The contrasting fortunes of Coca-Cola and PepsiCo are indicative of decline in the cola sector, according to a specialist food and drink solicitor.
PepsiCo has reported first-quarter revenue of $12.05 billion and organic growth of 2%, just a day after rival Coca-Cola announced stagnant first-quarter growth and an $800 million cost-cutting programme. As FoodBev reported, it involves the loss of around 1,200 corporate jobs.
Mark Jones, from law firm Gordons, said: “PepsiCo and Coca Cola’s contrasting fortunes aren’t due to a single factor; there are a number of reasons for the tide turning. [But] the ‘cola’ sector has shrunk by almost 5% in the last year. The influence of millennials on the food and drink sector is growing and they increasingly want healthier choices.
At the heart of the issue is the fact that Pepsi’s business is different to Coca-Cola’s: carbonates account for just a quarter of its business and trademark Pepsi is even lower, at 12%, with CEO Indra Nooyi last year vowing to move the company’s focus away from colas and towards ‘guilt-free’ product lines like diet beverages and low-in-sodium snacks.
Indeed, it’s the diversity in PepsiCo’s portfolio that has allowed it to ride out decline in other areas of its business before.
Frito-Lay North America was up 2%, while food and snack volume in both Europe and sub-Saharan Africa (ESSA) and Asia, the Middle East and North Africa (AMENA) were up considerably – by 3.5% and 7% respectively.
In contrast, Coca-Cola has traditionally defied persistent rumours that it might buy into snack foods, and has shifted its concentration towards driving revenue growth – as opposed to volume growth – as consumers drink fewer sugary beverages than ever before. In March, figures from the International Bottled Water Association and Beverage Marketing Corporation showed that bottled water had overtaken fizzy drinks as the US’ most popular beverage for the first time.
Compared: Coke, Pepsi and Dr Pepper’s updates
Coca-Cola: $9.118 billion (-11.3%)
PepsiCo: $12.049 billion (+1.6%)
Dr Pepper Snapple: $1.51 billion (-1.5%)
Jones continued: “While all age groups buy cola, Coca-Cola’s leading consumer demographic are over 45s. With around 92% of consumers actively trying to reduce their sugar intake and moving to no sugar fizzy drinks, Coca-Cola’s leading brand is losing customers. At the same time, PepsiCo is doing a better job of winning over the sugar-avoiding consumer with Pepsi Max growing an incredible 10.3% in the last year. It should be borne in mind that PepsiCo only advertises its Pepsi Max drink to the mass market; its regular Pepsi brand does not receive such support.”
That move is consistent with Coca-Cola’s decision to rebrand Sprite Zero as the regular Sprite variant in the Netherlands, suggesting that sugar-free will become the new norm in carbonated soft drinks.
“PepsiCo has also managed to grow its foodservice and pub trade business by 7.2% in the last year,” Jones continued, “while Coca Cola’s business has remained flat. Coca Cola still dominates that sector but PepsiCo has made some real progress with customers such as Subway now selling its products.
“The sugar tax, price point differentials between no-sugar and sugar products, and a shrinking market means both businesses have challenges ahead of them and at the moment, but PepsiCo looks best placed to capitalise.”
Dr Pepper Snapple lower
Dr Pepper Snapple has also reported its first-quarter figures: net sales amounting to $1.51 billion, or a 1.5% fall on the same quarter last year. But, after increasing its stake in Bai Brands in November, the company has recorded a gain in its earnings per share.
But for DPS, carbonates were less of a liability and more of a growth driver.
In carbonated soft drinks, Dr Pepper increased by 1%, propelled by improved performance in its fountain foodservice business that was partially offset by losses in Dr Pepper Ten – its so-called ‘manly soda’ with 10kcal per bottle. Schweppes grew 8%, Canada Dry 5%, and 7UP was slightly higher in the US.
Dr Pepper Snapple president and CEO Larry Young said: “Our teams executed on our strategy of unlocking growth across our priority brands through integrated communication and execution in the quarter. We outperformed the [carbonated soft drinks] category and grew both dollar and volume share in IRI-measured markets.
“We closed on our acquisition of Bai at the end of January and have been providing them with the resources they need to continue to drive strong growth on the brand.”
© FoodBev Media Ltd 2019
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