Soda Is On Its Way Out

On March 31 industry newsletter Beverage-Digest released its annual U.S. beverage volume and market share data. This year's data is quite telling as to the current trends affecting beverage companies such as Coca-Cola (NYSE: KO  ) , PepsiCo (NYSE: PEP  ) , Dr Pepper Snapple Group (NYSE: DPS  ) , Monster Beverage (NASDAQ: MNST  ) , and Nestle (NASDAQOTH: NSRGY  ) . Decline in carbonated sodas accelerated in 2013 while bottled water and energy brands edged up in market share rankings. Overall the report reveals five important takeaways.

Consumers increasingly find sodas distasteful
The latest numbers reveal that consumers increasingly shy away from carbonated sodas probably stemming from health concerns related to obesity. Overall carbonated soft drinks lost 3% in volume in 2013 in the U.S. according to Beverage-Digest. This compares to a 1.2% decline in 2012 and 1% decline in 2011, indicating that carbonated soda volume resides in an accelerating down curve for the past three years. Specifically, all three of the big three beverage companies Coca-Cola, PepsiCo, and Dr Pepper Snapple Group lost volume of 2.2%, 4.4%, and 2.4% respectively during 2013.

Coca-Cola still rules...relatively speaking

Source: Flickr--John Bromels


Coca-Cola as a company remains in the No. 1 spot in terms of carbonated soft drink volume, with market share increasing 0.4%. Brand Coke also ranks at the top of the carbonated soda brands. Unfortunately, overall Coca-Cola and brand Coke lost volume. While Coca-Cola volume declined 2.2% brand Coke volume lost 0.5% in the carbonated soda drink brand category. PepsiCo and its Pepsi Cola brand fared a great deal worse volume wise. PepsiCo saw its overall volume decline 4.4% while Pepsi Cola saw its volume decline 3.6% in the carbonated soda drink category.

Consumers dislike the word diet

Source: Flickr--xerohype



Beverage-Digest data revealed that consumers increasingly dislike the word "diet" on their carbonated soda bottles. This probably stems from the public's concern over the diet ingredient aspartame on long-term health. Every diet brand in the top 10 carbonated soda drink category experienced a sharp decline in volume in 2013. Diet Coke, Diet Pepsi, and Diet Mountain Dew all lost volume of 6.8%, 6.9%, and 3.1% respectively. Interestingly, Diet Dr Pepper dropped off the top ten list altogether while being replaced by Coke Zero. Coke Zero lost volume of 0.1% but gained market share serving as further indication that people increasingly dislike the word "diet" attached to brands.

Energy drinks climb the market share ladder

Source: Flckr--Benpop318


It's probably more accurate to say that energy drinks flew up the market share ladder on a rocket ship. Beverage Digest estimated that energy drinks increased volume by 5% in 2013. This bodes well for publicly traded companies such as Monster Beverage which resides in the No. 6 spot in terms of carbonated soda volume in 2013. While people remain apprehensive toward sodas in general due to health reasons they still want that caffeine jolt in the middle of the day. However, Monster Beverage saw its particular volume increase 7.7% in 2013 versus 19.1% in 2012 which means its growth rate waned. 

Consumers love branded bottled waters

Source: Flickr--Chris Mali


With consumers fleeing carbonated soda drinks it's only natural to assume that healthy drinks will benefit from this shift. The increase in market share and volume of branded bottled waters serves as evidence for this reasoning. Nestle Pure Life gained 0.1% and 0.4% while Coca-Cola's Dasani water gained 0.2% and 5% in market share and volume respectively. Nestle Pure Life and Dasani Water resides in the No. 7 and No. 8 spots on the Top-10 Liquid Refreshment Megabrands for 2013.

What does this mean for investors?
This means that companies whose product portfolios contain a great deal of carbonated soda need to adapt by integrating and innovating healthier products into their portfolios. For example, one of Coca-Cola's priorities is expanding both its non-sparkling as well as sparkling drinks. Coca-Cola's distribution system also allows its investors a certain margin of safety as other companies such as Dr Pepper Snapple Group and Monster Beverage lean on Coca-Cola to distribute their products.  

Investors may also want to gravitate toward Monster Beverage as it sells one of the few products growing in the carbonated soda drink category. Moreover, investors should still consider PepsiCo and Nestle. PepsiCo possesses a vast product portfolio that includes snacks which outpace the growth of its beverage portfolio.  Nestle also sells food in addition to bottled water. Nestle Waters also maintain a No. 4 spot in terms of volume in the liquid refreshment category behind Coca-Cola, PepsiCo, and Dr Pepper Snapple Group. Investors may want to stay away from Dr. Pepper Snapple Group as it lacks both scale and product diversity to overcome the headwinds faced by the carbonated soda industry. 

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  • Report this Comment On April 17, 2014, at 5:39 PM, Har1en wrote:

    Great article -- was looking into Monster Bev (which I own) and came across this. Supports many of the trends that I've seen in the press and my own life, but wasn't sure if they happened outside of California. :D

  • Report this Comment On April 17, 2014, at 9:25 PM, stockdissector wrote:

    Hi Har1en,

    Appreciate the readership!

    Fool on!

    William

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