The American beverage industry is currently navigating a significant transformation, marked by a sustained decline in the consumption of sugary drinks. This shift is not merely a fleeting trend but rather a multi-faceted evolution driven by an increased public health consciousness, the implementation of specific policy interventions, and a fundamental change in consumer preferences. An in-depth analysis of this landscape reveals compelling evidence that challenges conventional industry paradigms and underscores the potential for further market reconfigurations.
At the forefront of this re-evaluation are findings from a recent study published in the distinguished journal JAMA Health Forum. This research provides a robust, multi-city examination of the impact of excise taxes on sugary beverages across five distinct U.S. urban centers: Philadelphia, Seattle, San Francisco and Oakland, California, and Boulder, Colorado. The study moves beyond previous analyses that typically focused on single cities, offering a composite effect that yields broader insights into potential national or state-level outcomes.
The mechanism of these taxes involved levies ranging from 1 to 2 cents per ounce. To contextualize this for consumers, a 2-liter bottle of soda in these cities would incur an additional tax burden of between 67 cents and $1.30. This financial adjustment for the consumer proved to be a significant deterrent, leading to observable changes in purchasing behavior.
The study’s core finding is particularly noteworthy: researchers, led by Scott Kaplan, an economics professor at the U.S. Naval Academy, discovered that on average, retail prices for sugar-sweetened beverages increased by 33.1% following tax implementation. Crucially, this price hike was directly correlated with a substantial and equivalent decrease in purchases, which fell by precisely 33% over the same two-year timeframe. Kaplan articulated this correlation with precision, stating, “In other words, for every 1% increase in price, we find that purchases fall by about 1%.” These price increases and corresponding purchase declines were observed immediately after the taxes were implemented and demonstrably sustained over many months, indicating a persistent effect rather than a temporary consumer reaction.
A significant point of contention in the discourse surrounding soda taxes has been the phenomenon of “cross-border shopping,” where consumers might simply travel to neighboring areas without such taxes to purchase cheaper sugary drinks. Prior research on this question has yielded contradictory findings. Some studies, particularly those focused on Philadelphia’s sugary drink tax, indeed found that while sales of sugary drinks dropped significantly within the city, they concurrently rose in surrounding areas, suggesting consumer migration to avoid the taxes. Conversely, other investigations found no such evidence of changes in purchasing patterns outside the taxed zones.
The new multi-city study by Kaplan and his colleagues offers fresh insights into this debate. Their comprehensive analysis did not find evidence that consumers were traveling to make cross-border purchases. This finding, derived from a broader sample across multiple large cities, strengthens the argument for the effectiveness of these local excise taxes, suggesting that the observed decline in purchases largely represents a genuine reduction in consumption rather than a mere geographical displacement of sales. This absence of a significant border effect may better inform the potential effectiveness of similar taxes at wider state or federal levels.
From a public health standpoint, the rationale for implementing taxes on sugary drinks is clearly articulated by experts such as Jennifer Pomeranz, an associate professor at the School of Global Public Health at New York University. Pomeranz identifies these taxes as “good public health policy” primarily because these beverages offer no nutritional value while being directly linked with a myriad of diet-related diseases. The health implications are substantial and widely documented.
Sugary-sweetened beverages are a leading source of added sugars in the American diet, according to the Centers for Disease Control and Prevention. Kaplan underscores the magnitude of this contribution, noting that “sugar sweetened beverages make up a quarter of all the added sugar we see in the average adult American diet. And that’s a really big amount.” Excessive added sugar intake is a known precursor to a “host of poor health outcomes,” encompassing type 2 diabetes, obesity, heart disease, kidney disease, non-alcoholic liver disease, gum disease, and tooth decay. Taxes are specifically designed to discourage purchases, thereby curbing consumption and mitigating these associated health risks.
The growing consensus among public health bodies regarding the benefits of such policies is evident in their official endorsements. In 2019, both the American Heart Association and the American Academy of Pediatricians formally supported soda taxes as an effective measure to reduce the risks of childhood obesity. Reinforcing this global perspective, just last month, the World Health Organization called on countries worldwide to increase taxes on sugary drinks as a strategic initiative to promote healthier diets among their populations. These endorsements reflect a broad understanding of the public health gains achievable through fiscal policy.
Despite this growing scientific and expert consensus, the path to implementing sugary drink taxes in the United States has been fraught with challenges. Approximately a decade ago, a handful of major U.S. cities began to pass these taxes. However, the beverage industry responded vigorously, pouring “millions of dollars into fighting those efforts.” This concerted opposition often led to legislative maneuvers that effectively neutralized local efforts. In some states, opponents successfully passed laws that “basically stripped localities of the power to be able to pass soda taxes,” a development that Pomeranz noted caused the movement to “basically stalled.”
