Food and beverage companies have been in big trouble lately as government regulations and public opinion have begun to conflict with soft beverage sales. The solution to this problem is to find a substitute for sugar, that will deliver the same taste, with less calories and grams of sugar. The problem with this solution though, is that many of the man made artificial sweeteners on the market have just as bad of a rapport as sugar. Thus companies have been searching for a natural sweetener alternative to sugar that will satisfy the consumers with both flavor and health effects. Stevia has been the focus of soda producers for years now. Regardless of the natural label on stevia, many still question whether it will be enough to boost consumer confidence and Coca-Cola Co (KO) beverage sales.
Stevia is a sweet-tasting herb that originated in South America. Rebania-A is a sweetener that is produced by processing stevia. Rebania-A is about 300 times sweeter than stevia and is low enough on the caloric index to allow companies to brand drinks made from the substance as "calorie-free".
Coca-Cola Co and PepsiCo (PEP) both have been trying to successfully incorporate stevia into their drinks for a few years now. Coca-Cola has found success with stevia in some of their Odwalla drinks and in Sprite. PepsiCo has perhaps been more successful thus far marketing products sweetened with stevia though, as it has used the sweetener in several Sobe beverages as well as Tropicana 50. Whichever company can expand the use of stevia to their sodas successfully will be able to make market share gains in the low calorie soda market. Although, Coca-Cola will probably be the long term winner of this battle, because they plan on incorporating stevia into as many as 30 product lines. In the meantime, PepsiCo has no further plans to expand stevia use in other products besides Sobe, Propel, and Tropicana.
In late 2011, the EU cleared Rebania-A for commercial use, which has thus opened up an enormous opportunity for Coca-Cola to market stevia based products there. Just this December, Coca-Cola announced that it will begin by reintroducing its line of Vitaminwater in the United Kingdom with stevia-based flavoring. The success of this plan will be a heavy indicator of what potential profitability stevia based products have in Europe. Coca-Cola though, is in the driver's seat ahead of PepsiCo to take hold over a significant share in the low-calorie soda market and PepsiCo will need to step up its game if they want to have a chance to compete with Coca-Cola.
If Coca-Cola can figure out a way to mask the licorice like aftertaste of stevia, it could begin incorporating the sweetener into many of its soda brands. Soda sales make up approximately 40% of Coca-Cola's total revenue. If Coca-Cola was able to market a more health conscious soda, it would perhaps bring back customers that have stopped drinking their sugary beverages due to health concerns. Dr. Pepper Snapple Group (DPS) has been more successful in doing so, but that is because many of their drinks like Sunkist, A&W Rootbeer, and different teas, mask the distinct after taste associated with stevia much better than others.
Coca-Cola has always been a stable company with a great dividend and will continue to remain that way. Although the low-calorie soda market is a pressing issue for Coca-Cola, they are not a one trick pony and will not be going anywhere soon even with declining soda sales. Coca-Cola pays out a 2.75% dividend and is priced just below $38 per share. The company is a terrific buy on any pull-back around $36, which looks to be the current support level. There is no doubt in my mind that Coca-Cola will figure out how to successfully incorporate stevia into its products and continue to reign as the world's top beverage company.
Disclosure: I am long PEP.