Are diet foods the real thing or just good buzz?

By Christopher Megerian

updated 12:34 p.m. ET Aug. 17, 2007

The debut of Diet Coke 25 years ago was a splash heard around the world. A troupe of Rockettes pranced before a giant soda can on stage at New York's Radio City Music Hall in front of 6,000 people. Little did the company realize, however, the important part it would play in changing the way Americans eat and drink.

It was the first time Coca-Cola attached its powerful brand name to something other than the original Coke, introduced in 1886. Propelled by heavy marketing and celebrity endorsements, sales of Diet Coke quickly overtook those of Diet Pepsi, which had been introduced almost two decades earlier. Today there's a diet version of almost every major soft drink.

But Coke didn't stop there. Since Diet Coke hit the shelves it has spawned more than 20 derivatives of Coke Classic, including Diet Coke sweetened with the sugar substitute Splenda and Diet Coke Plus, which is enhanced with vitamins and minerals. The lesson for other food and beverage companies? The way to stay desirable in today's market is to take an existing product, tweak its ingredients, and slap the word "diet" or "light" on the package.

Innovation is vital
Growing concerns over heart disease, cancer, and obesity have consumers scouring grocery store aisles for healthier products. To keep their brands relevant and competitive, companies are investing heavily in reformulating their products with more nutritious ingredients or launching new marketing efforts targeting health-conscious consumers. Products as varied as Kellogg's Frosted Flakes (one-third less sugar!) and Tropicana orange juice (now with added fiber!) have been modified to appeal to shoppers with an eye for nutrition even if they don't want to give up their indulgences entirely.

Although reworking older products can be expensive, Bain & Co. consumer products expert Ivan Hindshaw says product innovation is necessary to promote brand growth. "It's hard to continuously find ways to innovate," he says. "Whether [companies] innovate through packaging, or innovate through formula or flavor, or innovate through pack size, they need to do something to gain share."

Despite all the hype, diet products don't always sell as well as the original. (Diet Coke only holds 9.8 percent of the $70.1 billion U.S. carbonated soft drink market as compared to 17.3 percent for Coke Classic.) But they are more important than ever. At PepsiCo, Diet Pepsi was named the company's "flagship" soft drink in 2005, reversing the traditional soft drink pecking order. Coca-Cola has relied more and more on Diet Coke and the calorie-free Coke Zero to buoy sales as the full-calorie Coca-Cola Classic falls out of favor.

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Boosting consumer interest
Other diet products are also increasingly sought after. Kraft Foods Senior Vice-President Lance Friedman says products that bear its "Sensible Solution" seal — meaning they conform to higher nutritional guidelines — are selling two to three times faster than the company's other foods.

In addition, even if sales of "light" products don't overtake the originals, their introduction can boost the value of the brand in the eyes of consumers. "There is a broader environmental issue out there," Kellogg Chief Marketing Officer Mark Baynes says. "We want to make sure our brands remain relevant."

The growth of the health-foods market has opened up new audiences to food companies. One case study is Kellogg's Smart Start cereal. First introduced in 1998, Baynes says the brand was "forgotten" by 2004. But once it was backed by a new marketing effort focused on women's health, Baynes says the brand's revenue doubled in the last three years.

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