Evolving consumer tastes
Coca-Cola (KO) and PepsiCo (PEP) are transforming their beverage portfolios to address evolving consumer tastes. Consumers are shying away from conventional soda drinks and showing a preference for better beverage choices like functional beverages, bottled water, and ready-to-drink tea and coffee. Both companies have been catering to changing consumer needs and launching several new flavors and no- or low-calorie beverages.
As the graph above shows, Coca-Cola’s unit case volume grew in the first three quarters of 2018 after remaining flat in each of the four quarters of 2017. In the third quarter of 2018, the company’s Coca-Cola Zero Sugar brand generated double-digit volume growth across all its operating groups. Coca-Cola’s Fuze Tea and Smartwater brands also experienced strong volume growth in the third quarter. Overall, Coca-Cola’s unit-case volume grew 2.0% in the third quarter of 2018 as well as in the first nine months of 2018.
PepsiCo’s North America Beverages segment reported a 1% rise in its third-quarter volume as a 4% rise in the noncarbonated beverage volume was partially offset by a 1.5% fall in its carbonated beverage volume. PepsiCo’s volume declined 1% in the first nine months of 2018 as a 2% rise in the noncarbonated beverage volume was more than offset by a 3% drop in the soda volumes.
Efforts to improve volumes
Coca-Cola has made several strategic investments in recent times to expand its beverage portfolio. In 2018, Coca-Cola’s strategic purchases included a stake in sports drink brand BodyArmor, acquisition of Organic & Raw Company (maker of MOJO Kombucha drinks), and a stake in Australian beverage company Made Group. Coca-Cola’s most notable deal is the $4.9 billion acquisition of British coffee company Costa, which was completed on January 3. The Costa acquisition is expected to help Coca-Cola in establishing its presence in the hot beverages market.
In 2018, PepsiCo acquired SodaStream International, an at-home sparkling water maker company, for $3.2 billion.
Coca-Cola and PepsiCo have also been launching several new beverages. In December, PepsiCo introduced MTN DEW AMP GAME FUEL (under its Mountain Dew brand) in four flavors. Last year, Coca-Cola launched two innovations under its Smartwater brand (Smartwater antioxidant and Smartwater alkaline). Coca-Cola also expanded the reach of the Smartwater brand to more than 20 additional markets last year.
We’ll discuss these companies’ revenue in the next part of this series.