Can anything reverse soda's slide at Coca-Cola (NYSE:KO)? Probably not. Consumers want something better than the syrupy sweet carbonated beverage, so volumes will continue falling quarter after quarter.
But Wall Street analysts believe there's a way out of the morass: a partnership with WhiteWave Foods (NYSE:WWAV) to tap into the dairy alternative beverage market that could hit $14 billion in sales in the U.S. by 2018.
Coke forged partnerships this year with Keurig Green Mountain (NASDAQ:GMCR) and Monster Beverage (NASDAQ:MNST), showing it is open to such deals to juice sales. With soda volumes locked in a downward spiral, a switch to nondairy plant-based beverages, or PBBs as they're called, might offset the trend, and industry leader WhiteWave Foods would make the perfect partner.
There are three mains reasons it could work:
- Sales of PBBs are soaring
- WhiteWave Foods is far and away the industry leader
- It would meld leading PBB brands with Coke's global distribution network
But a better question to ask might be, does WhiteWave Foods even need Coca-Cola?
An idea that just won't die
Reuters first broached a potential hookup in 2012, believing the maker of almond and soy milk would be a good acquisition target for Coke or PepsiCo (NYSE:PEP). Analysts at Wells Fargo have now resurrected the idea, citing Coke's 16% stake in Keurig and 16.7% position in energy drink maker Monster as opening the door to explore a partnership with WhiteWave.
Both the at-home soda and energy drinks markets carry risks that PBBs don't. DIY soda might have limited appeal and energy drinks carry a lot of health claims baggage. Plant-based beverages, on the other hand, have a huge runway before them and are healthy.
Time to put down roots in PBBs
Analysts see dairy alternative beverages growing at a 15% compound annual rate through 2018 even as per-capita milk consumption has fallen 23% since 1975. Almond milk alone is a near-$738 million business, accounting for 70% of PBB sales in the U.S., even supplanting soy milk as the top PBB. Coconut milk, cashew milk, and other plant-based derivatives are growing as well.
Coke could do worse by getting into the PBB market. It would certainly have a better chance at success than its just-launched Fairlife premium milk, which encourages consumers to pay more for a beverage they're drinking less of.
PBBs are a premium drink, too, which contributed to WhiteWave Foods' superior third-quarter performance:
- Sales rose 36% and operating income jumped 50%
- North American sales of best-selling Silk almond milk soared 30%
- Its European Alpro brand experienced 24% growth
- Alpro's market share is five times greater than its nearest competitor
WhiteWave also finished the acquisition of So Delicious at the end of October, giving it a gateway into the fast-growing frozen plant-based desserts category.
But what does WhiteWave get out of it?
It hardly seems WhiteWave needs Coca-Cola to goose its distribution. Although Europe accounts for just 15% of WhiteWave's total sales, revenue jumped 24% in the third quarter and operating profit surged 82% higher. The Alpro brand has a dominant 42% market share in Europe..
But Coke's reach extends far beyond the confines of the continent. It operates a worldwide supply chain featuring over 1,200 bottling operations that make Coca-Cola a very local business in the 200 countries in which its products are sold. Tapping into the soda maker's global distribution network could elevate sales of PBBs even further.
Even though WhiteWave is investing in additional capacity expansion in Europe, a Coke partnership could bring its plant-based beverages into markets it hasn't considered yet or isn't able to exploit.
Is a partnership likely?
While analysts have been pushing the partnership concept for several years, and Coca-Cola showed in 2014 it had merit, WhiteWave is in position to drive a harder bargain than did either Keurig or Monster. Access to Coke's distribution network isn't essential for continued growth.
On the other hand, Coca-Cola needs WhiteWave Foods to make up for slack soda sales and the very real limitations of its existing partnerships. Coke might be willing to invest much more than the $2 billion it put into the other two deals, or even decide it needs to buy WhiteWave outright.
Plant-based foods and beverages are more than just a fad, and seem to have a better future than either soda or premium milk products. They look superior to DIY soda machines and energy drinks as well. That could make WhiteWave Foods a very valuable partner indeed.