New Products and New Directions in the Beverage Industry

Recent developments to watch for in the beverage industry.

Feb 11, 2014 at 2:00PM

Investors would be wise to pay attention to several recent developments for the top beverage companies. Beverage giant Dr Pepper Snapple Group (NYSE:DPS) has added to the Mott's family of products, and SodaStream has a new partner. Convenience store trends toward more energy drink consumption may possibly benefit companies such as Monster Beverage (NASDAQ:MNST), to the detriment of Coca-Cola and PepsiCo. Moreover, Starbucks (NASDAQ:SBUX) wants to adapt to the slow-changing consumer shift away from consumption at brick-and-mortar stores.

New products
Dr Pepper Snapple Group recently announced the introduction of three new flavors to its Mott's line of assorted juices: Fruit Punch Rush, Wild Grape Surge, and Strawberry Boom. The announcement highlights the drinks' lower sugar content and lack of artificial sweeteners. It's expected that the product line will go national in March.  However it's unlikely that the new Mott's introduction will do much to stave off anticipated volume declines at Dr Pepper Snapple Group. Wells Fargo analyst Bonnie Herzog anticipates flat revenue versus the same time last year. Moreover, the convenience store survey highlighted in Food Navigator-Usa.com and Beverage Daily gave indication of weak repeat sales for its Dr Pepper TEN line. In other product innovation news, SodaStream announced on Jan. 29 that it's teaming up with "family farmer owned" Welch's, known for its grape-based juices, to develop a product for use in SodaStream's homemade carbonated beverage machine. The products will hit store shelves later in 2014. 

New directions
All-natural sweeteners will not help turn around diet soda sales, according to an article in the newsletters Food Navigator-Usa.com and Beverage Daily. Wells Fargo surveyed 15,000 convenience stores throughout the United States and they felt that all of the negative press surrounding the ill effects of diet sodas has done irreparable harm to the category. Moreover, one retailer in the convenience store group said in the survey that they feel a consumer preference shift is under way, with the younger generation preferring energy drinks to move them through the entire day instead of relying on that morning jolt from coffee or the afternoon resurgence from sodas. This is bad news for companies such as Coca-Cola and PepsiCo and good news for companies such as Monster Beverage which maintains a solid lead in the convenience store energy drink channel.  According to fellow Fool Ted Cooper, Coca-Cola and PepsiCo's energy drinks reside in the 4th-6th place in terms of overall energy drink market share. Also, the same survey indicates that convenience store shelf space for energy drinks will most likely increase from 20% to 30% of total servings as a possible catalyst for capital gains increases for companies like Monster Beverage.  

Meanwhile, Starbucks CEO Howard Schultz is concerned about the consumer shift away from brick-and-mortar shopping and toward mobile and online shopping. As a result, he promoted longtime Starbucks executive Troy Alstead to the position of Chief Operating Officer. This will allow Howard Schultz to focus on innovation and steering the company into the new mobile technological paradigm. Operational group executives will report to Alstead directly. Also, Starbucks' new CFO and his senior staff will report to Alstead. Craig Russell was promoted to the position of executive vice president of Global Coffee. Russell, under the direct supervision of Schultz, will serve as Starbucks' forward-thinking big-picture leader on things pertaining to coffee. Russell will oversee "coffee strategy, quality, innovation, purchasing, education and engagement." Schultz certainly needs someone to help Starbucks adapt to this new consumer shift toward mobile and Internet, and Russell will serve to assist in this crucial function. Starbucks' management realignment will serve the company and its shareholders better. Troy Alstead and his operating managers can focus on territorial expansion for its Starbucks and Teavana stores. Howard Schultz and his Global Coffee vice president can focus on what makes Starbucks great: innovating new products and engaging stakeholders. These two management groups should provide powerful internal synergies to guide Starbucks down a new path.

Looking ahead

Businessweek estimates that Dr. Pepper's Snapple Group's 2013 revenue will remain even with 2012.  It also estimates that Monster will report 2013 revenue at $2.2 billion later this month, representing a 5% increase over 2012. The publication also believes that Monster's 2014 revenue will clock in at $2.5 billion, representing a 14% increase over 2013. In addition, Businessweek predicts that Coca-Cola's 2013 revenue will decline 1.5% while PepsiCo revenue will increase 1.5% when they report later this month. Finally, it's estimated that Starbucks will grow its revenue 12% in 2014.Feel free to add Dr Pepper Snapple Group, Monster, Coca-Cola, PepsiCo, SodaStream, and Starbucks to your Motley Fool Watchlist.

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William Bias owns shares of Coca-Cola. The Motley Fool recommends Coca-Cola, Monster Beverage, PepsiCo, SodaStream, and Starbucks. The Motley Fool owns shares of Coca-Cola, Monster Beverage, PepsiCo, SodaStream, and Starbucks. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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