updated 3/23/2010 5:21:36 PM ET 2010-03-23T21:21:36

A race to develop natural, zero-calorie sweeteners is bubbling up in the nation's $100 billion beverage industry.

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PepsiCo, looking to revive itself in the declining soda industry, is boosting its development spending for this search and to mix up new drinks.

PepsiCo Inc. said Tuesday at an investor meeting that it is putting "unprecedented resources" toward reformulating its beverages with natural, no-calorie sweeteners such as stevia, an herb grown in South America and Asia, and to find new ones.

Soft drink sales are falling as people look to cut calories and worry over other sweeteners such as high fructose corn syurp. Shopper thriftiness in the recession is also hurting sales. So coming out with new, no-calorie drinks is a way to keep people buying.

The race gets even more pressing now that there's talk of a tax on sugary beverages.

PepsiCo has used a version of stevia in some of its Tropicana and SoBe Lifewater drinks, said Massimo d'Amore, CEO of PepsiCo's Americas Beverages unit, which overseas drinks in North and South America. Having employed the technology in non-carbonated beverages, now PepsiCo wants to do the same for soda.

"The next barrier we have to break is to do the same with carbonated products," d'Amore said at the second day of an investor meeting Tuesday. "The reason they're not out there yet is because there are some taste issues we are working on."

PepsiCo said it has a pipeline of zero calorie, natural sweeteners in the works, but it declined to say when they might be released, how much of its portfolio would have them or how much it's spending on research.

Rival Coca-Cola Co. is likewise looking for these sweetener alternatives, said UBS analyst Kaumil Gajrawala.

"I think the scramble is on to get the taste profile, and it seems like both companies are close to it," he said.

Coca-Cola has used a version of stevia in its Odwalla juices, Vitaminwater, and some carbonated beverages such as Sprite Green, among other products. The company said in a statement Tuesday it is looking into further using stevia-based sweeteners in several of its beverage categories. It is also studying additives that could enhance the sweetening power of sugar, letting it use less.

The possibility of a tax on sugary beverages, which some health leaders and lawmakers are calling for to fight obesity, makes the search all the more important, d'Amore said. He added PepsiCo has been working on the developments since before talk of the sugar tax surfaced.

"Discussions of a sugar tax are only adding more sense of urgency to this," he said.

He said the taste and the cost of these new sweeteners must work just right for the company to use them. Typically, no-calorie drinks like Diet Pepsi have artificial sweeteners like aspartame.

PepsiCo laid out many changes to its beverage system this week before its investors, who are want hear about its plans now that it has completed its $7.8 billion buyout of its two largest bottlers in North America.

The deal lets them control distribution of the majority of their products, and be quicker to market with new drinks to keep up with shoppers' changing tastes. PepsiCo's products won't need to sit in warehouses and the company can more closely control how they are displayed in stores or even what products are sold where.

CEO Indra Nooyi had no qualms saying performance in the beverage business has been subpar in the past couple of years. Sales fell and the company tried to prop them up with promotions, such as discounts — but that's not considered a way to build long-term sales.

Now PepsiCo is pursuing new sales by reformulating brands and coming up with new drinks to keep shoppers interested. Nooyi said she expects the beverage business to return to profitable growth this year.

PepsiCo has removed all high fructose corn syrup from sports drink Gatorade and replaced it with cane sugar. Now the brand, whose sales have slumped among the worst of PepsiCo's brands in the recession, plans to offer a new line called "G Series Pro" at General Nutrition Centers stores.

The line is aimed at more serious athletes, rather than the casual ones who drink other variations of Gatorade. It features more nutrients and proteins and will be available at GNC stores in May. Later the line will expand to Dick's Sporting Goods and smaller sporting goods retailers.

The line has been in professional sports locker rooms for the past 15 years but is being expanded now to help the brand get back to a more serious, athletic connotation. It won't be available in grocery stores.

Gatorade is also introducing a line of natural Gatorade products that feature natural coloring and flavoring, in addition to cane sugar starting next month at Whole Foods Inc.

Copyright 2010 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.


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