Can Soft Drink Companies Keep the Pop in Operations?

Industry challenges forcing soft drink manufacturers to rethink strategies.

| More on:
The Motley Fool
You’re reading a free article with opinions that may differ from The Motley Fool’s premium investing services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn more

In the not-so-distant past, people drank soda like it was water. Not so much today with the health concerns regarding obesity and the high consumption of sugar. Beverage companies are facing issues in an industry that must change with the changing tastes of consumers. Here are some of the challenges beverage producers are facing and what they’re doing to survive.

Consumers’ health concerns

Many studies have linked health problems like diabetes and obesity with soft drink consumption, and consumers are taking action — switching to drinks believed to be healthier (fruit and vegetable juices, yogurt drinks, mineral waters, etc.).

This is good news for companies such as Quebec-based Lassonde Industries (TSX: LAS.A). Lassonde produces and distributes fruit and vegetable juices and drinks. It is the second largest producer of store brand ready-to-drink fruit juices and drinks in the U.S. The company’s sales were $1.04 billion in 2013, an increase of $18.0 million (1.8%) from $1.02 billion in 2012.

Falling North American sales

In North America, consumers are really taking the health warnings to heart. Consider Cott (TSX: BCB). In its 2013 Q4, total filled beverage case volume, excluding concentrate sales, was 180 million cases versus 199 million cases in Q4 2012. The main reason for this volume decline was the general market decline in the North American carbonated soft drink category. Its Q4 2013 revenue was lower by 7% (coming in at $482 million), chiefly because of lower global volumes.

Decline in brand loyalty

Deloitte, in its 2014 Outlook on Consumer Products, noted that eroding brand loyalty is one of the biggest challenges facing consumer products companies this year. Mr. Pat Conroy, Deloitte’s vice chairman and U.S. Consumer Products leader, said “For the third year in a row, brand loyalty in the food, beverage and household goods product categories has declined, according to the 2013 American Pantry Study.”

Coca-Cola (NYSE: KO) still counts on brand loyalty for Coke. Is it listening to prevailing winds in its industry? Apparently not. Mr. Muhtar Kent, CEO, said in February, “Coca-Cola remains magical. We need to work even harder to enhance the romance of the brand in every corner of the world.” He may prove industry watchers wrong. Then again, trends concerning changing tastes indicate he may not.

World Health Organization proposed guidance

The World Health Organization is studying reducing the recommended daily intake of free sugars from 10% of total caloric intake to 5%. This will put pressure on beverage manufacturers to rethink soft drink recipes and/or come up with new products. Free sugars are any sugars added to foods by the producer.

A host of alternative products

Considerable competition exists with companies such as Monster Beverage (NASDAQ: MNST) developing innovative drinks. Monster Beverage’s “Monster Energy Ultra Red” has become one of the brand’s top sellers. This product debuted in September 2013. Its Muscle Monster protein shakes are second in the ready-to-drink protein segment: convenience and gas channels.

Of note to investors: Bevmark LLC industry consultant, Mr. Tom Pirko, said recently, “Sugar water with bubbles is not the future of the world.” Bevmark specializes solely in food and beverage industries. Mr. Pirko sees the tough future ahead for traditional soft drinks.

Foolish bottom line

The above issues are not going to go away. The focus for these companies must be on developing brands that tap into the predominant consumer mindset. Soft drink manufacturers can experience soft landings in a changing marketplace with unique and healthier products that consumers desire.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Michael Ugulini has no positions in any of the companies mentioned in this article. The Motley Fool owns shares of Coca-Cola and Monster Beverage and has the following options: long January 2016 $37 calls on Coca-Cola and short January 2016 $37 puts on Coca-Cola.

More on Investing

A close up image of Canadian $20 Dollar bills
Dividend Stocks

3 Top Dividend Stocks to Buy Under $20

Given their stable cash flows and high dividend yields, these three under-$20 stocks could boost your passive income.

Read more »

Growing plant shoots on coins
Dividend Stocks

3 Dividend Stocks to Buy During Recession to Lock In a 6% Yield

Make the most of the recession with dividend investing. You can buy stocks for a discount and lock in higher…

Read more »

Bank sign on traditional europe building facade
Bank Stocks

Canadian Bank Stocks Near 52-Week Lows: Buy Them All With This ETF

Here's an easier way to buy the dip.

Read more »

Choice of fashion clothes of different colors on wooden hangers
Stocks for Beginners

Is Aritzia (TSX:ATZ) the Best TSX Stock to Buy in July 2022?

Aritzia’s international market expansion and improving profitability could help its stock recover fast.

Read more »

exchange traded funds
Investing

2 Cheap Vanguard and BlackRock ETFs to Buy and Hold Forever

These two funds are great ways to invest in the U.S. and Canadian stock markets.

Read more »

IMAGE OF A NOTEBOOK WITH TFSA WRITTEN ON IT
Dividend Stocks

Put TFSA Cash to Work: Earn a Tax-Free Yield of at Least 5%

By investing your TFSA cash in these stocks, you can earn a reliable and high yield of more than 5%.

Read more »

clock time
Investing

New TFSA Investors: Time to Buy Stocks Amid the Market Correction?

TD Bank (TSX:TD)(NYSE:TD) stock seems like a great long-term buy for beginner investors willing to put up with the short-term…

Read more »

young woman celebrating a victory while working with mobile phone in the office
Tech Stocks

3 Growth Stocks Trading at a Massive Discount Right Now

Canadian growth stocks such as Shopify have the potential to deliver market-beating gains to investors in the next year.

Read more »