The recent robust findings from the multi-city study have the potential to revitalize this stalled movement. Pomeranz expressed her enthusiasm for the new data, describing them as “great” and remarking, “I am thinking it could renew interest.” The potential for these taxes to lead to “health outcomes and societal cost-savings” is significant, as Kaplan highlighted, drawing parallels to the established success of tobacco taxes. Moreover, previous research, including a study co-authored by Dr. Kristine A. Madsen of UC Berkeley, has demonstrated that tax revenues from sugary-sweetened beverage excise taxes in seven cities were strategically utilized to fund initiatives aimed at improving community health, developing human and community capital, and advancing equity, thereby offering a dual benefit of health improvement and social investment.
Beyond the direct impact of taxation, a broader and more fundamental shift in consumer behavior has been underway for roughly two decades: a significant move away from sugary beverages driven by increasing health consciousness. Data indicates a substantial decline in consumption; U.S. soda consumption fell to a 30-year low in 2016. Furthermore, per capita consumption of soft drinks in the U.S. decreased by 25% from 53 gallons per person in 2000 to 38.87 gallons per person in 2018. This decline is largely attributed to consumers becoming “more health-conscious and aware of the negative effects of sugary beverages,” as observed by Michael Ashley Schulman, chief investment officer with Running Point Capital Advisors.
This shift is not limited to the United States. Many countries globally have implemented taxes or levies on sugar, such as the U.K.’s Soft Drinks Industry Levy in 2018, which taxes soft drinks containing more than 5 grams of sugar per 100 ml. In response to these market pressures and evolving consumer demands, beverage producers have extensively diversified their product offerings. They have “switched to sweeteners like acesulfame K, aspartame, saccharin, sucralose, xylitol, erythritol, and steviol glycosides,” as detailed in an informational press release by Tetrapak. The industry’s adaptation is clear, with Tetrapak noting, “The shift away from sugar is clear, and the soft drinks industry has responded, with low-sugar or reduced sugar alternatives.”
This overarching trend also encompasses a rising demand for “functional beverages.” Consumers are increasingly seeking drinks that offer additional health benefits beyond basic hydration, such as energy-boosting properties, improved digestive health, or enhanced hydration. This has led to a surge in demand for products like sports drinks, enhanced waters, and probiotic beverages. Soft drink companies have responded by introducing a diverse array of new products to cater to these changing tastes, indicating a fundamental evolution in consumer preferences that extends beyond mere sugar reduction to a more holistic approach to health and wellness in their beverage choices.
Despite these significant downward trends in consumption, soda maintains a formidable presence within the American beverage market. It remains the dominant sugary drink, constituting a substantial 65% of all sugary drink sales. This figure highlights the enduring scale of the challenge for public health advocates and the entrenched consumer habits that persist even amidst declining overall consumption. While total sugary drink consumption has decreased from its peak in 2000, it has plateaued in recent years, with a majority of Americans still reporting consumption of at least one sugary drink per day.
Analysis of consumption patterns reveals notable demographic differences. The most significant decreases in sugary drink consumption have been observed in the 2-5 and 12-19 age brackets, suggesting that younger generations are gradually shifting their habits. Furthermore, data indicates that white adults are generally “less inclined to consume sugary drinks daily and tend to consume fewer calories from these beverages compared to Black or Hispanic adults.” This points to the complex socio-economic and cultural factors that continue to influence beverage choices across the diverse American population. Ultimately, soda, with its established brands and ubiquitous presence, continues to be a significant part of the food and beverage industry in the United States, even as its market position undergoes a profound transformation.
The U.S. soft drink market is expected to show a volume growth, with the average volume per person forecasted to reach 138.60 liters in 2025, and anticipated annual sales reaching $388 billion by the same year. This projected growth in the market, even amidst declining sugary drink consumption, underscores the dynamic nature of the industry where innovation and diversification become paramount. The presence of major soft drink companies like Coca-Cola and PepsiCo, with their extensive marketing and distribution efforts, continues to influence market growth. However, the overarching narrative is increasingly shaped by changing consumer preferences and the growing awareness of the health effects of sugary drinks. This duality — a large and still growing market in terms of value, yet a declining consumption of its traditional core product — sets the stage for intensified strategic adaptation from all stakeholders within the beverage sector. The trajectory of this industry is thus a complex interplay of consumer health trends, policy interventions, and the innovative responses of global beverage giants. It indicates a market in flux, where traditional products are ceding ground while new categories emerge, driven by an evolving definition of what constitutes a desirable and healthy drink.
