Weekly Issue: We aren’t out of the woods just yet

Weekly Issue: We aren’t out of the woods just yet

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Soft and hard seltzers gaining share and quenching consumer thirst

Soft and hard seltzers gaining share and quenching consumer thirst

When companies ranging from PepsiCo and Coca-Cola add aggressively to their product portfolio it likely means we are at or near an inflection point in terms of consumer preference. That is what we are seeing with flavored seltzers given PepsiCo’s 2018 introduction of its bubly Sparkling Water, its more recent acquisition of SodaStream and Coca-Cola testing its Dasani PureFill machine. Those perusing the shopping aisles may have noticed the influx of seltzer flavors but the observant shopper probably noticed the growing number of hard seltzers being offers from Spiked Seltzer, Nauti, and others. One has to wonder how long it will be until these Guilty Pleasures catch the eye of companies like Molson Coors and Constellation Brands.

 

While sparkling water on the whole has seen impressive growth, canned sparkling water in particular has emerged as a huge contributor to category performance. Nielsen reference data by package type shows that while bottled sparkling water commands the majority of dollar sales (64% of all sparkling water sales were from bottled varieties), canned sparkling water has performed exceptionally well this year, up 43% from last year to reach sales of over $803 million. And the week ended Aug. 18, 2018, saw sales of over $21 million for canned sparkling water, up 39% compared to the same week last year, whereas bottled sparkling water is up 11% during the same period. Above and beyond the effects of rising aluminum prices, growth in canned sparkling water is driving the category’s profits.

Stretching across the store, hard seltzers is a category on the rise in the alcohol market. Within the last 12 months ended July 14, 2018, sales of hard seltzers are up 177%. In fact, hard seltzers now represent about 10% of all flavored malt beverage (FMB) sales.

Renewed interest in sparkling waters is yet another reflection of consumers’ ongoing shift toward opting to make healthier choices. The sparkling water category across traditional beverage and alcohol beverage categories taps into several health and wellness trends popular with Americans today, such as the appeal of a low carbohydrate and low calorie option would could potentially be seen as a low guilt beverage and an offering that is gluten free. Beyond the potential health benefits consumers see, these drinks can be refreshing, provide interesting flavors and, within the beverage alcohol market, its versatility could appeal thanks to its ability to be part of a cocktail mix.

 

Source: No Signs of Fizzing Out: America’s Love of Sparkling Water Remains Strong Through August

Coca-Cola: turning free water machine into a cash stream?

Coca-Cola: turning free water machine into a cash stream?

As part of our Clean Living investment theme, we’ve seen case volumes of not only sugary beverages but also those laced with artificial sweeteners come under pressure as consumers shift to healthier alternatives, including a variety of waters both still and sparkling. Existing soda giants, such as Coca-Cola have been expanding their beverage offering in recent years adding a water, teas, sports drinks and even milk to their global line up, but those still come in a can or plastic bottle.

Looking to more fully embrace the shift to Clean Living and potentially shun plastic bottle, Coke is sampling what it is calling Dasani Free that lets a consumer use their own reusable water bottle for free water or pay for added bubbles and flavors, but NO sweeteners or other ingredients are available. That sure does sound like Coke looking to pivot from its legacy business but it’s not as extreme as the move made by Cott Corp. when it sold its entire soda business.

This is a twist on its Coke Free-Style Machine, but it marks a huge shift in mentality for the company. Perhaps one day we may wind up calling reusable water bottles something like reusable beverage bottles… it could happen, look how the war on straws is forcing change, and yet all those plastic cold cups at Starbucks still remain…just saying.

 

The world’s largest soda maker is testing a fountain that lets people fill reusable water bottles with free, filtered water — but also offers the option of paying to add bubbles and fruity flavors. It’s an example of how the maker of Fanta, Sprite and Powerade is searching for new ways to make money as Americans cut back on traditional sodas.

For now, Coca-Cola is testing just one “Dasani Purefill” machine on the campus of Georgia Tech, across the street from its headquarters in Atlanta. It says it plans to expand the test on a rolling basis this fall to 20 machines on campuses in 15 states, though it did not specify locations.

