Cane Sugar versus Corn Syrup or…Soda Economics and the Farm Bill
Christmas hasn’t even begun yet, and I’m already thinking about Passover (coming as soon as April 8th). Grocery stores start stocking up all all things kosher, which to me means extra tasty Dr. Pepper made with cane sugar instead of the regular corn syrup. Rabbi Levy explains, “Dextrose-base caramel, ordinarily used in both [regular and diet] products, must be replaced with a sucrose derivative. This simply means the substitution of corn sugar caramel with caramel made from cane or beet sugar.” (see The Kosher World of Dr. Pepper)
Passover is the one time of the year when it is (slightly?) more profitable to use cane sugar than corn syrup. Adherence to strict Jewish dietary laws essentially makes the observant Jewish population a captive market. In order to enjoy soda it must be kosher, which will be more expensive than the stuff made with corn syrup. The size of this market may not be huge, but the cost of negative PR from discontinuing the traditional offering of cane sugar soda would undoubtedly make a real dent. But the Jewish population is not the only one that benefits. Anecdotal evidence like this demonstrates that many people would prefer it if sodas were regularly made with real sugar.
Yet, with the exception of Jones Soda, major companies reserve cane sugar for select batches of holiday soda. Actually, the same reason bacon isn’t as tasty factors into the production of cheap corn syrup infused sodas: Because of subsidies provided by the Farm Bill the price of corn products is artificially low, making sugars derived from corn too cheap to pass by.
But wouldn’t better taste win over cheaper soda? Let’s take the embattled duo of Coke and Pepsi, for example. They are nearly interchangeable in terms of taste, but preference is demonstrated for Coke. How could Pepsi gain an edge in this market? Pepsi can hardly challenge the Coca-Cola’s iconic placement in Americana (It’s suggested that this is what gives Coke it’s preferred status.) So, competition is limited to the arenas of taste and price. However, as I outlined just a paragraph ago, the price and taste are inextricably intertwined. Could Pepsi get away with offering a “Premium Pepsi” made with cane sugar, billing it as a better taste for a slighty higher cost? I don’t think so.
The first problem is one of cost. The soft drink industry profits on huge volume and very low profit margins per can. “Pepsi Premium” would have to be more expensive, because its raw materials are. Pepsi would very quickly bleed cash under any other arrangement. And given the high degree of substitutability between Coke and Pepsi, most people will react to even a few cents’ difference and avoid the new drink.
But suppose that against these odds, “Pepsi Premium” did succeed. Then the drink would cause consumer confusion and what economists call ‘brand dilution.’ Firstly, consumers would be confused about the status of regular Pepsi. What’s so bad about regular Pepsi that necessitates a premium version? Not only does it put regular Pepsi in a bad light, but it causes confusion regarding what “Pepsi” actually means, thus diluting its power as a brand. There is always the option of creating an entirely new brand, but that would have to compete head on with existing players in that niche, such as the aforementioned Jones Soda.
What it boils down to is that “Pepsi Premium” would either fail completely, or succeed at the expense of regular Pepsi. It’s a lose/lose scenario.
Pepsi and Coke make a smart business move by withholding premium sugar cane versions of their product, but we lose out on taste.
Passover Coke
November 28, 2008
Tags: agriculture, Health, marketing, pepsi, policy, soda, subsidies Posted in: Health, Politics
One Response
thanks for the educational info. I personally had no clue that major companies produced “kosher” versions of their regular products. Not being familiar at all with the definition of kosher, it actually raises many questions in my mind. First, doesn’t the switch in ingredient change the nutritional content of the product? Companies only produce these during “religious” periods?
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