This Trend Could Bottle Up Coca-Cola's Stock

We may have our love affair with beer, wine, and spirits, but none of those beverages can quench our thirst for profits like bottled water does. Coca-Cola (NYSE: KO  )  as one of the premier bottled water companies, saw case volumes surge 10% in 2012 for its Dasani brand, and they were up 6% in the first quarter of 2013.

At 3.2% compounded annual growth between 2005 and 2011, bottled water has surpassed beer's 2.2% increase in that time frame and is on equal footing with the better-than-3% rise in wine and spirits sales. It's far outpacing the seven consecutive years of carbonated beverage volume declines, too.

Drinking from a firehose
While water may not be enjoying the same double-digit growth rates it enjoyed in the last decade, it is recovering enough to begin building up some heady growth again. After two straight years of declines in 2008 and 2009, bottled water's cup is running over again. Sales grew 2.6% in 2010 and were up 3.2% in 2011, and then they more than doubled to 6.7% last year. It may not be long before sales achieve double-digit growth once more.

Water, water everywhere
And therein lies the problem. Despite the marketing efforts of major bottled water sellers like Coke, PepsiCo (NYSE: PEP  )  (which owns Aquafina), and Nestle, there's really not that much difference between what they're selling you in their plastic bottles and what comes out of your tap. Indeed, a few years ago, Pepsi was forced to acknowledge that its Aquafina brand is nothing more than tap water. Nestle's Pure Life brand is also municipally sourced, as is Dasani, which Coke admits is just "purified" tap water. That's a big difference from "source water," which comes from a spring. 

Poland Spring's brand does actually come from the real Poland Spring in Maine, but only 30% worth. The rest is from other springs in the state including Clear, Evergreen, and Spruce, among others.

Tap that keg!
There's no difference, that is, except money. Bottled water sales totaled $11.8 billion last year, according to BottledWater.org. Yet if you're buying bottled water, you're paying simply for Coke's and Pepsi's marketing machines, which have created the impression that municipally treated water provided by facility operators like American Water Works and Aqua America is unsafe.

Admittedly, it bothers me when state governments force the fluoridation of water, for example, but there are means for removing it. Yet, in general, you'll do well for yourself financially and physically by drinking the water from your tap instead of buying bottled. It's why the bottlers themselves tap into it in the first place!

Still, Coca-Cola's stock at least ought to be able to bubble up again as consumers seem willing again to buy bottled water, perhaps letting the beverage maker catch lightning in a bottle again.

Coca-Cola's wide moat has helped provide its shareholders with superior gains in the past, but the company faces some new threats to its continued market dominance. The Motley Fool recently compiled a premium research report containing everything you need to know about Coca-Cola. If you own or are considering owning shares in the company, you'll want to click here now and get started.


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10/30/2014 4:04 PM
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