The importance of advertising
The soft drink industry is marked by severe competition and declining demand for carbonates. Major companies in the industry sustain positions in this adverse scenario on the strength of company and product branding and advertising strategies.
The industry includes companies that enjoy huge popularity all over the globe. Brand consultancy Interbrand ranked The Coca-Cola Company (KO) as the world’s third-most valuable brand, with a value of $81.6 billion. Coca-Cola’s closest competitor PepsiCo, Inc. (PEP) ranked 24th, with a brand value of $19.1 billion.
Strong individual brand portfolios
Coca-Cola and PepsiCo own impressive brands that generate more than a billion dollars each in revenues.
- Coca-Cola: The company owns more than 500 brands, and features 17 brands that generate more than one billion dollars each in revenues, including Coca-Cola, Diet Coke, Powerade, Aquarius, Bonqua, Dasani, Fanta, Schweppes, and Minute Maid.
- PepsiCo: The company’s massive brand portfolio includes 22 brands generating revenues of more than one billion dollars each. Some of its better-known labels are Pepsi, Mountain Dew, Gatorade, Mirinda, Aquafina, and Lipton.
Investing in brands
Soft drink makers continually invest in branding. In 2013, Coca-Cola and PepsiCo spent $3.3 billion and $3.9 billion, respectively, on advertising and marketing activities.
The success of Coca-Cola’s Share a Coke campaign is a perfect example of the importance attached to marketing in this industry. The Share a Coke campaign was first rolled out in Australia in 2011 and then extended to more than 50 countries. The campaign allowed fans to put their names or those of their family and friends right on the front of Coca-Cola bottles or cans, effectively personalizing the product.
The campaign increased the volume of the Coca‑Cola brand’s sales. In 2013, it generated 5% and 1% full-year volume growth in Germany and the Northwest Europe and Nordics region, respectively.
Peers in the industry such as Dr Pepper Snapple Group, Inc. (DPS) and Monster Beverage Corporation (MNST) also focus intently on marketing. Dr Pepper Snapple, the third-largest company in the US soft drink market, spent $486 million on advertising in 2013. Monster, a leading player in energy drinks, incurred $181.8 million in advertising expenses.
Soft drinks come under the consumer staple sector. You can access this sector through the Consumer Staples Select Sector SPDR ETF (XLP).