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Can Healthier Options Boost the U.S. Soft Drink Industry?

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Given the changing taste and preferences of consumers, soft beverage makers too are reorienting their product line with increased focus on healthier drinks and sparkling water. This has resulted in a number of prominent names getting into acquisitions and partnerships as well as reorienting their strategies with the aim of building a healthier portfolio, which now holds the key to their survival.

The latest buzz is The Coca-Cola Company’s (KO - Free Report) plan to buy U.S.-based soft drink brand Moxie from its bottling partner Coca-Cola Bottling Company of Northern New England. Understandably, this is a move to diversify its product portfolio. Carbonated soft drinks sales have been struggling for a while now with an increasing number of health-conscious Americans preferring non-sugary drinks.

Cola-Cola to Buy Moxie

On Aug 28, Coca-Cola reportedly said that it will be buying soda-based soft drink brand Moxie from its bottling partner Coca-Cola Bottling Company of Northern New England. However, none of the companies have disclosed the value of the deal, which is expected to close in the fourth quarter of 2018. Moxie was invented two years before Coke in 1884.

Upon acquisition, Moxie will become part of Coke’s venturing and emerging brands. Coca-Cola in its most recent quarterly results reported that its revenues in North America rose primarily because of double-digit growth in sales of Coca-Cola Zero Sugar. Understandably, much like the other brands, Coca-Cola is trying to redesign its portfolio at a time when an increasing number of people are shunning sugary drinks. This has seen a considerable decline in sales of carbonated drinks in the United States in the last few years.

Others Redesigning Portfolio

It’s not only Coca-Cola but also other big players that are thinking on similar lines and going for acquisitions, with an increased focus on healthier drinks. On Aug 20, PepsiCo, Inc. (PEP - Free Report) announced plans of acquiring Israeli at-home carbonated drink maker SodaStream International Ltd. for $3.2 billion. Coca-Cola and PepsiCo each caries a Zacks Rank #3 (Hold), while SodaStream sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

The acquisition will help PepsiCo to reach out to customers in their homes instead of stores. PepsiCo has been struggling in the United States, with a major shift in consumers’ preference from sugary drinks.

Other companies like Keurig Dr Pepper Inc. (KDP - Free Report) , Monster Beverage Corporation (MNST - Free Report) and Fomento Economico Mexicano S.A.B. de C.V (FMX - Free Report) too have been increasingly focusing on creating a portfolio that will cater to health-conscious consumers. In fact, Monster Beverage in its second-quarter earnings reported 14% year-over-year growth in its Monster energy drink category.

Sparkling Water Takes Over Carbonated Drinks

U.S. beverage sales grew by $2.1 billion in 2017. However, sales were prompted by higher volumes of bottled water sales. Bottled water overtook carbonated soft drinks as the most-preferred beverage by volume in 2016, and continued its growth in 2017. Last year, bottled water accounted for $24.1 billion in sales.

Shifting preference for healthier drinks has seen the carbonated soft drink market shrinking for 13 consecutive years now. Per Euromonitor, bottled water sales in the United States are anticipated to nearly equal that of sodas in volume terms in 2018.  

This has made a number of companies introduce flavored sparkling water. Companies like Coca-Cola, PepsiCo and Keurig Dr Pepper have tasted success with flavored sparkling water. Earlier this year, Coca-Cola introduced a range of flavors in smaller packages to its diet coke brand to attract new-generation drinkers. In February, PepsiCo too launched its new sparkling water line Bubly. 

Summing Up

Following PepsiCo’s announcement of acquiring SodaStream and Coca-Cola eying Moxie, it can be said that major soft beverage manufacturers are aggressively expanding their portfolio. Understandably, this is in a move to stay ahead in the race at a time when customers’ are opting for healthier drinks.

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