The concept: You can have filtered water for free, or swipe a credit card to add bubbles or flavor for 5 cents an ounce, plus a 15-cent transaction fee. So filling a 20-ounce bottle with bubbles and flavor would cost $1.15.

You can’t get sweeteners and other ingredients.

The idea hitches a trend that has no sales potential for Coke (reusable water bottles) to one that does (sparkling, flavored water such as La Croix). If it catches on, it would help Coca-Cola squeeze money out of an increasingly popular habit that could otherwise hurt its business.

Source: Coke hopes to turn free water machine into a cash stream

 Our Clean Living theme hitting Frappuccino sales at Starbucks

 Our Clean Living theme hitting Frappuccino sales at Starbucks

The war on sugar has hit companies like Hershey Foods (HSY), forcing it to pivot its snacking M&A strategy to better meet shifting consumer preferences for healthy, natural and organic snacks.

We’ve seen a prononced shift for waters and seltzers that is driving companies like National Beverage Corp. (FIZZ), home of LaCroix, and Cott Corp. (COT), a now pure play company on water, coffee, tea and filtration, as consumers increasingly reach less frequently for sugary sodas or ones that have artificial sweeteners.

In other words, Hershey, Coca-Cola (KO), PepsiCo (PEP) are contending with the headwind associated with our Clean Living investing theme, while National Beverage and Cott are rising the tailwind.

Now we are seeing consumers balk at the sugar laden Frappuccino that has become a staple at Starbucks (SBUX) complete with seasonal specialites. While this is the latest thorn in the side of Starbucks, it has the potential to not only hit it on the profit line but also force an accelerated re-think on its beverage and even its food offerings.

 

Frappuccino sales are struggling, and concerns about how much sugar the slushy drinks contain may be among the reasons.Starbucks says sales from the drinks that mix coffee, ice, syrup and milk are down 3 percent from a year ago, and is blaming the “health and wellness” trend for the dip.”These are oftentimes more indulgent beverages — higher in sugar, higher in calories,” Starbucks CEO Kevin Johnson said during a presentation to investors Tuesday.

A 16-ounce Cupcake Creme Frappuccino has 400 calories and 63 grams of sugar. A Triple Mocha Frappuccino has 390 calories and 51 grams of sugar. That’s with 2 percent milk and whipped cream.

Peter Saleh, restaurant analyst for BTIG, notes that interest in healthy eating isn’t new: “It’s not something that popped up out of nowhere.”

Another problem may simply be “people not wanting to consume full-price Frappuccinos…” A medium Frappuccino costs between $4 and $5. Exactly how many calories the drinks deliver varies.

Source: Starbucks claims Frappuccino sales down due to ‘health and wellness’ trend | Fox News

With soda getting left in the cold, PepsiCo trots out Bubly sparkling water

With soda getting left in the cold, PepsiCo trots out Bubly sparkling water

 

Over the last decade, sugary soft drink volumes have been under pressure, but until recently soda companies have seen their case volumes bolstered by diet beverage that incorporate alternative sweeteners to deliver zero calories. With consumers becoming more health conscious as well as preferring healthier and good for you ingredients as part of our Food with Integrity investing theme, diet soda case volumes have also come under pressure and this is pushing companies like Coca-Cola, Dr. Pepper Snapple, Cott Corp., and PepsiCo to deliver new formulations and offer healthier alternatives. One of the biggest pushes is in flavored sparkling water, and now PepsiCo is joining the fray with Bubly, going head to head with not only La Croix, but also Coke’s line of flavored sparkling water under its Dasani brand.

 

PepsiCo is introducing Bubly, a new brand of sparkling water that comes in eight flavors, including apple, strawberry and mango, in brightly colored cans with lowercase lettering and greetings on the pull tabs. (“Hey u!” “yo!”)Bubly marks the most direct attack yet on LaCroix, a brand of flavored sparkling waters that has, in recent years, seen sales soar as it developed a near cultlike devotion among millennials.For PepsiCo, Bubly is a big bet. The beverage and snacks giant will put its formidable marketing and distribution machine behind the rollout. Bubly will land on shelves this month, and two ads will appear during the Oscars broadcast on March 4.PepsiCo executives say Bubly, with no artificial flavors, sweeteners or calories, fits into its broader corporate initiative to offer consumers healthier snack and beverage products.Continue reading the main storyRELATED COVERAGELETTER OF RECOMMENDATIONLetter of Recommendation: LaCroix Sparkling Water MARCH 3, 2015‘Lady Doritos’? Pepsi Wants a Do-Over FEB. 6, 2018But it is also an acknowledgment that sales of carbonated soda are falling as consumers increasingly shun sugary drinks in favor of healthier options, including water.

