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Coca-Cola, Green Mountain Coffee Roasters, Dr Pepper, and PepsiCo: 5 Stories to Watch

By William Bias – Feb 27, 2014 at 5:00PM

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Interested in investing in Coca-Cola, Green Mountain Coffee Roaster, Dr. Pepper Snapple Group, and PepsiCo? These stories may serve as a good starting point in your research.

Interested in investing in Coca-Cola (KO 0.16%), Green Mountain Coffee Roasters (GMCR.DL), Dr Pepper Snapple Group (DPS), or PepsiCo (PEP 0.30%)? Exploring these latest headlines in the beverage industry may help you decide.

The organic markets
People want to eat and drink healthier. Organic food represents food without pesticides, fertilizers, and anything else artificial. Food Navigator USA predicts a compound annual growth rate of 14% in the organic market from 2013-2018.  This means companies that control this market will benefit. Food Navigator USA cited a bubble chart that is updated annually by Michigan State University associate professor Dr. Phil Howard that highlighted the influence of companies such as PepsiCo and Coca-Cola on this market in North America. The chart ranked PepsiCo as No. 1 in organic food processing and highlighted its ownership of organic company Naked Juice. The chart also listed rival Coca-Cola in the No. 11 spot and illustrated its ownership of Honest Tea, Odwalla, and its recent investment in Green Mountain Coffee Roasters. On the whole this means that these large companies will have an advantage in this lucrative growing market.

Sodas at home
Beverage Daily cited an investor call that highlighted Coca-Cola CEO Muhtar Kent's belief that soda consumption will increasingly come from home. He discussed trends that point toward the tendency of people spending more time at home due to work and shopping habits. Kent wants a presence in the home with new ways to serve sodas serving as the catalyst for the partnership/investment with Green Mountain Coffee Roasters to build a new "Keurig Cold" machine.  Smaller packaging for Coca-Cola syrup will make this new line of products more eco-friendly, appealing to the green crowd, and more economical, meaning consumers can avoid using gas running to the store and buying packaged soda once the break even threshold of the machine purchase is achieved.

Leave PepsiCo alone
Activist investor Nelson Peltz who runs Trian Fund Management wants PepsiCo to unlock shareholder value by either splitting off the snack and beverage businesses or merging with another snack company such as Mondelez according to Beverage Daily. This individual needs to leave PepsiCo alone. PepsiCo's CEO Indra Nooyi rightly stated that PepsiCo would lose valuable synergies if the company were to split. It would jeopardize its relationship with companies such as Yum! Brands Taco Bell which buys both its sodas and its Doritos chips for use in tacos. Also, PepsiCo enjoys the benefit of consumer's tendency to purchase snacks and beverages which contrasts with rivals Coca-Cola and Dr Pepper Snapple Group which sell mainly beverages. Moreover, a merger with Mondelez would serve as culture shock and cause significant disruption to both companies.

New Doritos
Even though PepsiCo resides in a market leadership position within the snack/beverage business it still doesn't rest on its laurels and tries to introduce new products into the marketplace. Recently, the company introduced a new habanero flavored Doritos Dinamita Tortilla Chips. According to PepsiCo's press release the pepper harbors a "complex fruity flavor that creates a degree of sweetness alongside their distinct level of heat". 

Dr Pepper tries
Dr Pepper Snapple Group reported dismal numbers in the most recent quarter with volume declines in both its carbonated and non-carbonated soda lines. The company's soda sales continue to face headwinds from the healthy lifestyles movement. However, it continues forging ahead. Dr Pepper Snapple Group will test 60 calorie versions of Dr Pepper, 7Up, and Canada Dry sweetened by a combination of sugar and stevia. Also, Dr Pepper Snapple Group recently crowded in on Pepsi by signing a distribution agreement with Buffalo Wild Wings where Dr Pepper Snapple Group's products will be dispensed on the restaurant chains' taps.  

Foolish takeaway
Look for large companies such as Coca-Cola and PepsiCo to flex their distribution and marketing muscle to maintain their market leadership. Also, look for larger companies to purchase smaller rivals. For example, Coca-Cola may decide to purchase, at a market premium, all of Green Mountain Coffee Roasters making Coca-Cola a significant player in the single serve market. Struggles will continue for Dr Pepper Snapple Group if it doesn't lower its exposure in sodas  and turn its overall business around. It may want to consider a snack food acquisition of its own. PepsiCo's product diversity and global presence will serve as strength for this company serving as a catalyst for future dividend raises and capital gains.

William Bias owns shares of Coca-Cola and Mondelez International. The Motley Fool recommends Buffalo Wild Wings, Coca-Cola, Green Mountain Coffee Roasters, and PepsiCo. The Motley Fool owns shares of Buffalo Wild Wings, Coca-Cola, and PepsiCo. 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.

Stocks Mentioned

Coca-Cola Stock Quote
Coca-Cola
KO
$63.54 (0.16%) $0.10
PepsiCo Stock Quote
PepsiCo
PEP
$182.18 (0.30%) $0.55
Keurig Green Mountain, Inc. Stock Quote
Keurig Green Mountain, Inc.
GMCR.DL
Dr Pepper Snapple Group, Inc. Stock Quote
Dr Pepper Snapple Group, Inc.
DPS

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

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