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Coca-Cola (KO) Forays Into Alcoholic Drink Space in Japan

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The Coca-Cola Company KO ventures into the liquor space with the plan to introduce an alcoholic drink in Japan. The cola giant launched its first ever alcoholic drink — Chu-Hi — made with a distilled Japanese beverage (shocho), sparkling water and flavoring.

The company chose Japan to experiment its first ever alcoholic drink as the market is ‘incredibly dynamic, fiercely competitive and rooted in innovation.’ Consumers here are always open to product variations. Coca-Cola on an average launches 100 new products per year in Japan. In 2017, the company brought in a number of initiatives and programs comprising the launch of new bottle designs, testing new products and flavors.

“Experimentation is almost like a day-to-day ritual here. You can’t fall behind the rapid product cycle in Japan, so we’re always seeking innovation opportunities to deliver fun surprises for consumers,” said Jorge Garduno, president of Coca-Cola's Japan business unit.

Considering the sluggish performance of the carbonated beverage business, it is appropriate for the company to foray into other beverage categories. Cross-category competition and growing health consciousness are hurting demand for carbonated soft drinks (CSDs). Among CSDs, the cola segment has come under fire as consumers are opting for alternative beverage offerings. The diet drinks are reeling under pressure, thanks to increasing consumer concern regarding the use of artificial sweeteners.

To cope with tepid cola sales, Coca-Cola is pursuing investments in newer revenue platforms to boost long-term sales and profits. In 2017, the beverage giant made an important addition to its portfolio beyond sparkling soft drinks with the acquisition of Topo Chico premium sparkling mineral water brand in the United States. Also, it entered the fast-growing U.S. ready-to-drink coffee category last year and closed the proposed acquisition of AdeS soy-based beverage business.

The foray into the alcohol space can be considered a new source of revenues for the company. However, it is not likely for Coca-Cola to introduce this alcohol-based drink in other countries now.

Meanwhile, the company’s shares have gained 4.3% in the last year, underperforming the industry’s growth of 5.4%. Nonetheless, earnings estimates for 2018 have moved up 3.5% over the last 30 days, indicating analysts’ optimism on the stock.



Zacks Rank & Stocks to Consider

Coca-Cola carries a Zacks Rank #3 (Hold).

A few better-ranked stocks in the broader Consumer Staples sector are Post Holdings, Inc. POST, United Natural Foods, Inc. UNFI and US Foods Holding Corp. USFD. All three companies sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Post Holdings is expected to witness 69.3% growth in 2018 earnings.

United Natural Foods is expected to see 8.6% growth in fiscal 2018 earnings.

US Foods Holding is likely to witness 48.6% earnings growth in 2018.

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