Health consciousness of people has paved the way to decline in the consumption of carbonated soft drinks and diet soda in the U.S. market. The only reason behind this is numerous health problems such as weight gain, poor dental health, diabetes, and cardiovascular disease.
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Chart from Fox Business
Carbonated soft drinks and diet soda have declined 3.8% and 6.9% year over year, respectively.
Head to head
The main competitor of Coca-Cola in this beverage industry is PepsiCo (PEP). Like Coca-Cola, Pepsi is also facing intense pressure from its domestic U.S. market. The company’s total soda sales fell by 5.7%, while volume sales declined by 6.1%.
On the other hand, Dr Pepper Snapple Group (DPS) has 4.9% decline in its sales of its diet brands, despite a 2.3% increase in units sold on promotion. The company’s flagship brand, Dr Pepper’s sales volume declined 4% followed by the company’s main brands; 7-Up, A&W, Sunkist, and Canada Dry, which were down 1%. Only, Snapple and Mott’s sales volume increased 4% and 2%, respectively.
Coca-Cola in its recent second quarter reported a weak volume growth of 1% followed by net operating revenues of $12.75 billion, which is 3% down on a yearly basis. Total sales have plunged 3.4% year over year. On a constant currency basis net revenues were up 2% year-on-year basis. Unfavorable weather conditions across multiple regions, external factors, and macro economic pressures are the main reasons behind the weak global volume growth and reported revenues.
Second quarter reported EPS was $0.59, down 3% and comparable EPS was $0.63, up 4%, including an approximate 2% currency headwind. Year-to-date reported EPS was $0.98, down 7% and comparable EPS was $1.09, up 4%. The company was able to expand its gross profit margin by 90 bps, and operating profit margin by 70 bps on a year-on-year basis.
Coca-Cola’s international markets have also failed to provide with decent growths. Both India and Mexico provided with volume gains of just 1%, and China and Brazil reported unimpressive volumes.
What to expect
As I said earlier that people are much aware of their health therefore, to regain its market position Coca-Cola will implement stevia (a natural product that is sweeter than sugar) into its products instead of sugar. Stevia sweetener contains zero calories, and is made from the best-tasting part of the stevia leaf. The cola giant has used stevia in 45 products, such as Vitaminwater Zero, and Fanta Select, but never in its flagship cola.
Coca-Cola becomes increasingly focused on improved product and packaging mix, especially in developed markets.
While Coke has been priced differently at different markets when compared to Pepsi, it must be noted that these differences in price exist in the markets (like Europe, Mexico, and Brazil) where favoritism exists in favor of Coke.
Recently, Coca-Cola has made collaboration with Liberian governments, civil society, and other businesses to bring women entrepreneurs into the company’s value chain, and create opportunity for sustainable prosperity.
PepsiCo on the other hand, is mainly focussing on non-carbonated beverages for its growth.
On a concluding note
Coca-Cola and PepsiCo, both are implementing different strategies to gain the confidence of their valued consumers in the U.S. market. Recently, Coca-Cola introduced ‘Coca-Cola Life’ - an all-natural, low-calorie soda packaged in a fully-recyclable plant-based bottle. The drink is made with a mixture of sugar and stevia-based substitute. This introduction proves that the company is always there for its valued consumers.
Coca-Cola has a long track record of steady and strong cash flow, and in terms of earnings growth in the future, Coca-Cola is performing better than PepsiCo. The company also has a strong foothold in the international markets. Therefore, at the same price I would like to have a bottle of Coke and not Pepsi.