Coca-Cola -- the drink -- is a ubiquitous fast-food presence and a household name. But investors who think buying shares of its maker is all about their favorite cola may not realize that The Coca-Cola Company (KO) has a beverage portfolio with over 200 brands. And lest you think the rest are not especially significant, spoiler alert: They are.
It's not just Coke (or Diet Coke)
Coca-Cola's eponymous brand is its most well-known, but prior to the pandemic, it carried a portfolio of 400 brands. The company restructured under pandemic pressure, whittling down the total to 200. Management cut out small, local brands that weren't adding much to the overall business, contributing 2% of volume and 1% to the top line.
The new brand portfolio is leaner and more efficient. Closing down the underperforming brands frees up resources to devote to core brands as well as invest in new products that could be a better contribution to the whole.
On the 2023 first-quarter conference call, CEO James Quincey said that the company now has 26 $1 billion brands. Coca-Cola took in almost $44 billion in trailing-12-month revenue, and these brands together account for more than half of the total.
But each one is the equivalent of its own valuable company. Although Quincey didn't specify which brands are making $1 billion in annual sales, some of the more well-known brands it owns are Schweppes, Minute Maid, and Costa Coffee. Some lesser-known brands are high-performers as well, such as fairlife, which makes milk products, and Smartwater, both of which are $1 billion brands,
Don't get me wrong; Coca-Cola the beverage pulls more than its weight for Coca-Cola the company. But the company is strategically hedged with many different drinks in all sorts of categories that make up a diverse and well-rounded group.
Data source: Coca-Cola. Data from 2019.
How new brands help
Even though it shuttered 200 brands in the restructuring, it has at the same time committed to new products and brand innovation. It has also made several acquisitions, notably BodyArmor.
Coke has an unmatched global distribution system, and it can acquire companies and distribute their products seamlessly. Sometimes companies find it challenging to integrate acquisitions, but Coca-Cola has a tried-and-true system that lends itself to efficiency with new products. This allows it to scale new brands much more quickly than they would be able to themselves.
The company says that innovations contributed 25% to gross profit growth so far in 2023. It also leverages efficiencies in procurement as it scales, which have resulted in $1.8 billion cost savings over the past five years.
When new brands succeed, it opens up a whole new opportunity. Costa Coffee, for example, is now available in 40 markets, and Topo Chico Hard Seltzer is now available in 20 markets.
Between its large suite of brands and new innovations within in each brand, expansion opportunities seem almost endless. Indeed, the company sees a $1.3 trillion opportunity, with 8% to 10% of that in emerging categories. Coca-Cola is probably better positioned than any other beverage company to harness that opportunity.
Should you buy Coca-Cola stock?
Coca-Cola has tons of future opportunity, with its well-developed products and labels, robust distribution system, and cash to keep the system running smoothly. It also pays a generous and reliable dividend that typically yields about 3%.
It hasn't always outperformed the market, even with its dividend included. But it's not a growth stock and shouldn't be viewed that way. Investors looking for stability, steady growth, and passive income should consider buying Coca-Cola.
