55. As HFCS quality and process technology advanced, corn sweetener producers lowered prices to give sugar users in the soft drink industry an incentive to switch. However, the soft drink industry could not switch fully to HFCS until there was sufficient production capacity and the means to deliver the product. In November 1984, major U.S. soft drink companies announced that 100 percent HFCS was going to be used in their products(24). In 1980, combined HFCS-42 and HFCS-55 shipments to soft drink manufacturers were only 870,000 tons. This increased to 2.3 million tons in 1983 reflecting the partial shift from sugar to corn sweeteners, and jumped to 3.7 million in 1985. Since 1985, total HFCS shipments have increased from 3.9 to 4.3 million tons. In large part, this recent modest rate of expansion reflects slower growth in the regular soft drink market (figure D-3). Assuming nearly all 5.6 billion cases of regular soft drinks consumed in the United States in 1990 were sweetened with HFCS, total use would be estimated at 4.3 million tons (table D-3).(7/) This represented 68 percent of total HFCS used in the United States in 1990.

Low-Calorie Sweeteners in Soft Drinks. As the demand for diet soft drinks has grown in recent years, it has pulled up the use of low-calorie sweeteners. While there has been a proliferation of new diet or "light" foods, the diet soft drink industry continues to be the leading market for low-calorie sweeteners. As of September 1991, saccharin and aspartame are the only FDA-approved low calorie sweeteners available to U.S. bottlers of diet soft drinks.(8/) As mentioned earlier, prior to its ban in October 1969, cyclamate was the leading diet sweetener. According to the beverage industry, cyclamate and saccharin-sweetened drinks held 12.1 percent of the market in 1968. In 1970, volume dropped 20.5 percent and low-calorie's share of the market shrunk to 6.7 percent.(9/) After 1970 and through 1983, saccharin was the only low-calorie sweetener available. Largely because of aspartame's taste advantage over saccharin, FDA's 1983 approval of the new sweetener for use in soft drinks was followed by a rapid switch from saccharin to aspartame as the leading diet sweetener of choice.(10/) The substitution has been maintained, even though aspartame has remained much more costly than saccharin.(11/) On a cents-per-pound sugar-sweetness equivalent, saccharin currently costs about 1.0 cent whereas aspartame costs about 28 cents. A typical diet soft drink contains about 123 milligrams of aspartame per 8-fluid-ounce serving or 2.94 grams per 192-ounce case (5.4 liters or 5.443 grams). According to soft drink industry analysts, diet drink sales of 2.3 billion cases in 1990, would translate into total aspartame usage of 6.9 billion grams or 15.1 million pounds.(12/) Re-defined in sugar-sweetness equivalent, aspartame use would equal 2.74 billion pounds or 1.4 million short tons. This compares with 1985 data of 1.5 billion cases of diet soft drinks, which translates to 880,175 short tons of aspartame, a 55.3 percent increase over the 5 year period.

Prospects for the Future--Soft Drinks and Sweetener Requirements

Recent trends suggest American consumers are likely to continue expanding their use of soft drinks during the 1990's. One noted market analyst recently forecast total U.S. soft drink consumption to reach 60 gallons per capita (10.7 billion cases) by the year 2000, up from 47 in 1990 (22). Diet soft drink consumption is foreseen growing by 4 to 5 percent per year during the 1990's, compared with 1 to 2 percent growth for regular soft drinks (figure D-4). While analysts agree on the direction of aggregate growth, the mix of soft drink expansion between diet and regular is difficult to predict, as does the composition of sweeteners needed to serve that growth. An important signpost to future change could be on the horizon. The potential exists for soft drink manufacturers to substantially lower costs by switching to generic aspartame, either domestically produced or imported from the Far East, once the NutraSweet Company's patent expires in December 1992. Currently, branded aspartame is selling for about 28 cents a pound, sugar sweetness equivalent. According to a recent engineering study, the cost of producing aspartame is around 10 cents. Given that HFCS sells for around 18 cents per pound, it is possible price competition will develop and substitution will occur. One long-time observer of the sweeteners market suggests several reasons why substitution is likely(5).

* Sugar was replaced by HFCS on the basis of price,

wholesale refined beet sugar sold for an average of 23

cents a pound in 1985, while HFCS-55 sold for 20 cents.

