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Coca-Cola (KO) Rebrands Diet Coke Amid Sinking CSD Sales


Sluggish sales of carbonated soft drinks or CSD has prompted innovations and re-branding in the beverage industry to regain sales momentum. Keeping that in mind, Coca-Cola KO recently announced that it will re-launch Diet Coke in North America with a "full brand restage" featuring new slim bottles and flavors. The four new flavors, which will hit the stores in mid-January, are Ginger Lime, Feisty Cherry, Twisted Mango, and Zesty Blood Orange.

The company is “re-energizing and modernizing Diet Coke for a new generation of drinkers – and offering its millions of current fans a new look and more flavors.”

Coca-Cola’s Endeavor to Diversify Portfolio

Coca-Cola’s North American sparkling beverage business has been delivering sluggish results due to CSD category headwinds. Cross-category competition and growing health and wellness consciousness — consumers are particularly vigilant about the use of artificial sweeteners, high sugar content and related obesity concern — are hurting demand for CSDs. Consumer tastes are swiftly shifting from CSDs to healthier beverages like energy drinks, tea juices and flavored waters.

The company’s sparkling beverage unit case volume was flat in the third quarter and second quarter, and declined 1% in the first quarter of 2017. Sparkling beverage accounted for 72% of the company’s 2016 worldwide unit case volume. Hence, such vast exposure puts Coca-Cola in a weak spot.

The challenges in the CSD category have been felt by all major soft drink makers — Coca-Cola, PepsiCo PEP, Monster Beverage MNST and Dr Pepper Snapple Group DPS — leading to lower volumes and weak sales.

Accordingly, Coca-Cola is trying to reinvigorate the category with significant innovations and re-branding. The cola giant is investing in newer revenue-generating platforms to boost long-term sales and profits.

The latest move in this regard by Coca-Cola is the launch of Coca-Cola Zero Sugar, replacing Coke Zero, in the United States in August 2017. Based on its success in Europe and Latin America, Coca-Cola Zero Sugar offering will address two key issues: help in giving a boost to the zero calorie portion of its portfolio, addressing potential sugar taxes; and the “diet downturn” that continues to weigh on traditional Diet CSDs. Coca-Cola also has plans of using Zero Sugar as an alternative to diet sodas.

The company remains on track with its plans of broadening its portfolio to meet evolving consumer preferences by introducing more than 500 new products and also "lifting and shifting" existing brands into new markets.

Shares of the company have gained 12.6% in the past one year, compared with the industry’s growth of 16.4%. Nonetheless, this Zacks Rank #3 (Hold) company's efforts toward offering more products with less sodium, sugar and saturated fat along with productivity and cost-cutting initiatives to help fight revenue woes. The earnings estimates for 2018 have moved 2% north over the last 30 days, reflecting analysts’ optimism.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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