Coke reported a 3% decline in revenue in its latest quarter due to poor weather conditions in North America and in Europe, coupled with weak overall demand for sparkling beverages. Volumes declined by 4% for sparkling beverages in North America, but this was offset by a 5% growth in volume for the company’s still beverage portfolio. Negative publicity surrounding the role of soft drinks in myriad health problems was also blamed for the weakness. To fight back, Coke came up with advertisements that shift the blame for “growing” health problems to a generalized consumption of excess calories, and not just soda. This seems a bit like a tobacco company blaming smoke-filled rooms for your lung disease, but a company that’s painted as a villain has to do something to change the conversation.
PepsiCo, Inc. (NYSE:PEP) CEO Indra Nooyi has condemned these statements, which are likely to create a backlash against the entire beverage industry. Over the past couple of years, PepsiCo, Inc. (NYSE:PEP) has been through a tough phase, as sales have declined, and market share has been lost to beverage rival Coke. Any advantage that Pepsi can seize in the cola (and beverage) wars will be hard won, but it’s tough to see a winning strategy in one sugar-water vendor calling out the other for trying to evade responsibility for selling sugar water. At least the tobacco companies presented a united front when attacked — and the beverage industry might still be forced to band together if public opinion sours to a great enough degree.
Coke understands the market’s shifting trends as well as any company, and has thus been concentrating on still beverages, which have now reported 24 consecutive quarters of volume growth. The company’s still beverage portfolio posted 10% growth last year and is expected to grow at a similar rate this year. Though it is trying to increase its still beverage offerings, Coke still remains with a major concentration on sparkling sodas, and is hardly abandoning that segment to mitigate the stigma of health issues surrounding soda, Coke has been testing moderate-calorie versions of Fanta and Sprite sweetened with stevia. If these new varieties work, expect to see a multi-brand rollout of stevia sodas.
Putting the pieces together
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The article Is Coca-Cola Destined for Greatness? originally appeared on Fool.com.
Fool contributor Alex Planes has no position in any stocks mentioned. The Motley Fool recommends Coca-Cola and PepsiCo. The Motley Fool owns shares of PepsiCo.
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