Source: PepsiCo Dips Its Toes Into the Sparkling Water Market – The New York Times

Is Diet Coke diluting and deluding itself with its latest move?

Given falling sales of soda, both the regular “sugary” kind as well as diet, Coca-Cola is once again trying to entice consumers with a new round of Diet Coke-branded beverages that will be available in the coming weeks. We’ve not tried them, and while we’re somewhat skeptical our preference for first-hand research means giving them a go.

Our concern is the potential risk to the Diet Coke-brand, which to date has focused on cola beverages. And while we understand the argument to be had with brand extension and consumer choice, we’ve also seen too much choice dilute a brand resulting in a company that needs to bring a brand “back to its core.”

At the same time, creating a new brand is no easy task. To us, it says Coca-Cola could have a tough time ahead as it tries to keep consumers coming back for its products as they look for healthier alternatives.

 

Starting in two weeks, you can buy Diet Coke in Ginger Lime, Feisty Cherry, Zesty Blood Orange and Twisted Mango.

They will come in a skinnier silver can, reminiscent of Red Bull’s. And the company may have had another drink in mind when it mixed up the flavors — LaCroix seltzer, which has attracted exactly the audience Coke is after.

Coke wasn’t shy about which customers it’s targeting.”Millennials are now thirstier than ever for adventures and new experiences, and we want to be right by their side,” said Rafael Acevedo, the group director for Diet Coke in North America. “We’re making the brand more relatable and more authentic.”

The company is not changing the classic Diet Coke formula, which will still be available in the traditional, squatter 12-ounce cans.

Coke has been paying special attention to its low- and zero-calorie drinks.Over the summer, the company replaced Coke Zero with a drink called Coca-Cola Zero Sugar.

But in general, consumer appetite for soda, both regular and diet, is shrinking. People are turning away from the artificial sweeteners used to flavor diet sodas — including the new Diet Coke flavors.

In a note published on Tuesday, the research group Cowen reported that diet soda sales fell 2% in the last three months of 2017. In that period, Diet Coke sales fell by 4% and Diet Pepsi (PEP) by 8%.

Source: Diet Coke’s new cans and flavors are Millennial-friendly – Jan. 10, 2018

New Coca-Cola CEO Wrongly Blames Connected Society For Sales Decline

New Coca-Cola CEO Wrongly Blames Connected Society For Sales Decline

Nothing sadder than when a CEO refuses to accept the changing landscape and instead points fingers at other “happenings.” Case in point below, the newly installed CEO of Coca-Cola (KO) is blaming our Connected Society investing theme for hurting soda volumes. While we admit fewer people are going to the mall, there are other headwinds impacting Coke’s business that arguably have a more direct impact than the Connected Society. Perhaps he should become familiar with our Food with Integrity and Cash-strapped Consumer themes. But hey, that’s what we see as impacting Coke’s soda sales…. after all, one can still order Coke products through online grocers.

Coca-Cola CEO James Quincey only started his new gig on May 1, and in an interview with Bloomberg News, he lays out several factors in flat soda sales. There’s the obvious trend away from consuming gallons of sugary beverages, but Coke has also been hurt by some of the changes consumers have made in their general shopping habits.

“Digital is changing the way you behave,” explains Quincey. “It affects other categories that are not the primary reason you thought about making the shopping trip.

”So when you no longer go to the mall, or the hardware store, or to any of the many retailers that have gone bankrupt in the last two years, you’re also no longer making that impulse buy of a Coke at the checkout line, food court, or vending machine.

Source: New Coca-Cola CEO Blames Online Shopping For Sales Decline – Consumerist