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Summary

  • Coca-Cola has an opportunity for long-term growth with its still brands.
  • Coca-Cola is the 3rd most valuable brand in the world.
  • North American still beverages volume is up 3% year-over-year for Q1, while sparkling beverage volume is down 1%.
  • The Venturing & Emerging Brands division of Coca-Cola has acquired upcoming brands including Honest Tea, Fuze, & Zico.
  • Honest Tea’s sales have quadrupled since 2008.

Coca-Cola (NYSE:KO) sells non-alcoholic beverages. Nothing is particularly special about the ingredients that make these beverages. People famously prefer Pepsi over Coke in blind taste tests. How has Coca-Cola dominated the soda industry, sold its products at premium prices, and rewarded shareholders with over 50 years of increasing dividends?

(click to enlarge)

Source: Coca-Cola Investor Rleations

Powerful Brands

Coca-Cola has accomplished so much by building powerful brands that consumers prefer. The company ranks 3rd on Interbrand's best global brands list. Coca-Cola has 17 brands that sell over $1 billion per year in sales.

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Source: Cage Conference Presentation

Billion Dollar Brands Timeline by Year Introduced

Brand

Date Started

Type

Acquisition Date

Schweppes

1783

Sparkling

1998

Coca-Cola

1886

Sparkling

N/A

Fanta

1940

Sparkling

N/A

Minute Maid

1945

Still

1960

Del Valle

1947

Still

2007

Sprite

1961

Sparkling

N/A

Georgia

1975

Still

N/A

Diet Coke

1982

Sparkling

N/A

Aquarius

1982

Still

N/A

Powerade

1988

Still

N/A

BonAqua

1988

Still

N/A

Sokenbicha

1993

Still

N/A

Dasani

1999

Still

N/A

Vitamin Water

2000

Still

2007

Simply Orange

2001

Still

N/A

Minute Maid Pulpy

2004

Still

N/A

Coca-Cola Zero

2005

Sparkling

N/A

8 of the 10 most recent billion dollar Coca-Cola brands have been still beverages (non-carbonated). Diet Coke & Coke Zero are the only 2 sparkling coke billion dollar brands started after 1980.

Eye on the Future & Growth Catalyst

Coca-Cola's sparkling (carbonated) sales are slowly declining in the US and Europe. Globally, Coca-Cola posted a 1% volume increase in sparkling beverages due to growth in Eurasia, Africa, and the Pacific. Coca-Cola's growth opportunity lies with its still beverages.

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Source: Coca-Cola 2013 Year in Review

Coca-Cola's still beverages are growing much faster than the company's sparkling beverages. North American volume was up 5% in 2013 for still beverages. Coca-Cola will sell increasing numbers of still beverages as consumers demand healthier options and switch from sparkling beverages to still beverages. The company is poised to capitalize on this trend. Coca-Cola has captured a staggering 33% of global juice growth since 2007.

Source: Consumer Analyst Group of New York Presentation

Venturing & Emerging Brands

Coca-Cola looks to expand its still brands through the company's venturing and emerging brands division (VEB). The VEB division's mission is to identify and build the company's next billion dollar brands. VEB has made several notable acquisitions and partnerships since its origin in 2007 including Honest Tea, Zico, Illy Issimo, & Fuze.

Source: Coca-Cola

Honest Tea in particular has been a bride spot for Coke's VEB division. Honest Tea's sales have quadrupled since Coke began investing in the company in 2008. Honest Tea currently has sales over $100 million annually, with significant growth expected.

Source: Honest Tea Blog

Conclusion

Coca-Cola has a unique opportunity in that it has strong, stable cash flows from its flagship sparkling brands. It can reinvest these profits into the expanding juice, water, and single serving tea and coffee markets. Coca-Cola has a long history of building consumer preferred brands. The slow shift in consumer taste from sparkling beverages to still beverages is a growth opportunity for Coca-Cola.

Source: Coca-Cola's 17 Brands With Over $1 Billion In Sales