Consumers don’t guzzle soft drinks like they used to. That’s a hard fact for big beverage companies to swallow. In their struggle to reverse the decline in U.S. soda consumption, soft drink makers have commanded and received increased soda prices to combat loss of volume sales. But they’ve recently faced a more worrisome problem — declining revenue. Is this the beginning of the end for big cola?
Dissolving demand
For nearly the past decade, soda makers have successfully combated loss of soda volume by raising prices. But soda sales at U.S. stores in 2012 declined 0.6% in dollars, with the most precipitous decline occurring in the second half of the year. In fact, December alone accounted for a 2.8% slump in sales. Clearly, soda makers are looking for a sales jolt.
In fact, PepsiCo shareholders have pleaded for the company to split its better-performing snack business from its more sluggish beverage business, similar to the Mondelez International Inc (NASDAQ:MDLZ) and Kraft Foods Group Inc (NASDAQ:KRFT) split for this very same reason in October 2012. Mondelez gained the higher-margin, higher-growth global snack food business, including billion-dollar brands Oreo cookies, Cadbury chocolates, and Trident gum. Meanwhile, Kraft retained the North American grocery business chock-full of Velveeta, Jell-O, and Oscar Mayer. Whether or not a potential future split would improve PepsiCo’s performance is debatable.
Still gas in the tank
Yet PepsiCo, The Coca-Cola Company (NYSE:KO) , and Dr Pepper Snapple Group Inc. (NYSE:DPS) still dominate the highly concentrated nonalcoholic beverage industry, accounting for roughly 85% of U.S. soft drink sales. And they’re making serious strides in the noncarbonated — or still — market, as consumers are increasingly reaching for waters, juices, teas, and sports and energy drinks.
So far, Coke has admirably grown the breadth and depth of its entire portfolio with a particular focus on still drinks, which are expected to outpace carbonated. The company’s limbered up by accentuating its still brands, notably Minute Maid, with its 14% market share in the international juice market and 20% volume growth in 2011. Coke’s Dasani, launched in 1999, is one of the leaders in the U.S. bottled water market. And Coke further added Odwalla juices, Seagram’s mixers, and Honest Tea to its lineup through acquisitions.
Most recently, Coke gained a majority stake in Zico coconut water, a promising niche beverage touted for its hydrating electrolytes and nutrition. Zico tripled its sales between 2010 and 2011, a time when Coca-Cola owned a minority stake. Currently, only 3% of U.S. households buy coconut water, so the upside potential for the makers of this natural beverage is huge.
As the market continues to robustly grow, coconut water wars may strangely enough one day replace cola wars. Not surprisingly, big cola currently controls rival coconut waters. After a failed partnership with GNC Holdings Inc (NYSE:GNC) to produce coconut water, PepsiCo got it right with O.N.E., currently the No. 3 selling coconut water brand in the U.S. behind Dr Pepper Snapple Group (NYSE:DPS)’s No. 1 Vita Coco and Coke’s No. 2 Zico.
The article Is the Soda Industry Fizzling Out? originally appeared on Fool.com and is written by Nicole Seghetti.
Fool contributor Nicole Seghetti owns shares of PepsiCo and Mondelez International. You can follow her on Twitter @NicoleSeghetti. The Motley Fool recommends Coca-Cola and PepsiCo. The Motley Fool owns shares of PepsiCo.
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