The Coca-Cola Co. (NYSE:KO) and Anheuser-Busch InBev (NYSE:BUD) are two of the biggest beverage companies in the world, holding sway over shelf space in grocery and liquor stores around the world. Both companies have also long been extremely profitable for investors.
Not all beverages are created equal today, though, and one of these stocks has a brighter future than the other.
Pressure on the sugary drinks market
Coca-Cola is facing pressure from new competitors in the drink market as well as the decline of its traditional sugary drink market. Customers are simply drinking less Coca-Cola, Diet Coke, and similar products, choosing to consume healthier options instead. Some cities are even limiting the size of drinks or their sales in schools.
The company has tried to adjust by moving into the water distribution market and adding products like Honest Tea. But there's no question Coca-Cola doesn't have the power in the market it did a decade ago.
That's a big reason revenue and earnings have started to slide for Coca-Cola in the last few years. The company's products just aren't as popular as they used to be, and shelf space on grocery store shelves is being taken over by smaller brands like National Beverage Corp. (NASDAQ:FIZZ), which is offering zero-calorie products like La Croix. That's where the consumer beverage market is heading.
AB InBev's power play in beer
Major breweries like AB InBev are also facing their share of challenges from small craft brewers, but it's responding by expanding its distribution presence. The combination of Anheuser with Busch and InBev shows just how many massive acquisitions have taken place at this one company.
The scale is more about distribution power than it is about cost reductions. When one company owns around half of the world's beer supply, they can force retailers and distributors to push certain products and raise prices as well. You can see that in the revenue growth shown above, and operating income is up as well.
Whereas people are drinking less sugary drinks, they aren't drinking less beer or alcohol. Craft brew trends may eat into AB InBev's business slightly, but it can buy smaller brewers to fold into its business and use its distribution muscle to get them into stores and taps around the world. That's how Stella Artois and Corona have become the commonplace beers we know today and the company is doing the same with craft brewers like Wicked Weed, Goose Island, Elysian, Breckenridge Brewing, and many more.
Beer has a brighter future
Given the industry trends in consumer beverages and beer, I think AB InBev is in a much stronger position to grow profitably in the future. It has the scale necessary to maintain market power and consumers aren't shunning its products like they are with Coca-Cola's. AB InBev may not be a big growth stock now that craft breweries are here to stay, but it's the best stock of these two right now.