Capitalizing on the Trend
While the soda segment of the beverage market is weakening, the overall beverage market will only grow with population; people still have to drink something, whatever it may be. Considering the worldwide population is projected to grow to 8.9 billion by 2050, overall beverage sale volumes are likely to increase in lockstep. A deterioration of the soda market will undoubtedly hurt Coca Cola and Pepsi, as their largest products are soda-centric. For PepsiCo, eight out of the company’s 22 billion dollar brands are sodas, while Coca Cola is the world’s most valuable brand.
However, these two giants possess diversified beverage portfolios, including healthy alternatives. PepsiCo’s Tropicana, Gatorade, and Naked Juice brands are all components of its “nutrition portfolio”, while 25% of Coca Cola’s product portfolio consists of low- or no-calorie beverages. Both of the companies have remained in business for more than a century, and are positioned to sustain for the next 100 years despite altering consumer preferences.
On the snack side of the coin, industry analysts anticipate consistent 2.5%-5% annual growth for the industry until at least 2015, which is evident in projected revenue growth for Mondelez International Inc (NASDAQ:MDLZ) and PepsiCo’s Frito-Lay North America segment.
The Foolish Bottom Line
The snack market is strengthening while the soda market is waning. This trend can easily be drawn from recent occurrences in the industries, and is likely to sustain as the underlying culprit is a multiyear shift in consumer preferences.
However, the diversified nature of the soda giant’s beverage portfolios should allow them to gradually adjust to the healthy trend. While a merger seems unlikely, PepsiCo and Modelez are positioned perfectly to take advantage of consistent growth in the snack industry through strong brands.
Investors should look for further acquisitions/product roll-outs by Coca Cola and PepsiCo into the healthy beverage market, while robust growth in the snack market is contingent on continued strong product offerings by individual companies.
Overall, all three of these companies present attractive long-term investment opportunities, are industry leaders, and will prosper for years to come.
Ryan Guenette owns shares of Coca-Cola. The Motley Fool recommends Coca-Cola and PepsiCo. The Motley Fool owns shares of PepsiCo.
The article Soda Is Fizzling, Snacks Are Crunching, and Rumors Are Swirling originally appeared on Fool.com and is written by Ryan Guenette.
Ryan is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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