Coca-Cola to Offer Soda Sweetened With Cane Sugar. Consumer Choice Would Be Key.

Coca-Cola said it would introduce a product sweetened with cane sugar in the U.S. to expand its product range. (ERIC PIERMONT/AFP via Getty Images)

Coca-Cola said Tuesday that it plans to expand its product range this fall to include an offering sweetened with cane sugar for the U.S. market in place of high-fructose corn syrup, or HFCS.

The addition is designed to “complement the company’s core portfolio” and “offer more choices across occasions and preferences,” the company wrote in its second-quarter earnings release.

The company’s announcement comes days after President Donald Trump indicated on social media that Coca-Cola “has agreed to” use cane sugar in its signature soda after speaking with him.

HFCS, a sweetener derived from corn starch commonly used in processed foods and beverages, has been a major target of criticism from the Make America Healthy Again movement led by Health Secretary Robert F. Kennedy Jr.

Kennedy has dubbed the processed sweetener as “poison” and blasted it for contributing to obesity and diabetes in the U.S.—although the Food and Drug Administration hasn’t issued any health advisories suggesting that HFCS is less safe than other sweeteners like sucrose or honey.

Still, the growing consumer sentiment against highly-processed ingredients like HFCS—and a preference for natural ingredients like sugar—could affect food and beverage companies’ product lines.

To be sure, cane sugar wouldn’t replace HFCS, which has been used in Coca-Cola’s staple beverage in the U.S. market since the 1980s.

“It doesn’t make sense for a heavy buyer in a major commodity to all of a sudden change their cost structure,” said Stephens analyst Pooran Sharma in a Monday interview with Barron’s before Coca-Cola’s announcement, “If you switch all of your needs, you’re potentially creating a price spike for yourself.”

The new cane-sugar version would likely be a test for market preference before the company makes further investments.

“I think that will be an enduring option for consumers,” said Coca-Cola CEO James Quincey on Tuesday’s earnings call. He noted that the company already uses cane sugar in a number of other brands in the U.S. portfolio, ranging from lemonades and teas to coffee and vitamin water drinks.

“We are definitely looking to use the whole toolbox of available sweetening options to some extent where there are consumer preferences,” said Quincey. “It takes a long time to build a new franchise with consumers, but you’ve got to try things.”

At last week’s earnings call, PepsiCo CEO Ramon Laguarta also said the company is open to launching products with sugar and natural ingredients if that is what consumers prefer.

Sharma says companies like Coca-Cola and Pepsi would be more strategic about the shift. The recent consumer focus on health and wellness could potentially allow the firms to charge a premium for the health aspect of the HFCS-free products, he said.

Another reason higher prices are also likely is cane sugar is more expensive than HFCS, partially due to federal subsidies to corn growers, as well as quotas and tariffs on sugar imports. According to investment analytics firm Reflexivity, HFCS costs about 25 cents a pound, compared with cane sugar’s 45 cents.

Coca-Cola didn’t disclose specific pricing for the cane-sugar soda. The company said it will release more details on the commercial plans in the future.

If the U.S. sees a rising popularity in sugar-sweetened sodas, there could be a potential shortage in supply. The U.S. doesn’t produce a lot of sugar domestically and imports are restricted by quotas and steep tariffs.

There could also be backlash from the corn processing industry that produces HFCS. “We have a ton of infrastructure already set up, a change of even 50% of the core product line in the U.S. would have enormous consequences,” said Sharma.

Already, the Corn Refiners Association warned last week that a shift to cane sugar could “cost thousands of American food manufacturing jobs, depress farm income, and boost imports of foreign sugar, all with no nutritional benefit.”

Shares of Coca-Cola were down 0.9% to $69.52 in Tuesday trading. While the company posted better-than-expected second-quarter earnings, revenue narrowly missed expectations and unit case volume fell in most regions over the quarter.

Write to Evie Liu at evie.liu@barrons.com and Mackenzie Tatananni at mackenzie.tatananni@barrons.com