Commentary

What does Tab’s discontinuation say about the future of convenience services?

Coca Cola Co.'s discontinuation of Tab, its first diet drink, underscores several factors affecting convenience services and the hard choices the industry faces.

Photo courtesy of Coca Cola Co.

October 26, 2020 by Tim Sanford

The Coca-Cola Co.'s recent announcement that it is discontinuing Tab has prompted a number of reminiscences in the press about the brand's history. It prompts us to look back at the evolution of the convenience services business and the self-serve options it offered its clients, as well as a look forward.

Tab was Coca-Cola's first low-calorie drink, introduced in 1963. The diet carbonated soft drink category had been created by Royal Crown in 1958 with its launch of Diet-Rite Cola, initially targeted specifically at dieters and repositioned in 1962 for the general public ("Everybody likes it"). Several flavors were introduced, extending the line.

Tab was Coke's response, and was a solid performer. It also was joined by a variety of flavors. The news of its discontinuation has evoked a good deal of nostalgia on the part of people who had grown up with the beverage. The movement of low-calorie drinks into the mainstream continued in 1982 with the rollout of Diet Coke, which also has become the flagship of a portfolio of beverages.

Other forces were at work in the retail cold-drink marketplace as the low-calorie category emerged and took shape. A major one that had little immediate effect on vending was the 1960s transition from returnable glass bottles to steel cans, aluminum cans (along with a brief appearance by non-return glass bottles), and plastic bottles, plus the resurgence of non-return glass. That was transformational for the beverage industry, and in the long term, for vending too.

The carbonated cold-drink market was relatively uncomplicated in the 1950s and 1960s. In just about every market area, there was a relatively limited variety of SKUs headed by one or two colas; mixers like ginger ale and carbonated water (regional favorites in some markets); and a certain number of fruit and specialty flavors. In a large factory location, the predominant customer preference could be satisfied with four or five selections. This was easy to do with postmix cup machines. The advent of a new "diet" category had little appeal to the factory workforce demographic.

That was the audience for which the postmix cup machine — an engineering marvel in its day — was designed. It was fast, delivering a filled cup (with or without ice) in a few seconds; the container did not need to be opened; and there was no bottle to return. Everybody won; postmix machines (like their hot-beverage contemporaries) gave the operator the value added by delivering a finished drink from inexpensive, easy-to-transport ingredients. These benefits today are enjoyed by restaurants with fountain dispensers, but no longer by vending operators. This may change.

Pandemic drives change

Coke's decision to phase out the Tab line has been widely attributed to the uncertainty of the long-term effects of the coronavirus pandemic, and of its duration. This persistent inability to make realistic predictions is prompting many companies to look at their product lines with an eye to eliminating the slowest movers.

It would be easy to jump to conclusions about the decline of product categories that appealed to older generations of consumers, but this would be an oversimplification. Coke also has phased out its Odwalla line, and Odwalla products certainly are on trend with the general perception of millennial tastes. The company, which Coke acquired in 2001, focused on "clean label" juices and smoothies. The omission of preservatives required a separate cold-chain distribution system that apparently was not cost-justifiable in a disrupted market with social-distancing consumers cutting back on shopping trips by making bulk purchases of fewer, simpler products. But carbonated soft drinks have been selling very well, according to Beverage Industry, although this rebound is not expected to continue past the end of the pandemic.

Market disruption also drives change

The convenience services industry also is grappling with market disruption and the impossibility of reliable forecasting. We have every reason to believe that steady improvement in treatment and the widespread availability of one or more proven vaccines will bring the pandemic to an end. However, it's likely that there will be some argument about defining an "end," so matters can return to normal. Extensive discussion in the media about a "new normal" suggests a need for everyone to stay alert.

In the early stages of the public health response to the virus, the Internet's steady growth in connectivity and speed led to widespread adoption of telecommuting (now called "working from home"). This led many observers to predict that telecommuting would come into its own after the pandemic ends. As time has worn on, however, many office workers report that they miss the camaraderie and casual brainstorming fostered by a well-managed workplace, and managers have expressed concerns about a decline in productivity and the difficulty of supervising remote workers. It now is apparent that some prominent employers not only do not envision a future dominated by working from home, but are expanding their office space during the present economic paralysis.

There also is a sense that people whose work can be done away from the office will have more freedom to telecommute on one or two days a week. And, of course, there are jobs that can't be done remotely.

This signals the next step in the fragmentation of the workforce that began half a century ago when the shift away from heavy industry saw a proliferation of smaller workplaces that generally staffed a more diverse population of skilled employees. Fortunately, the sweep of vending and office refreshment service innovation has given operators an extraordinary set of tools for serving large and small workforces. New cold-drink dispensers ranging from high-volume systems like Coca-Cola's FreeStyle and PepsiCo's Spire to countertop appliances like the Lavit dispenser, which offers both pure water and a selection of premium flavors supplied in 100% recyclable single-serve aluminum cartridges, are on the market now. There are many more.

Convenience services operators who have developed programs designed to help clients make their workspaces more attractive and efficient for workers may find stronger demand for these programs in the "new normal." And people who have been stocking up on staple food and beverages while quarantining at home may welcome a renewed opportunity to indulge when they once again are out and about, a prospect that holds promise for a range of upmarket products in workplace breakrooms.

Food industry observers report that consumers are doubling down on their already robust desire for "healthier" products. In recent years, the perception of "healthy" has expanded from "lower in calories" toward "natural" ingredients and products that offer functional benefits. This suggests that trends already evident before the virus struck have remained strong.

At the same time, there has been an upswing in media attention paid to an assortment of public-policy commentators proclaiming that the world must not strive to recover the status quo ante, but must take the opportunity presented by the pandemic's economic and social disruption to create a new world that will emphasize sustainable agriculture, carbon-neutral transportation and an end to a culture of disposability.

These pundits, many representing well-funded non-governmental organizations with no commitment to a free market, certainly point to real problems, but it's essential for everyone to pay close attention to the policies they propose. Unanticipated consequences of utopian schemes could derail what otherwise is shaping up as a bright future.

Vending