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Still Beverages: A Key Focus for Nonalcoholic Beverage Companies

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Stills proved their mettle in 4Q15

Still beverage volumes gained strength in 4Q15 as consumers continued to shift from sugary soda beverages to healthier options. The still beverage category includes ready-to-drink tea, bottled water, and sports drinks.

Nonalcoholic beverage companies Coca-Cola (KO), PepsiCo (PEP), and Dr Pepper Snapple (DPS) experienced softness in carbonated soft drink (or CSD) volumes in 4Q15 and 2015.

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Volume growth in 2015

In 2015, Coca-Cola’s still beverages accounted for 33% of US unit case volume, up from 32% in 2014. Coca-Cola reported 1% growth in sparkling beverages volumes and 5% growth in still beverage volumes in 2015. The strength in Coca-Cola’s still beverage volumes was driven by 8% growth in packaged water, 4% growth in ready-to-drink tea, 3% growth in ready-to-drink coffee, and 2% growth in sports drinks.

The iShares Russell 1000 Growth ETF (IWF) and the iShares Russell 1000 ETF (IWB) have 1.7% and 0.9% exposures, respectively, to Coca-Cola.

The CSD volumes of PepsiCo’s North America Beverages segment fell by 2%, while still or noncarbonated beverage volumes rose by 6% in 2015. PepsiCo’s growth in the still beverage category was driven by strong performance by its water portfolio, Gatorade sports drinks, and Lipton ready-to-drink teas.

Dr Pepper Snapple reported a 1% rise in CSD volumes and a 4% rise in noncarbonated beverage volumes. The company’s noncarbonated beverage portfolio comprises strong brands such as Bai Brands, FIJI, Aguafiel, and Snapple.

Growth strategy for still beverages

Nonalcoholic beverage companies are relying on in-house innovations as well as strategic acquisitions to expand their still beverage portfolios. In December 2015, PepsiCo revealed its plan to launch an organic version of Gatorade, its leading sports drink brand, in 2016.

In February 2016, Coca-Cola acquired a minority stake in Chi Limited. Nigeria-based Chi has a leading position in the value-added dairy and juice market. Coca-Cola also used its inorganic growth strategy to expand in the energy drinks market through the acquisition of a 16.7% stake in Monster Beverage (MNST) in 2015.

Dr Pepper Snapple acquired an 11.7% stake in BA Sports Nutrition, owner of the BodyArmor sports drink line, to capture the growth in the sports drinks market.

Nonalcoholic beverage companies are also trying to enhance their sales by focusing on advertising and marketing.

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