Coke, Pepsi Losing Market Share

Includes: KO, PEP
by: Judith Levy

Beverage marketers Coca-Cola and PepsiCo experienced a 0.6% drop in soft-drink volume in 2006, significantly steeper than a 0.2% slip in 2005, on waning consumer interest in core brands Coca-Cola Classic and Pepsi-Cola. On the plus side, volume for caffeinated "energy" drinks soared. The $70 billion annual beverage market in the U.S. is now crowded with offerings well beyond traditional soft drinks, including sports beverages, bottled water and premium coffees. Coke's soft-drink market share slid to 42.9% from 43.1% in 2005, while PepsiCo's fell to 31.2% from 31.4%. The share of British rival Cadbury Schweppes, which markets Dr. Pepper and 7Up, gained 0.3 percentage point to 14.9%. While Coke and Pepsi's namesake brands lost volume, their smaller brands did well: Pepsi's Diet Mountain Dew gained 8.5% and Coke's Fanta brand gained 7%. Several new products fell flat in the marketplace, like Pepsi Vanilla and Vanilla Coke. The two companies responded to the second consecutive annual volume decline by reiterating their strategy to roll out a wide array of noncarbonated products. According to consultancy Beverage Marketing, the fastest-growing nonalcoholic beverage brands were Coke's Dasani water and PepsiCo's Aquafina, Gatorade and Tropicana.

Sources: Wall Street Journal
Commentary: Questioning Sell-Side Consensus On Coca-ColaSuper Fizzy Soda StocksNew President Envisions a "Winning Culture" for Coke. Conference call transcripts: PepsiCo Q4 2006, Coca-Cola Q4 2006
Stocks/ETFs to watch: The Coca-Cola Company (NYSE:KO), PepsiCo, Inc. (NYSE:PEP). Competitors: Cadbury Schweppes plc (NYSE:CSG), Kraft Foods Inc. (KFT). ETFs: Vanguard Consumer Staples ETF (NYSEARCA:VDC), Vanguard Dividend Appreciation ETF (NYSEARCA:VIG), PowerShares Dynamic Food & Beverage (NYSEARCA:PBJ)

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