PepsiCo Bets on Zero Sugar as Diet Sodas Develop a ‘Radioactive’ Image

PepsiCo (NASDAQ:PEP) is reshaping its core soda business as younger consumers turn their backs on anything labeled “diet.” In fact, the word itself has become a liability.

“For a lot of younger consumers, it’s radioactive,” said Kevin Ryan of Malachite Strategy and Research, summing up why Diet Pepsi is being quietly sidelined in favor of Pepsi Zero Sugar.

That shift was on full display during the first Pepsi Challenge tour in 50 years, where regular Pepsi didn’t even make the cut. Instead, Pepsi Zero Sugar went head-to-head with Coca-Cola Zero Sugar in blind taste tests. The company doubled down on that strategy for its Super Bowl ad, shelling out more than $8 million for a 30-second commercial focused squarely on Zero Sugar. According to PepsiCo North America CEO Ram Krishnan, the company has “gone all in” on Zero Sugar, with most of Pepsi’s marketing budget now aimed at the no-calorie version.

While both Diet and Zero Sugar sodas rely on artificial sweeteners like aspartame, Zero Sugar carries a “health halo” with younger, wellness-minded consumers who want less sugar without the baggage of diet culture. TikTok hasn’t helped Diet Coke’s image either – one viral post famously called it a “fridge cigarette.” Zero Sugar, by contrast, feels closer to the real thing, as manufacturers tweak their sweetener blends to better mimic sugar.

Soda volumes in the US have dropped 27% over two decades as people shift toward water and energy drinks. Yet, Zero Sugar products accounted for 52% of category growth last year, according to Circana data. Pepsi and Coke both sold more Zero Sugar soda in the first nine months of 2025 than a year earlier, while full-sugar and most diet versions slipped.

For investors, that momentum is a rare bright spot for PepsiCo, whose shares have posted annual declines for three straight years, drawing activist attention from Elliott Investment Management. Elliott’s roughly $4 billion stake has come with pressure to refocus on core brands and health-conscious consumers – making Pepsi Zero Sugar look less like a marketing experiment and more like a strategic lifeline.

Rivals are moving just as fast. Keurig Dr Pepper (NASDAQ:KDP) went from zero Zero Sugar offerings in 2020 to more than 40 today, axing several Diet lines in favor of Zero versions and leaning into flavored varieties that resonate with Gen Z. The strategy has paid off, with US beverage sales up 14.4% in the third quarter to $2.7 billion.

Back at Pepsi, the company plans to revive its taste-test battle this year, pitting Pepsi Wild Cherry Zero Sugar against Coke Cherry Zero Sugar. Last year, Pepsi claims it won in all 34 cities, including Atlanta.

For Wall Street, the message is simple: in a shrinking soda market, growth is coming from a demographic that sees “diet” as radioactive. PepsiCo’s bet is that Zero Sugar isn’t just a drink trend – it’s a way to re-energize a legacy brand and, potentially, its stock.

PEP stock currently carries a Moderate Buy consensus rating based on 15 analyst opinions, including 7 Buys and 8 Holds, with no Sells. The average 12-month price target of $161.85 implies about 12% upside from current levels. (See PEP stock forecast)

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