Recommendation
Coca-Cola, National Beverage and Lifeway are three companies primarily marketing non-alcoholic beverages. Coca-Cola is the largest company, which is barely growing. In fact, its most recent quarterly sales declined by 3% with sales in North America down by 1% and Europe and Pacific regions down by 1% and 5%, respectively. At the same time, Lifeway’s most recent quarterly sales increased by over 25% compared to the same period in 2012, while those of National Beverage rose by 1.5%.
National Beverage offers the best balance between growth and profitability but its lack of natural and healthy products make it less likely to continue to grow. Coca-Cola is likely to lose market share due to backlash against soda products and increasing popularity of coffee and tea drinks. However, Coca-Cola should be able to manage costs well due to its economies of scale.
Finally, Lifeway is the fastest growing company. It has a small portfolio of brands but it is a niche player that offers healthier kefir drinks and is expanding into new categories and markets. If successful, international expansion and a solid product pipeline could be the catalyst for Lifeway to be acquired by a larger company with larger resources and growth needs.
Conclusion
The companies discussed above will be helped by the recent record-high temperatures. Coca-Cola is a major company operating in the non-alcoholic beverage industry and it is the company, that usually benefits the most from weather swings. However, due to a secular move away from corn-syrup based soda, Coca-Cola is likely to lose market share. On the other hand, National Beverage offers brands that target specific demographics and/or areas and is an active player in the popular energy drink market with its Rip It products.
And Lifeway is the smallest but nimblest company, which should also benefit from its focus on kefir products. Due to its faster growth and healthy products, Lifeway offers the largest growth potential. Given the company’s long history (since 1986) and pioneering role in kefir-based products in the U.S., investors should feel confident about investing in the company.
Delian Naydenov has no position in any stocks mentioned. The Motley Fool recommends Coca-Cola.
The article Shark and Minnows: A Look at Three Nonalcoholic Drinks Companies originally appeared on Fool.com and is written by Delian Naydenov.
Delian 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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