Pepsi dropping out of school soda game

But other than a thumbs-up from health advocates, the company doesn't really gain or lose anything.

By InvestorPlace Mar 17, 2010 1:38PM

Pepsi (PEP) announced this week it will be pulling sugary soft drinks from vending machines in U.S. schools. That has caused many watchdogs to start hollering that Coca Cola (KO) should start doing the same.


The move comes as the soft-drink giants are two of several food companies on the front line of Michelle Obama's war on childhood obesity. Brand giants like Kraft (KFT), Unilever (UL) and General Mills (GIS) in addition to Coke and Pepsi are some of the top targets in the first lady's efforts to promote healthier eating habits in young Americans.

So will the move hurt Pepsi’s bottom line? And more importantly, will it actually help improve childhood eating habits? Chances are the answer is “no” on both fronts.

Pepsi started selling its sugary drinks in schools in 2006. Since then, Pepsi hasn’t exactly seen a surge in earnings or sales. That’s true for the entire soft-drink industry. While global carbonated soft-drink consumption was up about 1% in 2008 -- the most recent year tracked by trade publication Beverage Digest -- it was down 3% in the U.S. that year.


So it’s not really a big deal for Pepsi to start moving out its vending machines, with plans to alter distribution in more than 200 countries by 2012. And on top of broader market trends, more and more local school boards are opting to ban unhealthy snacks from their properties -- and the first lady's junk-food crusade is kicking around the idea of a federal law banning the vending machines nationwide.

So what does Pepsi win by making this move voluntarily? Simply put, some favorable press. The fact that some health experts are praising the move is good for the company’s image, especially if those experts are criticizing top competitor Coke in the same breath for not making the same policy change.


As with many brands going environmentally friendly (like Coke going green with a CO2 vending machine), going healthy is an important element of identifying yourself as a good corporate citizen. With consumer spending fairly weak, no company wants to give shoppers another reason to pass their brand over right now.

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