The Latest Happenings in the Beverage Industry

Recently, several interesting events have been dominating the headlines that may interest investors in the beverage sector.

Obesity concerns loom
Evidence reaffirms concerns about the links between poor health and soda consumption. In a study cited by Foodnavigator USA, the decreased consumption of "sugar sweetened beverages" correlated with a drop in cholesterol and "inflammatory biomarkers." The link between these two trends has yet to be established. Beverage giant Coca-Cola (NYSE: KO  ) sponsored its own study and deeply criticized the National Health and Nutrition Examination Survey, indicating that claims shouldn't be used in policy decision-making.

Carbonated-beverage companies face an ever-steeper hill while fighting headwinds from the healthy lifestyle movement. Governments seek to give soda the cigarette treatment by imposing an excise tax. The city of San Francisco wants to impose a $0.02 per ounce tax on soda. Even governments outside the U.S. seek to regulate soda consumption. The Mexican government wants to pass an excise tax on soda and junk food much to Coca-Cola CEO Muhtar Kent's disdain in its most recent earnings call. India also seeks tougher scrutiny on sodas sold there. As a result of regulations, the soda industry swoops in and spends legal dollars to fight new regulations and risk its public relations image in the process. Moreover, Coke's bottler executives in the Latin America region predict an increase in bottler consolidation to increase economies of scale and combat any friction caused by potential soda regulation.  

Consumer awareness of health risks definitely makes an impact on company financials in the soda industry. On Oct. 23, Dr Pepper Snapple Group  (NYSE: DPS  ) released its earnings. Volume in its carbonated soda drink category came in flat. In response, the company wants to step up cost-cutting measures, including the closing of a distribution site in Texas. Aspartame fears put a dampener on Dr Pepper Snapple's high expectations for its new low-calorie "Ten" line.

Rival soda and snack-food giant PepsiCo (NYSE: PEP  ) saw its core volume of carbonated soda beverages decline in the "mid-single digits" during the last quarter in North America. Coca-Cola saw its quarterly carbonated soda volume expand 1% worldwide. However, Coca-Cola's North American soda volume remained even this past quarter versus the same time last year.

New products come into the marketplace
Coca-Cola recently demonstrated a number of new products and means of selling them at the National Association of Convenience Stores Show, according to BevNet. For example, it introduced a new Vitaminwater fountain dispenser that could add to consumer convenience by making it easier to consume the drink. This could give Coca-Cola's Vitaminwater the same ubiquity and scale enjoyed by its carbonated soda brethren. In addition, Coca-Cola introduced Minute Maid Drops to its lineup of liquid water enhancers. Coca-Cola also introduced a can that features a graphic of an ice cube when it gets cold. 

PepsiCo recently introduced new products of its own. It expanded its Frito Lay line with the introduction of Stacy's Bake Shop Bakery Crisps. PepsiCo also introduced the new Aquafina FlavorSplash line of flavored water products to meet the consumer need for a combination of a healthier and tasty drink. Coca-Cola one-upped Pepsi by introducing a line of flavored Dasani sparkling bottled waters. 

A competitor steps up
Beverage World recently named coffee and tea giant Starbucks (NASDAQ: SBUX  ) "Liquid Refreshment Company of the Year." Last year it bought Teavana, a maker of high-end tea. According to Beverage World, Starbucks wants to enter the carbonated soda business. It hopes to compete on the grounds of ingredient transparency and quality. Also, Starbucks wants to expand into the cold-pressed juice market, adding to the competition in the juice space. With Starbucks expanding its restaurant empire and grabbing shelf space in grocery stores, Coca-Cola, PepsiCo, and Dr Pepper may want to pay attention.

Foolish takeaway
Coca-Cola, PepsiCo, and Dr Pepper will need to work harder to redefine themselves and stay one step ahead of the competition. Taxes, new competition, and new attitudes surrounding sodas will not make this task easy. In fact, they may want to look at competitors like Starbucks and SodaStream for ideas on how to compete if their own ideas don't measure up. Investors may want to look in that direction for investment ideas as well.

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