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Why Diet Coke's Victory Is Bittersweet for Coca-Cola

Diet Coke climbed past Pepsi-Cola to become the No. 2 carbonated soft drink in the country, just behind Coke.

Soda
Soda

It's a historic win for Coca-Cola in its decades-old rivalry with PepsiCo, but it's also a big victory for diet soft drinks, which have been steadily gaining ground as consumers shift to lower-calorie beverages.

The rankings were released Thursday by Beverage Digest, an industry trade publication and data service.

Two diet brands, Diet Mt. Dew and Diet Dr Pepper, both posted volume growth rates in excess of 5 percent.

And Coke Zero, which has yet to crack the top 10 best-selling soft drinks, surged 17.5 percent.

Given the strong performances of each of these three brands, Beverage Digest expects that the diet part of the carbonated soft drink business gained market share in 2010 and now makes up more than 30 percent of the entire category. However, the overall category continues to shrink as volume fell for the sixth straight year.

And that's a key part of the story.

Sure, Coca-Cola has managed to outmarket PepsiCo in this latest round of the Cola Wars, but there is less turf for the two companies to tussle over.

Indeed, Pepsi made a big bet in 2010 by pulling out of advertising during the Super Bowl, and instead investing in the Refresh Project, an online charitable giving program that awarded $20 million in donations "for refreshing ideas that change the world."

Pepsi has argued that the project is improving its image and will benefit the company in the long run, but so far it's not in the numbers.

Still, even though Coca-Cola ramped up its spending on traditional TV advertising and focused its core brands, it has not been able to stem the tide of consumers shifting away from carbonated soft drinks.

Top 10 Carbonated Soft Drink Brands, 2010

Brands
2010 Market Share
2009 Market Share
2010 Cases (millions)
Volume % Change
Coke 17.0 17.0 1590.0 -0.5%
Diet Coke 9.9 9.9 926.9 -1.0%
Pepsi-Cola 9.5 9.9 891.5 -4.8%
Mt. Dew 6.8 6.7 633.3 +0.5%
Dr Pepper 6.3 6.1 592.0 +2.8%
Sprite 5.6 5.5 525.5 +2.0%
Diet Pepsi 5.3 5.6 498.2 -5.2%
Diet Mt Dew 2.0 1.9 187.5 +5.8%
Diet Dr Pepper 1.9 1.8 174.5 +5.6%
Fanta 1.8 1.8 170.5 +1.0%
Source: Beverage Digest

According to Beverage Digest, the volume of the US carbonated soft drink business fell 0.5 percent last year, to a total of about 9.36 billion cases.

The only hopeful thing about that number was that it was a much smaller decline than in 2009, when volume fell 2.1 percent from 2008.

In fact, year after year after year of decline has put the size of the carbonated soft drink market back to where it was in 1996.

To underscore this further, it's important to realize that even though Diet Coke ascended to the No. 2 spot, the brand didn't grow last year. Its volume fell 1 percent and its market share remained stable at 9.9 percent.

Still, at the end of this round, you can score one for Coke, since Pepsi fared much worse, with its market share falling to 9.5 percent as volume fell 4.8 percent.

Questions? Comments? Email us at consumernation@cnbc.com

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