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Nonalcoholic Beverage Companies Bank on Innovation to Boost Sales

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Jun. 14 2016, Updated 1:04 p.m. ET

Growth avenues

With soda volumes continuing to reflect weakness in 1Q16, nonalcoholic beverage companies are working on enhancing their product offerings in non-carbonated, or still, beverage categories. They are also working on innovation in packaging and sizes. Soda companies are extensively promoting smaller packages, which are positively impacting their margins.

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Better products

Nonalcoholic beverage companies like Coca-Cola (KO), PepsiCo (PEP), Dr Pepper Snapple Group (DPS), and Monster Beverage (MNST) are focusing on innovation with better beverage options for consumers, including lower calories and natural ingredients. In March 2016, PepsiCo introduced Mountain Dew Black Label, a carbonated soft drink made with real sugar, crafted dark berry flavor, and herbal bitters. PepsiCo is also working on healthier options in its snack food business. In March 2016, PepsiCo introduced Quaker Breakfast Flats, which are crispy baked snack bars that contain oats, real pieces of fruit, crunchy nuts, flax, and sunflower seeds. Each serving of Quaker Breakfast Flats contains three flats with fewer than 200 calories per pack and 18 grams of whole grains, with no artificial flavors or added colors.

Coca-Cola is expanding into better beverage options though strategic investments. In June 2016, Coca-Cola and its bottler Coca-Cola FEMSA (KOF) announced the proposed acquisition of Unilever’s (UL) AdeS, a soy-based beverage business. In March 2016, Coca-Cola acquired Xiamen Culiangwang, a producer of plant-based protein drinks sold in China. In January 2016, Coca-Cola acquired a minority stake in Chi Limited, Nigeria’s leading juice and value-added dairy company. In August 2015, Coca-Cola purchased a ~30% stake in Suja Juice, a California-based manufacturer of organic juices.

In April 2016, Dr Pepper Snapple Group increased its investment in BA Sports Nutrition, maker of the BODYARMOR line of premium sports drinks, from 11.7% to 15.5%.

Together, Coca-Cola, PepsiCo, Dr Pepper Snapple Group, and Monster Beverage account for 2% of the SPDR S&P 500 ETF (SPY).

Recent innovations

Monster Beverage continued to strengthen its product portfolio in 1Q16 with the launch of the Gronk energy drink and Salted Caramel Java Monster. The company intends to launch Mutant, a refreshment energizer drink, in 3Q16. Dr Pepper Snapple Group continues to capture opportunities in growing beverage categories through partnerships. In the 1Q16 conference call, the company disclosed two new partnerships, one with CORE Hydration, a purified water brand, and the other with High Brew Coffee, a cold-brewed ready-to-drink coffee.

Aside from the innovations mentioned above, PepsiCo launched a new product line, Brisk Mate, under its Brisk iced tea brand in March 2016.

In April 2016, Coca-Cola introduced Dasani Sparkling in two new flavors, raspberry lemonade and tropical pineapple, with new packaging.

In the next part of this series, we’ll discuss the margins of nonalcoholic beverage companies.

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