Please ensure Javascript is enabled for purposes of website accessibility

Why Coca-Cola Could Gain Market Share as Global Economies Recover

By Parkev Tatevosian - Jun 3, 2021 at 9:11AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The beverage manufacturer and distributor is in a position to benefit as people venture outdoors again.

Coca-Cola (KO 0.52%) has been losing market share globally in the nonalcoholic ready-to-drink industry since the onset of the COVID-19 pandemic. As governments worldwide instituted lockdown measures and placed restrictions on businesses in response to the outbreak, restaurants, theme parks, sports stadiums, and movie theaters closed down. Unfortunately, those were also the places where people consumed soft beverages, including those made by Coca-Cola.

To make matters worse, the Atlanta-based beverage company actually commands a large market share -- larger than those of rivals PepsiCo (PEP 0.10%)and KeurigDrPepper (KDP -0.05%)-- at these outdoor venues, which meant a substantive loss in demand for the ubiquitous brand.  

Fortunately, the global vaccination campaign against the coronavirus has been effective with COVID-19 infections trending down in regions having higher vaccination rates. With close to 2 billion doses already administered worldwide, there's still progress to be made, however there seems to be light visible at the end of the tunnel. Restrictions against in-person activities are being lowered and businesses are reopening, and this is good news for Coca-Cola.

As the world recovers from COVID-19, the soft drink maker should regain its market share. 

Two women drinking soda and smiling.

Coca-Cola lost market share during the pandemic. Image source: Getty Images.

Can I get you a drink? 

In the company's most recent earnings report that includes results till April 2, it reported losing market share. Here's what management noted on the matter in the earnings press release:

The company lost value share in total nonalcoholic ready-to-drink (NARTD) beverages as an underlying share gain in both at-home and away-from-home channels was more than offset by negative channel mix due to continued pressure in away-from-home channels, where the company has a strong share position.

In other words, people were consuming beverages at home more often, and Coca-Cola's competitive position is not as strong in that market as it is when people consume beverages outdoors. That's mainly due to its exclusivity agreements with several venue operators. 

Coca-Cola has spent years building a strong portfolio of venues that offer its products exclusively and hence has a larger market share in the away-from-home market. As a result, when people leave their homes and consume beverages, there's a higher probability those beverages will be Coke products. So as COVID and starts going restaurants, theme parks, sports stadiums, and movie theaters more often, it will consume more Coca-Cola products. 

Soda being poured in a cup.

Coca-Cola is poised to gain market share as economies reopen. Image source: Getty Images.

Investor takeaway 

Importantly, beverages consumed outdoors are pricier. For example, a soda at a theme park can easily cost you $5 for a 20-ounce bottle while the same costs you less than $1 at the grocery store. That generates higher profits for providers like Coca-Cola. That's partly what's allowed Coca-Cola to maintain higher operating profit margins than competitors (see chart). 

A chart comparing operating profits margin of Coca-Cola, PepsiCo, and KeurigDrPepper.

Data Source: YCharts

Coca-Cola's stock is trading at a reasonable forward-price-to-earnings-ratio of 25. It could be a good time for investors to consider adding Coca-Cola to their portfolios. The company will benefit as folks start going out more often. And its dominant position in the away-from-home market means it can maintain or raise prices without a significant risk of losing customers to competitors.

Investing in Coca-Cola will not triple your money in a year, but it can provide steady returns for the long run. 

 

Parkev Tatevosian owns shares of Coca-Cola. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

The Coca-Cola Company Stock Quote
The Coca-Cola Company
KO
$65.22 (0.52%) $0.34
Pepsico, Inc. Stock Quote
Pepsico, Inc.
PEP
$180.40 (0.10%) $0.18
Keurig Green Mountain, Inc. Stock Quote
Keurig Green Mountain, Inc.
KDP
$40.03 (-0.05%) $0.02

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
394%
 
S&P 500 Returns
127%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 08/19/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.