Exclusive update by Nicole Seghetti
Although U.S. soda consumption has steadily declined during the past decade, the ingestion of sugary drinks has doubled over the past 30 years and currently accounts for 7% of our caloric intake. This has led to concerns regarding soda's role in our nation's obesity epidemic. Soft drink giants have received the brunt of the backlash, but Coca-Cola (NYSE: KO) is toning up its corporate physique.
Building a more svelte persona
With a great deal of criticism regarding America's wide-ranging obesity issue and growing pressure in Washington, big beverage companies like Coke are reevaluating their products' nutritional content. And soda makers — along with their industry lobbying groups — have also been working hard to clean up their image.
Recently, the American Beverage Association rolled out a "Calories Count" initiative, featuring vending machines that display the number of calories in a container of soda and suggest a lower-calorie beverage option. Then, last month, the organization came out with several statements proclaiming just how far their industry has come. The association stated that "today about 45% of all non-alcoholic beverages purchased have zero calories and the overall average number of calories per beverage serving is down 23% since 1998." The group went on the say that soda companies have voluntarily removed full-calorie soft drinks from all schools and pointed out that they've also added calorie labels to the front of all their packaging.
But big lobbying organizations aren't the only ones flexing their muscles. New York City tried to ban large-container sodas, but failed to do so at the eleventh hour. And Coke has taken heat from competitors for reasons that have further tarnished the company's image. SodaStream's (Nasdaq: SODA) "The Cage" marketing campaign was nothing short of confrontational, pointing to the number of plastic bottles — including Coke's — in landfills. In response, Coke touted its own green efforts, namely its PlantBottle — made partially from plants as opposed to petrochemicals — and its Freestyle dispensing machines.
Coke also launched its own anti-obesity ad campaign earlier this year. The campaign's first commercial starts off with the words, "For over 125 years, we've been bringing people together. Today, we'd like people to come together on something that concerns all of us: obesity." The commercial goes on to present viewers with Coke's low- and no-calorie beverage options, which are growing in number every year.
Diving into still waters
Coca-Cola, PepsiCo (NYSE: PEP), and Dr Pepper Snapple (NYSE: DPS) overwhelmingly dominate the nonalcoholic beverage industry, accounting for about 85% of the nation's soft drink sales. But dwindling soda consumption coupled with concerns about obesity, diabetes, and heart disease have forced traditional soda makers to stock up on healthier offerings. PepsiCo rolled out Pepsi Next, which contains 60% less calories and sugar than traditional Pepsi, replacing some of the high-fructose corn syrup with artificial sweeteners like aspartame and sucralose. And PepsiCo's CEO, Indra Nooyi, recently claimed the company is waiting on FDA approval for a natural, low-calorie sweetener that won't compromise on taste.
But more than ever, consumers are reaching for waters, juices, teas, and sports and energy drinks, forcing cola giants to dive into noncarbonated, or still, beverages. So far, Coke has admirably grown this part of its portfolio. The company toned up its juice offerings, as evidenced by its Odwalla acquisition about a dozen years ago. Coke's Minute Maid brand boasts 14% market share in the international juice market and enjoyed double-digit volume growth in 2011. Coke's Dasani is one of the leading bottled waters in the U.S. The company also added Seagram's and Honest Tea to the mix via acquisitions.
Coke gained a majority stake in Zico coconut water, an up-and-coming niche beverage touted for its hydrating properties. Zico tripled its sales in 2011, a time when Coke owned a minority stake. Only 3% of U.S. households currently buy coconut water, so there's huge growth potential for Coke here. Not surprisingly, big cola controls rival coconut waters. Dr Pepper Snapple boasts the No. 1-selling coconut water brand in the U.S. with its Vita Coco; Coke's Zico has secured the No. 2 spot, followed in third place by PepsiCo's O.N.E. Not to be outshone, Monster Beverage (Nasdaq: MNST) touts its own Hansen's Natural coconut water.
Also, just last month, Coke increased its stake in U.K.-based smoothie maker Innocent Drinks. Undoubtedly, Coke will further pretty up its public image by taking on a bigger share of the company, since Innocent donates 10% of profits to charity and uses only sustainably farmed ingredients.
Foolish bottom line
The world's largest beverage company dominates the nonalcoholic beverage industry with its superstar brands and continued innovation in its noncarbonated drink portfolio. But as regulatory pressure heats up and health trends move away from high-calorie sodas, Coca-Cola must remain ahead of the curve. So far, the company has proactively done so while successfully launching sought-after, healthier alternatives. But continued legislative risks will test Coke's business.