The evolving landscape of beverage consumption has compelled traditional giants within the industry to fundamentally rethink their strategies, moving beyond simple opposition to actively adapt to prevailing health trends. The American Beverage Association, representing many of these established players, has championed a proactive approach, emphasizing the industry’s shift toward offering a wider array of low-sugar and zero-sugar choices to consumers. This strategic pivot appears to be yielding results, with the ABA noting that nearly 60% of beverages sold today boast zero sugar, and the caloric contribution from beverages has reached its lowest point in decades. This suggests a recognition of changing consumer priorities and a concerted effort to align product portfolios with public health goals.
Among the titans, Coca-Cola stands out for its market share resilience amidst these transformative shifts. The company commands an extensive brand portfolio, encompassing more than 3,500 beverages under 500 brand names, showcasing its vast reach and diversification. Coca-Cola has diligently undertaken modernization efforts, re-energizing key brands like Diet Coke with new looks and flavors. Innovations extend to offerings such as Coca-Cola Zero, Coca-Cola Life, and experimental variants like Coca-Cola with coffee and cinnamon flavors, demonstrating a commitment to responsive flavor experimentation. This aggressive diversification and marketing has allowed Coke to maintain a formidable market share of 17-20% in the U.S. soft drink market since 1995, consolidating its position as the best-selling soft drink and, along with Diet Coke and Sprite, accounting for 35% of the market.
However, not all traditional giants have navigated this shift with equal agility. Pepsi’s North American beverage business, for instance, experienced a 2% fall in volume during the first quarter of this year. The company’s market share in the U.S. also saw a decline from 15% in 1995 to 8.3% in 2023, reflecting significant competitive pressures and shifting consumer loyalties. Interestingly, Dr. Pepper has shown remarkable strength in this evolving environment, tying with Pepsi in 2024 as America’s second most popular soda. These varied trajectories among established brands underscore the complex and highly competitive nature of the market, where heritage alone is insufficient to guarantee sustained dominance.
Beyond the strategic maneuvers of the legacy brands, the beverage market is experiencing an invigorating surge from a new wave of craft and functional beverages, driven by consumers’ clamoring for more creative and healthier product offerings. This demand presents both challenges and fresh opportunities for soda brands, as noted by Michael Ashley Schulman, chief investment officer with Running Point Capital Advisors. These upstart brands are not just offering alternatives; they are redefining what a soft drink can be, moving beyond simple refreshment to deliver perceived health benefits.
Brands such as Olipop have effectively capitalized on this opportunity, marketing their sodas to consumers with a focus on specific health concerns like gut health. This strategy has proven highly successful, with Olipop projected to sell more than $200 million of its prebiotic soda this year. Another notable success is Poppi, a soda infused with apple cider vinegar, which has established strong staying power in the “flavorful and good-for-you probiotic niches” due to its plant-based, organic, and non-GMO ingredients, as highlighted by Schulman. These examples underscore a potent consumer appetite for beverages that integrate wellness directly into their core proposition.
The burgeoning craft soda segment also includes other compelling examples that emphasize unique selling propositions. Cannonborough Craft Soda promotes a “farm-to-bottle” ethos, appealing to consumers interested in artisanal and transparent sourcing. Sprecher, a Wisconsin brand, has garnered renown for its distinctive root beer, demonstrating the enduring appeal of traditional flavors executed with craft quality. Jones Soda has carved out its niche with colorful and often unique flavor profiles, appealing to a segment seeking novelty and personalization. These brands, both large and small, illustrate a broader industry trend where innovation, health-centric formulation, and creative marketing are key differentiators.
The broader market evolution extends significantly into the non-alcoholic and ‘better-for-you’ segments, reflecting profound changes in American drinking habits. The rise of the “sober curious” movement, alongside a general increase in health-conscious consumer trends, has fueled robust growth in alcohol-free alternatives, sparkling waters, and functional sodas. Sales of alcohol-free beer, wine, spirits, and ready-to-drink mocktails collectively neared the $1 billion mark in 2024, with analysts projecting sustained strong momentum. This burgeoning category, once considered niche, has consistently posted double-digit growth in recent years, demonstrating its mainstream appeal.
Sparkling water, in particular, has emerged as a significant growth engine within this shifting landscape, with U.S. sales approaching $30 billion in 2024. These products, alongside functional sodas infused with vitamins, prebiotics, or caffeine, are increasingly occupying more prominent shelf space. Retailers are actively adapting to these trends by creating dedicated “better-for-you” sections, a testament to the surging consumer demand for perceived healthier options. This era is defined by premiumization, where consumers are increasingly willing to pay more for drinks that offer a sense of quality, authenticity, or a discernible health benefit, signifying a fundamental re-evaluation of value in the beverage aisle.