The potential exists for aspartame to do the same to

HFCS if its price drops below HFCS. * Manufacturers make choices in an industry that is highly

competitive. Costs on 6 billion cases of diet drinks could

be lowered $700 million per year with an 8 cents per

pound decline in sweetener prices. * Currently there is widespread consumer acceptance of

aspartame in diet soft drinks. * Consumers' tastes change over time, with help from

industry. * The switch would reduce calories, which would not be

difficult to sell to consumers. Arguments against substitution (15):

* Aspartame came off patent in Canada in 1986, and today

regular soft drinks still have 70 percent of the market. * Significant taste differences exist, and loyalty is not

quickly transferred. * Diet soft drinks and regular soft drinks are two separate

products and do not compete on the basis of price. * New sweetener alternatives for soft drinks may include

sucralose (600 times sweeter than sugar); acesulfame-K,

(200 times sweeter than sugar); and alitame, (200 times

sweeter than sugar).(13/) It is possible bottlers will pay

more for these alternative sweeteners, if the quality is

superior.(14/) * The cost of sweetening an 8 ounce can of soda is less than

0.5 cents, therefore quality factors are likely to override

price advantages. Projections to the turn of the century for soft drink industry growth suggest its sweetener demand will be up significantly. However, both the aggregate level of usage and the composition of that demand among sweeteners is difficult to judge. While it appears unlikely sugar will regain the market it lost to HFCS in regular soft drinks--HFCS still maintains a price advantage over sugar--some substitution of the HFCS market by lower priced aspartame appears plausible. Less certain is the composition of low-calorie sweetener demand among approved ingredients such as aspartame and saccharin and yet-to-be-approved ones for soft drinks such as acesulfame-K, sucralose, alitame, or a re-approved cyclamate. It is possible the focus of future change will be the competition for diet market share among the low-calorie sweeteners available to the soft drink industry during the 1990's (6). In addition, the prospect of expanded sweetener blending, spurred by efforts to optimize costs, enhance taste, and utilize other qualities, is another aspect of the market where change could be significant (7, 14, 25).(15/) All in all, the 1990's are likely to be a challenging decade not only for the soft drink industry, but also for those marketing sweeteners, buyers of ingredients, and analysts attempting to gauge the direction of the market. [Table D-1 to D-3 Omitted] [Figure D-1 to D-4 Omitted]

(1/)William Moore is an economist in the Sweeteners Analysis Section, Peter Buzzanell is Leader, Sweeteners Analysis Section, Commodity Economics Division. (2/)John Maxwell Jr., Wheat First Securities is the director of research and statistics for Beverage Industry. (3/)Soft drink industry data is presented in cases of 24 cans or containers of 8 ounces each equal to 192 fluid ounces. (4/)Of the currently FDA approved low-calorie sweeteners saccharin is 300 times sweeter than sugar, and aspartame is 180 times sweeter (cyclamate is 30 times sweeter than sugar). (5/)The low-calorie sweetener estimate for 1980 uses saccharin as the sole sweetener. In 1990, the estimate uses only aspartame, although there is an undetermined quantity of saccharin used in fountain syrups and concentrates produced for soft drink bottlers. (6/)Cola type soft drinks are used as the standard. Amounts of sugar or HFCS needed to sweeten lemon-lime, other fruit flavors, root-beer, or ginger ale vary. (7/)Note that in 1990 about 90 percent of the HFCS-55 deliveries were to soft drinks, while 42 percent of HFCS-42 went to soft drinks. In 1980, these shares are estimated at 94 percent and 18 percent, respectively. (8/)The low-calorie sweetener acesulfame-K is approved for soft drinks in parts of Europe and sucralose has recently been approved in Canada. (9/)In several diet brands, cyclamate and saccharin were blended in a 10:1 ratio, with each of the sweeteners supplying half of the sweetness. The cyclamate/saccharin blend was synergistic--meaning the sweetnesses are multiplied. This has the effect of lowering any bitter aftertaste that can be found when using a single low calorie or high intensity sweetener. (10/)According to industry research, saccharin alone in beverages tends to have a somewhat bitter aftertaste. (11/)Bottlers reportedly paid 45 cents a pound, sugar sweetness equivalent, when aspartame was initially introduced in soft drinks. (12/)According to an industry source, 20 percent of all aspartame used in soft drinks are in fountain drinks. There is one fifth the amount of aspartame in a 8 ounce serving of a fountain drink as there is in a can of diet soft drink. (13/)All three low-calorie sweeteners have petitions before the FDA for use in soft drinks. (14/)Quality advantages could include improved stability at high temperatures and longer shelf-life, solubility, and no adverse interactions with other soft drink ingredients. (15/)If or when the FDA reapproves cyclamate, at a technologically desirable use level. The cyclamate/saccharin mixture has the potential to become a formidable competitor with aspartame and other low calorie sweeteners, both on a price and relatively aftertaste free basis in the 1990's. Although the current petition limits cyclamate use to a lower ADI, than before 1970.

