Coca-Cola, PepsiCo, and Starbucks: 5 Stories To Watch

New products may or may not necessarily add growth to the top and bottom line.

Apr 12, 2014 at 10:00AM

Beverage, snack, and restaurant industry trade headlines revealed some interesting happenings for snack/beverage giant PepsiCo (NYSE:PEP), beverage giant Coca-Cola (NYSE:KO), and coffee, tea, and sandwich shop chain Starbucks (NASDAQ:SBUX). Reading these stories gives can give you an an interesting perspective on which companies are innovating, making progress in the healthy lifestyles movement, and reworking its product lines.

New Cheetos

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Source: Flickr-stockdissector


Innovation is key to keeping a company's product portfolio from turning stale and renewing consumer interest to keep them coming through the doors. Increasing customers boosts the potential for revenue and free cash flow growth which serve as catalysts for returns in the form of capital appreciation and dividends. PepsiCo understands this fact and innovates often. Moreover, PepsiCo demonstrates its ability to understand consumption patterns based on "demand occasion" such as pairing its food and beverage products in new and interesting ways.

With that said, PepsiCo recently introduced a new brand of snack called the Cheetos Flamin' Hot/Doritos Dinamita Chile Mix uniting the flavors and texture of both product lines according to its press release.  This adds to PepsiCo's already large portfolio of snacks.

PepsiCo jumps on the celebrity bandwagon

Jumping on the celebrity endorsed flavoring bandwagon in Lebron James fashion, on April 2; PepsiCo introduced the new sour grape flavored AMP Energy Drink: Dale Jr. Sour for a limited time according to the press release. The limited edition can features a picture of Dale Earnhardt Jr. and his race car serving as a draw for collectors.  The Dale Earnhardt Jr. campaign serves as a wise move on PepsiCo's part as consumers increasingly gravitate toward energy drinks. Beverage-Digest reported a 5% increase in U.S energy drink volume in 2013. 

Coca-Cola Life won't provide growth

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Source: Flickr-stockdissector


Coca-Cola, on the other hand, may not fare as well with its new innovation Coca-Cola Life. Industry newsletter Beverage Daily reported that experts believe that Coca-Cola Life, which contains natural sweeteners, will merely cannibalize its other drinks such as Diet Coke and Coke Zero. Challenges in advertising and price may potentially serve as the culprits according to the newsletter.  Coca-Cola needs to up its efforts to address challenges in the carbonated soda arena. In 2013 its global carbonated beverage volume only increased 1%.  Newsletter Beverage-Digest reported a decline in U.S. volume for Diet Coke and Coke Zero of 6.8% and 0.1% respectively last year. 

Starbucks brings back cake slices

The Associated Press reports that Starbucks will reintroduce cake slices due to customer demand or rather the lack of demand for its replacement. Half of Starbucks stores saw complete removal of cake slices much to the dismay of customers. Starbucks had been phasing out cake slices in favor of newer pastry items such as miniature loaves, croissant squares, and rectangular sweet loaves. However, these new pastries haven't sold as well as the cake slices. One barista speculated that smaller portions and a higher price serve as culprits for the bad reception.  

Starbucks introduces a new coffee flavor

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Source: Starbucks News


In other Starbucks news, the company recently introduced the New Single-Origin Colombia Narino coffee. According to the company press release the coffee bean comes from the Narino region "in southeast Colombia on the border with Ecuador known as Narino." This particular brand provides an interesting texture and taste such as a "juicy acidity, herbal notes and a walnut-like taste". 

Innovation is no guarantee
PepsiCo strength will continue to be derived from its snack division for the foreseeable future as it continues to introduce varieties in that segment. It seems that Coca-Cola understands the need for innovation even though some of the newer products will merely replace the less fashionable ones in the future. Still Coca-Cola needs to step up its innovation machine to bring about incremental growth. Look for Starbuck to continue to innovate bearing in mind it makes mistakes as well.

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William Bias owns shares of Coca-Cola. The Motley Fool recommends Coca-Cola, PepsiCo, and Starbucks. The Motley Fool owns shares of Coca-Cola, PepsiCo, and Starbucks and has the following options: long January 2016 $37 calls on Coca-Cola and short January 2016 $37 puts on Coca-Cola. 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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