Coca-Cola, PepsiCo Try New Ways to Combat Soda Slump
By Cara Lombardo
Coca-Cola Co., PepsiCo Inc. and Dr Pepper Snapple Group Inc. have been remaking themselves for the past decade, adding products like kombucha tea and coconut water as consumers migrate to less sugary drinks.
But the three drink giants, set to report their fourth-quarter earnings this week, have recently embraced different strategies to combat the long slide in soda sales.
PepsiCo said Thursday it is launching a colorful seltzer water brand called Bubly, making it the latest drink company to go after a larger piece of the flavored sparkling water market. The market grew by more than 15% last year to $2.4 billion, according to research firm Euromonitor International, led by National Beverage Corp.'s La Croix.
PepsiCo will need Bubly and more to reinvigorate its North American beverage unit, its largest, whose profit dropped 10% last quarter. The company blamed disappointing results on cooler summer weather and too much marketing focus on healthier brands. Analysts polled by Thomson Reuters expect the segment to report fourth-quarter revenue of $5.9 billion, down from $6.3 billion a year ago.
To offset the drop, PepsiCo has leaned on its snack business, which includes brands such as Doritos and Sun Chips, and a companywide cost-cutting initiative that has yielded annual savings of around $1 billion. But analysts worry the Purchase, N.Y.-company is making things worse for itself by not keeping drink prices in line with those of competitors.
Dr Pepper, the smallest of the three drink rivals, revealed plans last month to merge with Keurig Green Mountain, a company best known for its single-serve coffee pods, in a $19 billion tie-up that has industry-watchers both stumped and intrigued.
Executives from the two companies say the deal will allow Keurig and its owner, the European investment firm JAB, to add their coffees to Dr Pepper's distribution network and strengthen Dr Pepper's e-commerce capabilities.
While it could give Keurig's sales a needed boost, implications are less clear for Dr Pepper's faltering soda business, which includes brands like A&W Root Beer and 7UP. When Dr Pepper reports earnings Wednesday, its investors will want to know what to expect, beyond a $103.75 per share special cash dividend.
"I'm not sure anything they say will matter for the stock, given the M&A, " Bernstein analyst Ali Dibadj said. "But I think we'd like to see if there's any sign explaining why this sudden sale."
Coca-Cola is betting four new flavors of Diet Coke in sleeker cans with names like "Zesty Blood Orange" will help it hold on to soda drinkers a little longer.
The Atlanta-based company's Diet Coke sales have dropped every year since 2006, though Coca-Cola managed to keep its soda volumes flat last quarter. The results were helped by Coca-Cola Zero Sugar, which like Diet Coke is artificially sweetened and calorie-free.
While Diet Coke is still the third-largest carbonated soft drink brand in the country, according to industry publication Beverage-Digest, the new flavors are competing with a larger-than-ever bevy of alternatives including fizzy waters and other flavored no-calorie and low-calorie drinks.
The new drinks hit shelves after the fourth-quarter ended, but Coca-Cola might hint at early results when it reports earnings Friday. Investors will also want to see how much refranchising bottling operations boosted the company's operating profit margin last quarter.
Write to Cara Lombardo at firstname.lastname@example.org
(END) Dow Jones Newswires
February 10, 2018 09:46 ET (14:46 GMT)Copyright (c) 2018 Dow Jones & Company, Inc.