When PepsiCo (PEP) announced Tuesday it would be pulling all "full-sugar" soft drinks from primary and secondary schools worldwide, the news was met with a kind of hushed reverence. Pepsi has, after all, long striven to position itself (despite all odds) as a soda and snack company that cares about its customers' health. Its Frito-Lay brand was one of the first to remove trans fats and attempt to connect its potato chips to the farms that grew the spuds. Pepsi even launched a "natural sugar" soda in early 2009 to address the fears of high-fructose corn syrup.
Of course, it has become obvious to everyone, even the soda makers, that it's not just high-fructose corn syrup that's a health risk, especially for children -- it's sugar in all of its forms. High-calorie sodas, without even the benefit of a little protein or calcium to go along with that sugar like cafeteria rival chocolate milk, are such an easy target that soda companies were glad to sign onto a health alliance to remove all soda from elementary school campuses in the U.S. and high-calorie sodas from middle and high schools.
Last week, the Alliance School Beverage Guidelines were called a victory, with a 95% reduction in high-calorie sodas delivered to school vending machines and a 72% reduction overall (in categories that include water, energy drinks and diet sodas). As a step in the journey to address the nation's crushing obesity crisis, which most experts now partly attribute to the consumption of enormous quantities of sugar and "empty" calories in sodas and low-nutrient junk food sold by companies like Pepsi, this is symbolic. However, as I wrote last week, it's hardly a victory. In fact, it looks a whole lot more like a publicity stunt to me.
Dropping Out of School Will Have Little Impact on Pepsi's Bottom Line
I asked Susan Neely of the American Beverage Association about the financial impact on companies like Pepsi of removing these drinks from schools. I had been looking at the numbers; while revenues had fallen a bit in 2009 for Pepsi, it was more likely a result of the recession and not the removal of sodas from schools. In fact, the new school policy wasn't addressed at all in the company's 2009 10-K; and, since 2004 when the Alliance began organizing, Pepsi's revenue has grown steadily, climbing 47%.
Neely owned up. "Before we enacted these guidelines, the school market was less than 1% of the overall beverage industry," she said. There has been "almost no impact on beverage companies." I called Pepsi to see what they had to say, but at press time, a company spokesperson had still not gotten back to me.
Still, the wordwide health organizations say they're pleased. Pekka Puska, President of the World Heart Federation, issued a statement as part of Pepsi's press release: "The soft drinks industry has voluntarily removed full-calorie carbonated beverages from schools in certain countries. The World Heart Federation has been leading discussions with industry for such a policy at a global level and is pleased that PepsiCo is leading the way within the beverage industry."
Citing the fact that the company can still sell lower-calorie "nutritious" drinks like Aquafina and Sobe, Seth Fiegerman of Mainstreet wrote, "It might seem strange for a company to voluntarily cut off its customer base, but Pepsi is responding to a growing chorus of voices calling for healthier foods to be served in schools in the hopes of reducing childhood obesity. So arguably, while they may lose money on this initially, it could certainly boost their PR around the world, and cast Coke in a bad light."
Arguably, Pepsi won't lose a cent.
Kids Won't Stop Drinking Soda Because They Can't Buy Them at School
In the last study that the Food & Drug Administration conducted on soda consumption by children, it found that kids were drinking 15 to 30 ounces of the stuff each day. It's hard to believe that students who can't get high-calorie sodas in schools (which are already only some quite small percentage of the company's distribution) won't drink them any more.
Sodas are sold everywhere; in convenience stores, in fast food restaurants often located quite near schools, by street vendors and in grocery stores. Children who are not drinking high-calorie sodas purchased in schools can still drink high-calorie sodas purchased outside of schools.
I doubt Pepsi's revenue will suffer at all because of this move and I suspect other soda companies will quickly make the same analysis and follow suit. Pepsi gets the first-mover advantage in the public eye, though; and gets to maintain its (quite dubious) label of most health-conscious of the soda-and-junk food companies. Way to go, Pepsi.
Professional Vs Do it Yourself Investing
Should you get advice or DYI?View Course »