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Can Healthier Options Buoy the U.S. Soft Beverages Industry?

Zacks

The U.S. beverage market grew in 2017 on robust sales of bottled water and carbonated soft drinks. According to a recent report by Beverage Digest, retail beverage sales surged $135.7 billion last year. However, an increasing number of consumers are refraining from sugary sodas and other carbonated beverages in favor of the healthier water, tea and other drinks.

Keeping in mind the changing tastes and preferences of health-conscious consumers, beverage companies are redesigning their product portfolio and reorienting their business strategy.

Beverage Sales Grow on Bottled Water, Carbonated Drinks

U.S. beverage sales grew by $2.1 billion in 2017. Retail beverage sales grew around 3% last year, while volume jumped 2%, according to data and consulting firm Beverage Market Corporation. The growth was prompted primarily by strong sales of carbonated drinks and bottled water. Additionally, an increase in soda prices gave a boost to revenues in that category. Revenues from carbonated beverages came in at $81.6 billion, accounting for more than 50% of the year’s total revenues.


However, an increasing number of Americans are opting for healthier variants, which saw a rise in sales of bottled water. Bottled water overtook carbonated soft drinks as the most-preferred beverage by volume in 2016, and continued its growth in 2017. Last year, bottled water accounted for $24.1 billion in sales.

Industry Swings Toward Bottled Water

Shifting preference for healthier drinks has seen the carbonated soft drink market shrinking for 13 consecutive years now. Carbonated soft drinks volume fell 1.6% in 2017 and is projected to decline between 0.8% and 1.3% this year.

Almost all beverage companies like The Coca Cola Company KO, PepsiCo, Inc. PEP, Dr Pepper Snapple Group, Inc. DPS, Fomento Economico Mexicano S.A.B. de C.V FMX and Monster Beverage Corporation MNST are redesigning their portfolio along these lines.

Coca Cola, PepsiCo, Dr Pepper Snapple and Fomento Economico Mexicano, each carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank stocks here.

Coke, Pepsi Trying to Look Healthier

A number of prominent names are getting into acquisitions and partnerships as well as reorienting their strategies with the aim of building a healthier portfolio, which now holds the key to their survival.

After an eight-year run of flat sales, Coca Cola’s Diet Coke finally bounced back. The company has introduced a range of flavors in smaller packages to its diet coke brand to attract new-generation drinkers. It has also introduced Coke Zero Sugar, revamping its Coke Zero, which now tastes more like the original Coke. The company also acquired the U.S. rights of Topo Chico, a premium sparkling mineral water brand in October 2017.

This definitely seems to have worked wonders for Coca Cola, with the company reporting first-quarter revenues of $7.6 billion, beating the Zacks Consensus Estimate of $7.43 billion (read more: Coca-Cola Tops Q1 Earnings & Revenue Estimates).

PepsiCo’s focus too has been on bottled water and the healthier variants of its carbonated drinks. In February, the company launched its new sparkling water line Bubly. Also, the company’s existing bottoled water brand Acquafina’s sales increased 2.6% in 2017. PepsiCo too seems to be benefiting from redesigning its portfolio. The company reported net revenues of $12.56 billion, increasing 4.3% from the year-ago level.

Dr Pepper Snapple, Monster Beverages Follow Suit

Other companies like Dr Pepper Snapple and Fomento Economico Mexicano too have been increasingly focusing on creating a portfolio that will cater to health-conscious consumers. In fact, Fomento Economico Mexicano has long been focusing on naturally healthy beverages and was the leading player in 2016 with a 42% retail value share.

Monster Beverages too has been riding high on the success of a healthy portfolio. The company’s net sales in the Monster Energy Drink segment, which includes Monster Energy, Monster Hydro Energy and Mutant Super Soda drinks, increased 16.7% to $780.5 million in the first quarter.

Summing Up

While health-consciousness has led to a decline in sales growth of carbonated drinks, sales volume of bottled water and other healthier beverages has expanded. Investors’ thirst for gains should be quenched in the fast-growing U.S. beverage industry that is meandering toward healthier options.

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