Future Pipeline
Recently Dr Pepper announced few new variants of its popular brands like 7Up, Canada Dry, Sunkist, A&W, and RC on the TEN platform. The specialty of the TEN platform is that it provides taste with health. Twelve ounces of a TEN platform drink comes with only 10 calories. With the increasing health conscious consumers in the market, the drinks should sell well. To boost the expected sales from the variants, Dr Pepper is also planning to invest around $30 million on the marketing of the platform. In the long run TEN can be a champ.
Additionally, the agreement of the company with Zaxby’s, a Georgia-based chain food franchise, will increase the reach of the company in the Southeast US. According to the agreement, Zaxby’s will introduce brands of Dr Pepper in all of its current and future locations. At present, it operates 565 locations spread over 13 states. Zaxby’s specialty chicken fingers and boneless wings are a southeastern favorite. The noticeable payoff from the new platform and increased reach should strengthen the company’s performance in the near future.
Starbucks Corporation (NASDAQ:SBUX)
Starbucks posted solid 1Q13 results for its investors. The EPS of $0.57 was in-line with the analyst consensus, strong same-store-sale (SSS) showed better-than-expected holiday sales, and a continued growth abroad justifies its future expansion endeavors.
Expanding horizon
Starbucks has planned to open nearly 1300 new stores worldwide in FY13. This includes ~600 each in the American and China Asia Pacific (CAP) regions. The company has already successfully opened 212 new stores in the first quarter of FY13. Same stor sales in the American region increased by ~7% because of the rise in traffic. The out-sized growth in gift cards and mobile reloads aided the SSS, and a continuous growth is expected to help the comps in the coming quarters as well.
As for CAP, half of the expansion plan in the region is dedicated to China. The country has the highest co-operated store-margin in the company at ~30%, and one year return on investment is somewhere around 67%. The company’s recent decision of opening nearly 300 stores, revising the past target of 250, is in accordance with the longer term outlook of making China the second largest market for Starbucks. Along with it, I see its investment in India as a positive opportunity. Although it is too early to say anything about the expansion plans since it has opened only one store to date, the recent opening of the roasting and packaging plant in the country increases my faith in the investment. Looking at all this I feel that Starbucks’ stock should remain strong in the future as well.
Conclusion
Pepsi’s productivity related initiatives seems effective and should achieve the required cost savings. This, along with the company’s commitment to repay its investors, makes the stock strong. Dr Pepper’s roll-out of new products in the market could help it to secure a profitable position. And, the expansion plans, may it be Dr Pepper’s introduction in Zaxby’s or Starbucks’s expansion in the American and CAP regions, should help increase the reach of each company’s products in the future. Therefore, I recommend a buy on all three stocks.
The article Don’t Overlook These Beverage Stocks in 2013 originally appeared on Fool.com and is written by Madhu Dube.
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