Nonalcoholic Beverage Companies Seek Growth in Still Beverages
Monster Beverage Stays at the Top of the Beverage Giants
Continued pressure on CSDs
In PepsiCo’s (PEP) fiscal 3Q15 conference call, PepsiCo’s chief executive officer Indra Nooyi stated that the CSD (carbonated soft drink) volumes continue to be under pressure. However, the company’s revenue management and higher pricing are benefiting the CSD value numbers.
Nooyi further said that noncarbonated beverages or still beverages are driving the growth in the industry. Aside from PepsiCo, Coca-Cola (KO) and Dr Pepper Snapple (DPS) have also increased the prices of their beverages to fight the softness in soda volumes. These three companies together account for 1.5% of the iShares Russell 3000 ETF (IWV).
Comparison of volumes in 3Q15
CSD volumes continued to underperform still beverage volumes in 3Q15. Among the top three soda companies, the weakness in soda volumes was more evident in PepsiCo’s North America Beverage segment, which reported a 2% decline in 3Q15 CSD volumes. The CSD volumes of Coca-Cola and Dr Pepper Snapple rose 2% each in 3Q15.
Still beverage volumes of PepsiCo’s North America Beverages segment grew 10% in 3Q15. This growth was mainly driven by a high single-digit increase in Gatorade sports drink volumes, a double-digit rise in the company’s water portfolio and Lipton ready-to-drink teas, and a mid-single-digit increase in the juice and juice drinks portfolio.
Coca-Cola’s still beverage volumes increased by 6%, driven by growth in ready-to-drink teas, sports drinks, and packaged water. Dr Pepper Snapple’s still beverage volumes increased by 4% due to strength in the water category, Clamato, and Snapple.
Focus on still beverages
In its fiscal 2014 annual report, Dr Pepper Snapple mentioned that it has lower exposure to energy drinks and some of the faster growing still beverage segments. The company is now trying to improve its presence in still beverages.
Dr Pepper Snapple’s purchase of a stake in the BodyArmor line of sports drink was a step in this direction. This will help it compete against popular brands such as PepsiCo’s Gatorade.
In August 2015, Coca-Cola bought a ~30% stake in Suja Juice, a California-based manufacturer of organic juices. Coca-Cola also increased its exposure to the high-growth energy drinks market with the purchase of a 16.7% stake in Monster Beverage (MNST). Soda companies’ focus on the high-growth still beverage categories will help them offset the weakness in soda volumes to some extent.
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