References

[1]Bakal, Abraham I. "Mixed Sweetener Functionality," Alternative Sweeteners, Marcel Dekker Inc. Publishers, New York, 1986 pp 325-346. [2]Beverage Industry. Annual Manual, various issues. [3]Business Week. "Graying of the Soft Drink Industry," May 23, 1977. [4]Calorie Control Council. National Diet Survey, 1990. [5]Cromarty, WIlliam. Aspartame, Presentation to the Canadian Industrial Sweetener Users, Sweetener Symposium, Toronto, Ontario, Canada, October 12, 1988. [6]F.O. Licht's International Sugar and Sweetener Report. "U.S. Sugar Consumption in the Past Two Decades", Vol. 123, No. 27, August 30, 1991, pp. 435-439. [7]Gelardi, Robert. Low Calorie Sweeteners Outlook Presented to the Sweeteners Session Outlook 1991, U.S. Department of Agriculture, Washington, DC, November 28, 1990. [8]Ghazaii, Amir. "Sweetening the Pot," Food Additives, June 3, 1991. [9]Harvey, David. "Changes in the Demand Pattern for Sugar," Sugar and Sweetener Report SSRV13N1, ERS/USDA, March, 1988. [10]Marow, G.J., and Dowling, J.F. "Sugar in Beverages," Sugar--A Users Guide, Van Norstrand Reinhold Publishers, New York, 1990. pp 182-211. [11]Maxwell Consumer Report, "Update on Sugar, HFCS and Other Sweeteners," January 9, 1991, Wheat First Securities. [12]Meyer, Jesse. Beverage Outlook, Annual Calorie Control Council Meeting, Tucson, Arizona, November 1990. [13]Oil, Paint, Drug Reporter, "Cyclamates Use Pattern," February 22, 1965. [14]Prudential Bache. NutraSweet Patent Expiration Should Not Impact ADM, April 25, 1991. [15]Prudential Securities Research. Archer-Daniels-Midland Company Update April 17, 1991 [16]Reynolds, Katherine. Projected Consumption of Aspartame, Eldib Engineering and Research, May 15, 1989, Correspondence to Economic Research Service, USDA. [17]Roberts, Howard. Alternative Sweeteners, Sweeteners Users Colloquium, Palm Springs, California, February 20, 1991. [18]Shapiro, Robert. Remarks by CEO-The NutraSweet Co., Security Analyst Presentation, New York, March 18, 1986. [19]Soft Drink Industry. Annual Manual, various issues. [20]Stamp, Jeffery. "Sorting Out the Alternative Sweeteners," Cereal Foods World, General Mills, Vol. 34, No. 4, April 1990 pp. 395-400. [21]Thompson, George. Soft Drink Industry Outlook, Prudential Bache Securities, June 27, 1983. [22]USDA. "HFCS: The Cheaper Sweetener" and "Aspartame: The Lo-Cal Advantage" Farmline, Vol. V, No. 1, Dec/Jan 1984. [23]Vuilleumier, Stephen. The World and North American Sweetener Outlook, Annual Milling & Baking Seminar, Kansas City, Missouri, June 11, 1991. [24]Wall Street Journal, "Pepsi, Coke Raise to 100 Percent the Corn Syrup Bottlers Can Use to Sweeten Coke Drinks," November 7, 1984. [25]Warren, Rosalind. Competition in Alternative Sweeteners: 1991 and Beyond, Presented to the International Sweetener Colloquium, Fort Lauderdale, Florida, February 26, 1990.

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