Carbonates losing their fizz
Sparkling beverages, or carbonates, are a mature category of the soft drink industry. Carbonates are losing their popularity as consumers become more particular about calories in their drinks. This declining trend is most evident in developed markets like the US, where the carbonated soft drink market (or CSD) has declined for nine straight years.
But even in these challenging times, Coca-Cola is hopeful about the growth opportunities in this category. It estimates more than $100 billion in retail value growth over the 2014–2020 period.
Despite the continued volume decline, carbonated or sparkling beverages remain important for The Coca-Cola Company (KO). In 2013, 68% of the US unit case volume was from sparkling beverages and 32% from still beverages. Even in the non-US region, 75% of the unit case volume was attributable to sparkling beverages and 25% to still beverages. But sparkling beverage volumes have been declining in developed markets like Europe and North America. Also, in international markets, still beverage volumes are growing faster than sparkling beverages.
Demand outside the US
Soda’s per-capita consumption is still low in emerging markets like India compared to developed markets. This provides growth opportunity for carbonated drink makers like Coca-Cola, PepsiCo, Inc. (PEP), Dr Pepper Snapple Group, Inc. (DPS), and Monster Beverage Corporation (MNST). For instance, in 2013, Coca-Cola’s unit case volume in India increased by 4%, driven by 18% growth in the Coca-Cola brand and 5% growth in the Sprite brand.
To cater to changing consumer preferences, Coca-Cola is expanding its sparkling beverage portfolio with low-calorie and other healthier options. Coca-Cola Life, launched in Argentina and Chile in 2013, is the company’s new low-calorie sparkling beverage naturally sweetened with cane sugar and stevia leaf extract. It has 35% fewer calories than regular cola. In 2013, the company introduced Caffeine-Free Coke Zero to the US market.
Coca-Cola and its peers are part of the consumer staples sector. You can invest in this sector through the Consumer Staples Select Sector SPDR ETF (XLP).