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Beverage Giants Follow the Times and Go beyond Soda

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Declining per capita consumption

In the previous part of this series, we discussed the continued decline in US carbonated soft drink case volumes. The per capita consumption of soda drinks in the US has fallen to 674 eight-ounce servings per person per year, down from 728 in 2010. According to Beverage Digest, US per capita consumption of soda drinks is currently at its lowest level since 1986.

Nonalcoholic beverage companies, including Coca-Cola (KO), PepsiCo (PEP), and Dr Pepper Snapple (DPS), are rapidly expanding into alternative beverage categories to fight the drop in demand for soda in developed markets and to capture market share in the healthier beverage space.

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Growth categories

The ill-effects of soda include obesity and nutritional deficiencies. These conditions may be caused by the high sugar content and caffeine in soda beverages. Increasingly, consumers are moving toward healthier beverages like ready-to-drink tea, flavored water, and value-added dairy.

In contrast to steadily declining case volumes of soda drinks volumes, non-carbonated beverages are expected to grow at a rapid pace. For instance, according to Euromonitor International, ready-to-drink tea is anticipated to grow at a compound annual growth rate of 5%, reaching sales of $6.6 billion by 2019—assuming constant 2014 prices.

Beverage giants are aggressively diversifying into these growth categories. Coca-Cola’s still beverages have gained momentum in recent times. Prior to 2014, the company had 11 still beverage brands that generated more than $1 billion in sales. In 2014, three more still beverage brands from Coca-Cola hit the billion-dollar sales mark:

  • Gold Peak Tea
  • FUZE Tea
  • I LOHAS mineral water

In 1Q15, the company’s Gold Peak tea and smartwater brands posted double-digit growth in North America.

In February 2015, Coca-Cola entered the value-added dairy market with the launch of Fairlife, a premium milk product. Coca-Cola priced this product at double the price of regular milk.

Rivals PepsiCo and Dr Pepper Snapple have also been expanding their non-carbonated beverage portfolios. PepsiCo’s brands include Gatorade Lipton Tea, Tropicana, and Naked Juice products. Dr Pepper Snapple’s key non-carbonated beverage brands are Hawaiian Punch, Snapple, Mott’s, and Clamato.

KO, PEP, and DPS together account for ~2.9% of the iShares Russell 1000 Growth ETF (IWF). Combined, Coca-Cola and PepsiCo make up ~1.3% of the Vanguard Total Stock Market ETF (VTI).

For more on this topic, read our overview of the nonalcoholic beverage industry.

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