Sneak Peek: Coca-Cola’s Newest Beverage

Coca-Cola (KO)'s New BeverageIf you gave me $100 billion and said take away the soft drink leadership of Coca-Cola in the world, I’d give it back to you and say it can’t be done.”

-Warren Buffett-

Not too long ago, if you wanted to add a twist to your beverage you would have had to measure out the powder and mix it with your water. It didn’t take long for companies like Kraft Foods Inc. (NASDAQ:KFT), owners of Crystal Light, to create pre-measured powder packets that allowed customers to add flavor to their drinks in an easier fashion. The next generation of fruity flavor has come to the market and is even simpler than the pre-measured packets. Now, people can keep 32 servings of their favorite beverage enhancer in a pocket sized container.

The world’s largest beverage company is rolling out a new version of this product that will only need a squirt of flavor to spice up a drink. On Oct 1st, The Coca-Cola Company (NYSE:KO) will introduce Dasani Drops, a drink similar to Kraft Foods's MiO, which was introduced in March 2011 and enhances boring beverages with squirts of flavor.

MiO comes in nine flavors and cost about $3.99 a pop. The bottle is so miniature it can fit into your back pocket and is sweetened with sucralose, a calorie-free artificial sweetener that is 600 times sweeter than sugar. Unlike pre-measured powdered drink mixes, people can decide how much they want to squirt in to their water. The pocket-sized container of MiO contains more than 24 servings, and is more cost effective than buying sports drinks, teas, and energy drinks. Kraft was happy to report the success they incurred with their MiO product, which had sales nearly double to more than $100 million through the first half of 2012.

Similar to Kraft’s MiO, Dasani Drops uses calorie-free artificial sweeteners and will be priced around $4 a bottle. Dasani Drops are expected to be a little larger than MiO, offering about 32 servings, as opposed to 24. Coca-Cola sees a big opportunity for their liquid water enhancer and plans to sell the product at all locations where Dasani bottled water is sold. It shouldn’t be difficult talking vendors in to selling the high margin products that offer some of the highest sales per square foot and require no refrigeration.

Now, it's obvious that the beverage giant would like to see Dasani Drop users purchase a Dasani water to create their beverage, but we would be surprised if the introduction of the liquid water enhancer had a material impact on Dasani water sales. The release of the drops may slightly increase sales of the company's bottled water brand, but it's likely that any gains here will be offset by the cannibalization of other high-margin products like enhanced water and sports drinks. The rollout of the product should include four flavors including strawberry kiwi, pink lemonade, mixed berry, and pineapple coconut, with more fruit flavorings expected next year. These zero calorie flavors should appeal to a vast array of customers ranging from health conscious customers to bargain hunters.

John Roddey, the VP of Coca-Cola’s water, tea and coffee business in North America, believes that there are opportunities that stretch outside of water. If drops can change water to juice, perhaps the next step is changing water to coffee or tea. Although this could be a hint to what we can expect to see in the future for the beverage industry, various questions remain about the nutrients and taste for products extending outside of juice.

Coca-Cola sniffed out the revenue opportunity and will begin to take market share from Kraft in the liquefied beverage enhancer market. Now it’s just a matter of time until PepsiCo, Inc. (NYSE:PEP) hops into the scene to compete against Coca-Cola (See why Citadel and Eagle Capital Management have large stakes in PepsiCo) and Kraft.

Gaining market share in the non-alcoholic beverage industry has been a constant and international battle between Coca-Cola and Pepsi. Coca-Cola has been the clear leader in international markets and currently occupies a 53.1% market share, more than double that of Pepsi (21.7%). Coca-Cola has arguably the most recognizable brand name in the world and will continue to dominate the non-alcoholic beverage industry if they can remain innovative. If the company's newest line of beverage enhancers is any indication, Coca-Cola won't have any issues on this front.

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