Little Drops of Flavor Can Mean Big Business

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Not long ago I was reading about Coca-Cola (NYSE: KO) and their newest upcoming product offering, something called "Dasani Drops." The drops, similar to Kraft’s (NASDAQ: KRFT) "MiO" flavor drops, are designed to enhance plain water with a splash of flavors such as kiwi strawberry and pink lemonade. The drops are intended to expand the company's sugar-free and calorie-free offerings, with the first four flavors intended to hit the market in early October.

It's no surprise that Coca-Cola wants to release a product to compete with MiO, which brought in over $100 million in the first half of the year and the introduction of which coincided with a growth trend that's seen Kraft stock prices increase by approximately $10 per share since MiO hit the market. Branding them as a Dasani product also makes sense given that Dasani water sales increased 13 percent in the first 6 months of 2012. The plan is to make the drops available everywhere you can buy Dasani water, similar to the single-serve powdered mix-in packets that you currently can find everywhere from your local grocery store to gas stations and convenience stores.

Alhough there are a few other liquid water enhancers that have hit the market since MiO, Dasani Drops will likely be the first major competition to Kraft's brand. Store brands such as Great Value have mimicked MiO to cash in on its popularity, while Dasani Drops seems to be trying to take on the reigning champion directly. Of course, it helps that MiO has been attracting people to liquid add-ins for nearly a year and a half now... this actually makes it easier for Coca-Cola to break into the market since they don't have to do all of the leg work to convince customers that flavored add-ins are better than the water they're already drinking.

If Coca-Cola has any problems with the launch of Dasani Drops it will likely come in the form of them cannibalizing sales of the soft drink company's other products. In an ideal situation, anyone who chose Dasani Drops over Coke Zero, Vitamin Water, or similar sugar-free and calorie-free offerings from the company would pair the drops with bottles of Dasani water. That isn't always going to be the case, of course, since Dasani Drops will go just as well with Aquafina, Nestle PureLife, or plain old tap water as well as soft drinks such as Sierra Mist and 7-Up. A bottle of Dasani Drops will cost more than the Coca-Cola owned drinks it could replace (around $4), but given that a bottle contains approximately 32 servings they aren't likely to recoup potential losses that way.

Not that Kraft hasn't faced similar issues with MiO, of course; they own Crystal Light, after all, and MiO is a direct competitor to the powdered mix-in that's been a low-calorie staple since the early 80's. Fortunately for Kraft, the two products tend to attract slightly different demographics and feature different flavor options so both MiO and Crystal Light sell well.

Coca-Cola's playing it conservative at the moment with only four flavors being available at launch, but so long as Dasani Drops have a good taste to them you can expect more flavors to hit the market before long. If the line is successful, comments made by the vice president of Coca-Cola's water, tea and coffee division suggest that they might expand into tea flavors as well (though he makes it clear that there are no plans in motion to do so as yet.)

While Coca-Cola's stock prices have tumbled a bit since early August, they're still doing considerably better than a year ago and are coming down off of a 5-year high. Provided that they don't stumble with the release of Dasani Drops (and make them taste better than some of their previous attempts at flavored Dasani water), prices could very well start rising again soon as customers embrace this new offering. While I've previously heard some investors voice concerns about the way that Coca-Cola treats its workers, those who are interested in the company could very well see this new product line as an opportunity not to be missed.

Croaxleigh has no positions in the stocks mentioned above. The Motley Fool owns shares of The Coca-Cola Company. Motley Fool newsletter services recommend The Coca-Cola Company. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.

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