Why Coca-Cola and Starbucks Will Remain Among The World’s Most Valuable Brands

Will Coca-Cola and Starbucks retain their top billing in the next decade?

May 29, 2014 at 1:22PM

In the 2014 BrandZ Top 100 Most Valuable Global Brand rankings released this month, two beverage-focused companies stood out among the top 50 most valuable brands -- Coca-Cola (NYSE:KO) in sixth place and Starbucks (NASDAQ:SBUX) in 31st. The old winning formula for beverage companies was to build brands, develop flagship products, and wait for the cash registers to ring. This doesn't work as well now, as consumer preferences have changed. What have Coca-Cola and Starbucks done right to deserve their status as world-leading beverage brands?

The new Coke?
Coca-Cola has been one of, if not the most successful beverage companies in history. The numbers speak for themselves, with Coca-Cola's market share of U.S. carbonated soft drinks (CSD's) having remained stable for the past few decades. For the record, its market share was 36%, 40%, and 42% in 1977, 1986, and 2013, respectively. But even a giant like Coca-Cola was unavoidably affected by the trend of consumers moving away from sodas because of increased health consciousness. In line with the 3% drop in U.S. CSD volumes, Coca-Cola's 2013 revenue declined by 2.4%.

Www
Source: Brand Channel

Coca-Cola hasn't stood still in face of industry headwinds; it has worked on staying relevant with consumers. One such initiative is the launch of its Freestyle machine, which dispenses as many as 146 unique flavors. This works because it's faced with a new generation of consumers.

In 1986, when Coca-Cola introduced a reformulated version of Classic Coke called New Coke, it was met with huge consumer backlash. Americans insisted that they wanted their Classic Coke back. Now, it's all about change for the millennial generation, which demands choices and customized products. Coca-Cola's Freestyle machine is a step in the right direction, as it aims to win the hearts and minds of the new generation of soda drinkers.

Coca-Cola also took product customization and individualization to a whole new level with its 2013 U.K. '"Share a Coke' campaign, where it replaced its brand name on its products with 150 popular English names. This set consumers on the hunt for Cokes carrying their names. Initial results were impressive, with Coca-Cola increasing its followers on social media platforms by as much as 7%. A similar campaign in Australia in 2011 also resulted in 7% growth in adult consumption.

If Coca-Cola is to retain its 40% market share of the U.S. CSD market, it's likely such initiatives will be the norm rather than the exception. However, it won't do Coca-Cola any good if there isn't sufficient awareness about its strategic initiatives targeted at consumers. In its most recent first-quarter results, Coca-Cola reiterated that it will 'invest an incremental $400 million in 2014 media initiatives in order to accelerate top-line growth.'

Screen
Source: Campaign Brief

Not just a coffee chain anymore
While Starbucks used to be known as a differentiated coffee-drinking experience for coffee lovers, it is now more apt to call Starbucks an 'anywhere, anytime beverages company.'  If you don't want to pay premium prices for a cup of latte, Starbucks has a mass-market brand called Seattle's Best Coffee, which offers a similar coffee drinking experience at a lower price point.

On the other hand, if you are a busy office worker who wants a quick caffeine boost and don't want to walk to the nearest Starbucks outlet, Starbucks VIA, its instant coffee brand, will allow Starbucks fans to have a cup of freshly brewed Starbucks coffee at their convenience. For those willing to pay more and wait longer, Starbucks launched Verismo, its single-serve coffee-maker product, which promises to deliver Starbucks coffee of similar quality to the ones available at its physical outlets. According to its internal estimates, Starbucks' market share of the domestic at-home coffee market is approximately 13%.

Although there are many people who are hardcore coffee addicts, there are probably an equal number of consumers who will just give coffee a miss. Starbucks wants to capture this market of non-coffee drinkers as well by leveraging its reputation for quality.

One potential area is the cold-carbonated-beverages market, where Starbucks has set its sights with its new line of handcrafted cold carbonated beverages called Fizzio. Following a successful test launch in the past quarter, Starbucks will introduce Fizzio to its 3,000-plus domestic outlets and certain countries in Asia such as Singapore, Korea, and China

Another area is tea. After purchasing mall-based tea retailer Teavana in November 2012, Starbucks opened its first tea bar in New York in October. In a recent interview with CNBC, Starbucks CEO Howard Schultz said that it has plans to 'dominate the tea market the same way it conquered the global coffee market.' As a sign of its ambitions, Starbucks recently collaborated with Oprah Winfrey to launch Teavana Oprah Chai Tea Latte.

Starbucks has been one of the fastest-growing beverage companies in the past few years, both in terms of financial and market variables. It has grown its earnings per share by more than 15% in the last four years, while its share price has increased by close to 1,000% over the same period. With Starbucks' historical growth coming from filling the world with its physical outlets, its future growth prospects look even more attractive.

Foolish final thoughts
In this new competitive environment, beverage companies with the ability and willingness to adapt to changing consumer preferences will have a much better chance of emerging as winners. For now, I am placing my bets with Coca-Cola and Starbucks.

Warren Buffett just bought nearly 9 million shares of this company
One of Warren Buffett's classic investments was Coca-Cola. Is this beverage company still relevant with its customers today? Imagine a company that rents a very specific and valuable piece of machinery for $41,000... per hour (that's almost as much as the average American makes in a year!). And Warren Buffett is so confident in this company's can't-live-without-it business model, he just loaded up on 8.8 million shares. An exclusive, brand-new Motley Fool report details this company that already has over 50% market share. Just click HERE to discover more about this industry-leading stock... and join Buffett in his quest for a veritable landslide of profits!

 

Mark Lin has no position in any stocks mentioned. The Motley Fool recommends Coca-Cola and Starbucks. The Motley Fool owns shares of 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.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of fool.com.

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to www.fool.com/beginners, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at www.fool.com/podcasts.

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.


Compare Brokers