According to Jonathan Berr of CBS Moneywatch, the Cola Wars are likely to heat up in 2015 as Coca Cola, Pepsi and Dr Pepper/Snapple fight for a shrinking number of carbonated beverage drinkers. Berr points to slowing sales and product proliferation as factors to bolster his argument that the big players in the sector are likely to take the gloves off in fighting for market share in 2015.
In one bright spot for the beverage industry, consumers are paying higher prices for soda today because of new product packaging such as 8-ounce cans, which have higher profit margins.
Beverage industry in transition could respark Cola Wars
Coca-Cola has been thew dominant player in the soda market for decades, but the beverage titan is struggling as consumption of soda is steadily declining. Like other soft drink manufacturers, Coca-Cola is relying more and more on products besides carbonated beverages for both sales and earnings growth.
Berr also notes that Coca-Cola chief executive Muhtar Kent has called 2015 a “transition year” and announced plans to lay off around 1,600 to 1,800 employees to reduce costs.
“The beverage industry remains pressured by weak demand for carbonated soft drinks,” noted Joseph Agnese of S&P Capital IQ. “Non-carbonated beverage growth is experiencing better growth than carbonated products, with growth more in line with the snacks industry.”
Agnese says the Cola Wars are likely coming back: “We expect competition to remain intense, and see an adverse secular trend in the carbonated beverage industry continuing as consumers seek out healthier alternatives to sugary soft drinks.”
Recent results for Coca-Cola and PepsiCo
Coca-Cola reported relatively strong fourth quarter earnings earlier this week due to operational streamlining and price increases. Sales of sparkling beverages including soda were down by 1% in North America.
However, 2014 was not a good year for Coca-Cola. Net income was off 55% year over year in the most recent quarter to just $770 million (17 cents per share) while revenue was down 2% to $10.9 billion.
New York-based PepsiCo reported their most recent results this Wednesday. Net income in the quarter was off 25% year over year to $1.31 billion (87 cents per share), compared to $1.74 billion ($1.12 per share) a year earlier. Of note, revenue dropped around 1% to $19.95 billion, but total beverage volume was up 2%.