This transformation also reflects a strategic blurring of category lines, where growth is increasingly found at the intersections of traditional segments. Ananda Roy, Senior Vice President of Global Leadership & Strategic Insights at Circana, elucidates this trend, observing that alcohol brands are venturing into low- or no-alcohol options to attract younger, health-focused consumers. Simultaneously, soft drink brands are entering spaces historically dominated by alcohol. This innovative approach creates new consumption occasions and helps brands differentiate themselves in an increasingly crowded marketplace, underscoring a dynamic environment where traditional distinctions are giving way to integrated wellness and lifestyle offerings.
The trends observed in the U.S. market find compelling parallels in the European landscape, offering a wider lens on the pervasive shift in consumer preferences. European retail stores have witnessed a decline of 1.7% in alcohol sales over the past year, representing 285 million fewer liters sold. This mirrors a 6% drop in alcohol sales within European hospitality venues, signifying a clear move away from traditional alcoholic beverages towards non-alcoholic and functional drinks. Consumers in Europe are increasingly prioritizing visually appealing and health-oriented options, from ube lattes and matcha iced teas to homemade lemonades, reflecting a desire for drinks that serve as personal statements and lifestyle enhancers.
Innovation stands out as a critical driver in the European beverage market, with 30% of consumers citing it as their primary reason for trying new brands. Manufacturers are responding by continuously introducing novel flavors, formats, and functional benefits. In the six largest European markets (EU6), innovative food and drink products constituted 5.1% of total sales value over the past year, with the United Kingdom leading at 7%. This focus on innovation is closely tied to the increasing scrutiny of sugar consumption, where modern soft drinks made with stevia, cane sugar, or natural fruit juice, often enhanced with prebiotics, vitamins, or gut-health supporting ingredients, are gaining significant popularity. Sugar-free beverages are at the forefront of this trend, supported by a growing sentiment for sugar taxes, favored by 41% of Europeans.
Notably, energy drinks are also quietly expanding their reach across Europe, despite being consumed by only one in three Europeans. Consumption of energy drinks in restaurants and bars has grown by 9%, surpassing both soft drinks and juices in growth rate. Retail sales of sports and energy drinks have seen substantial increases, with consumer spending rising by 7.7%. The UK’s energy drink market, in particular, is evolving rapidly with products featuring natural caffeine, no added sugar, and “clean energy” blends, increasingly marketed as daily concentration boosters rather than just for athletes. This global perspective reinforces the imperative for constant adaptation and diversification in the beverage industry.
Underlying the shifting market dynamics, the U.S. soft drink industry maintains significant strengths in its established distribution networks and widespread accessibility. The industry operates with a unique distribution structure that grants exclusive territories to specific bottlers for particular brands. This system, for instance, ensures that a bottler for Coca-Cola enjoys sole distribution rights within a given market, preventing other channels from distributing the same product there. This long-standing framework has allowed major brands like Coke and Pepsi to cement their positions as dominant market players.
This well-developed infrastructure ensures that soft drinks remain widely accessible to consumers across the country, playing a crucial role in their continued prominence despite changing preferences. The omnipresence of convenience stores and vending machines further underscores their role as popular and easily accessible purchasing channels. This robust network, combined with extensive marketing and distribution efforts by major companies such as Coca-Cola and PepsiCo, contributes significantly to market growth. Even as consumption patterns evolve, the deep entrenchment of these distribution systems ensures that soft drinks continue to be a substantial part of the American beverage landscape.
Looking ahead, the future outlook for the soft drink industry, both in the U.S. and globally, is characterized by continued growth in value despite the ongoing decline in traditional sugary drink consumption. The U.S. soft drink market is projected to reach an anticipated $388 billion in annual sales by 2025, with a volume growth forecasting an average of 138.60 liters per person. Globally, the soft drinks market is expected to reach an impressive USD 982.4 billion from 2025 to 2029. These projections underscore the sheer scale and economic significance of the industry, even as its core products face headwinds.
The strategic imperatives for soft drink companies are clear and multifaceted. Continuous innovation remains paramount, driving the development of new flavors, functional benefits, and healthier formulations. Product diversification, encompassing everything from zero-sugar options to craft sodas and functional beverages, is no longer optional but essential for capturing evolving consumer demand. As Michael Ashley Schulman articulated, soda brands must “explore innovative strategies and diversify their product offerings by rapidly introducing new flavors, [and] experimenting with unique ingredients” to stay relevant. Local circumstances, such as the prevalence of specific retail channels, and macroeconomic factors, like strong economies and high disposable incomes, will continue to shape these market trends.
The trajectory of the soft drink industry is a complex interplay of consumer health consciousness, policy interventions, and the agile, innovative responses of global beverage giants. It indicates a market in continuous flux, where traditional products are ceding ground to emerging categories driven by an ever-evolving definition of what constitutes a desirable and healthy drink. The imperative for adaptation in this rapidly shifting consumer landscape is undeniable, pointing towards a future where innovation and responsiveness will define success.
