The Coca Cola Company (KO), which competes with Pepsico (PEP), is the world’s largest manufacturer, distributor, and marketer of non-alcoholic beverage concentrates and syrups. The company primarily sells these syrups and concentrates to bottlers who, in turn, sell the finished product.
Coca Cola’s beverage portfolio can be broadly divided into carbonated and non-carbonated soft drinks. Dietary concerns have led some consumers to move away from carbonated drinks like Coke, Sprite and Fanta, in favor of water, juices and energy drinks. As a result, companies like Coca Cola and Pepsi have diversified into more non-carbonated beverages.
Although Coca Cola has well-known non-carbonated brands like Dasani (water), Minute Maid (juices) and Powerade (energy drink), the majority of the company’s value is still attributable to its traditional carbonated beverages.
CSDs Account for 70% of Coca Cola’s Stock While non-CSDs Contribute 30%
Carbonated soft drinks (CSD) are essentially soda-based drinks that include famous brands like Coke, Diet Coke, Sprite, Fanta and other smaller brands like Coke Zero, Sprite Zero and Barq. These brands together account for about 70% of the $56 Trefis price estimate for Coca Cola’s stock. This amounts to around $90 billion in absolute terms based on our estimated $130 billion value for Coca Cola’s stock.
In comparison, non-carbonated soft drinks essentially include energy drinks, bottled water, fruit juices and other ready-to-drink beverages sold by the company. Powerade, Minute Maid and Dasani are some of the major Coca Cola brands in this category.
Non-Carbonated drinks together account for 30% of the value of Coca Cola’s stock, or approximately $40 billion in absolute terms based on our estimated $130 billion value for the company.
Non-CSDs Have Higher Revenue per Case, But CSDs Have Much Higher Volume
We estimate the revenue per case for The Coca Cola Company’s carbonated soft drinks sold in the US is around $1.49 while that for the international sales is $1.20. In comparison, the revenue per case for non-carbonated soft drinks tends to be higher, as customers are ready to pay a premium for such drinks due to their perceived health benefits. In the case of juices like Minute Maid, the input costs for the company are also higher than that of carbonated drinks like Coke.
However, the high valuation of the carbonated soft drinks business results from the large volumes sold. Around 78% of Coca Cola’s case volume can be attributed to carbonated soft drinks.
This is quite evident from the fact that the company’s most famous brand, Coke, commands a share of about 17% in the US carbonated soft drinks market, comparatively much larger than the US fruit juices & energy drinks market, in which Minute Maid only accounts for close to 8% market share. Thus, a much higher volume of carbonated soft drinks essentially results in a much higher valuation.
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