The Biggest Risks Facing Coca-Cola

Coca-Cola (NYSE: KO  ) is seemingly on top of the world. Its brand power is indisputable, and its global presence is massive. But increasingly fierce competition pops up and threatens the cola titan. I've created a premium report on Coca-Cola to help investors examine the company's future.

Following is an excerpt from the report, which offers a quick overview of the company and what keeps it up at night. This is just a sample of one section, but we hope you find it useful.

Long considered one of Warren Buffett's favorite businesses and top holdings, Coca-Cola quenches the thirst of millions of yearning consumers and shareholders. And despite the fierce competition in the nonalcoholic beverage space, the company's iconic brand, global dominance, and extensive distribution network pack a powerful punch.

A refreshing aspect of Coca-Cola is its simple business model. Frequent purchases at low price points represent the lifeblood of Coca-Cola. In his professed love for Coke, Buffett once stated, "[Coke] is a product that has gotten cheaper and cheaper relative to people's earning power over the years." And it shows: The company sells 1.8 billion servings per day. If Coke can flex its pricing power and raise prices by a penny, the company would generate an additional $18 million in revenue in a single day.

Still, despite Coke's past success, demand for its core product, soda, has been declining steadily in the United States. According to industry trade publication Beverage Digest, total sales volume of soda fell in 2011, continuing its multiyear downward trend. Meanwhile, consumption of noncarbonated, nonalcoholic drinks like juices, waters, and teas has been on the rise.

The key to Coke's future lies in the company's ability to diversify its product offerings while expanding even further into lucrative overseas markets. But the company faces some serious risks.  Here are a couple of them:

  • Backlash against soda companies regarding the obesity epidemic. Recently, major soda makers have taken a more proactive approach to the war on obesity. In an initiative dubbed "Calories Count" by the American Beverage Association, an industry lobbying organization, vending machines in selected cities will display the number of calories per container of soda and also suggest a lower-calorie beverage option. Expect increased lobbying effort and spending from beverage companies.
  • Increased regulatory scrutiny or legislation. New York City's recent ban of sugary drinks in servings larger than 16 ounces won't be the end of proposed regulatory scrutiny and legislation against soft drinks. Over half of U.S. states already levy a sales tax, averaging roughly 5%, but city governments are toying with the idea of a municipal tax on sugary drinks aimed at curbing obesity and raising revenues for local coffers.

Looking for more help?
That was just a small taste of our new premium report on Coca-Cola. If you're trying to figure out whether the company is a buy or sell, the report is an indispensable resource for investors seeking more information. The report also comes with updated quarterly guidance so you'll stay in the know. To get started, simply click here.


Read/Post Comments (0) | Recommend This Article (1)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

DocumentId: 2124313, ~/Articles/ArticleHandler.aspx, 7/26/2014 1:09:27 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

TREND TRACKER: Get Rich When the Web Goes Dark

It's time to say "goodbye" to your Internet! One bleeding-edge technology is about to put the World Wide Web to bed. And if you act right away, it could make you wildly rich. Experts are calling it the single largest business opportunity in the history of capitalism… The Economist is calling it "transformative"... but you'll probably just call it "how I made my millions." Big money is already on the move. Don't be too late to the party – find out the 1 stock to own when the Web goes dark.


Advertisement