Coca-Cola's Branding Brilliance
Dan is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Coca-Cola (NYSE: KO) should deliver long-term gains for investors, but is it the best option in its peer group? Its archrival, Pepsi (NYSE: PEP), always poses a significant threat. And in the energy drink market, Coca-Cola is chasing Monster Beverage (NASDAQ: MNST). Let’s take a look at how this is all likely to play out in the coming years.
The Coke brand
The two most recognizable words in the world are "OK" and "Coca-Cola." It doesn’t get any better than that for global branding. Coca-Cola products are currently sold in more than 200 countries. China and India have the most potential for Coca-Cola, since their massive populations are eager to consume American brands. The Chinese consumer might not be as strong as advertised, but the Indian consumer is very strong -- Coca-Cola saw double-digit volume growth in India in 2012.
Coca-Cola has already boosted marketing efforts in Brazil, prior to the 2014 World Cup and 2016 Summer Olympics. These events should lead to increased brand recognition and strong growth throughout Latin America.
With the American consumer growing more health-conscious, sparkling beverage sales have declined. Ironically, energy drinks have increased in popularity. But is this really ironic? Energy drinks get a bad rap. While no one knows all the effects yet, energy drinks are often have similar sugar amounts to soda as well as caffeine amounts to coffee.
For example, a 16-ounce Monster Energy drink contains 56 grams of sugar, and a 20-ounce Coca-Cola contains 65 grams of sugar. Also, A 16-ounce Monster Energy drink has 165 milligrams of caffeine, and a 16-ounce Starbucks Grande coffee has 330 milligrams of caffeine.
Coca-Cola has made its move in the energy drink market with NOS and Full Throttle, but these energy drinks haven’t been able to capture much market share versus Red Bull and Monster. Then again, this shouldn’t concern investors. Coca-Cola simply wants a piece of the pie. Plus, the industry might suffer in the near future as the American Medical Association is now supporting a ban on marketing energy drinks to minors.
Coca-Cola also offers healthy options, such as bottled water, Simply Orange, and Honest Tea. All have good potential thanks to increasingly health-conscious consumers:
- Industrywide bottled water sales have increased 6.7% year over year, with strong demand in the United States, China, Mexico, Brazil, and Indonesia.
- Coca-Cola's annual revenue for juice drinks averages approximately $13 billion.
- Coca-Cola acquired 40% of Honest Tea in 2008, and its sales have increased fourfold since that time. (Coca-Cola acquired the rest of the company in 2011.)
Coca-Cola vs. peers
Coca-Cola possesses massive branding power, and Pepsi dominates the snack market. This might lead you to think there are large differences in fundamentals and performances, but that’s not the case. Both stocks have traded in tandem for decades, and both companies are currently trading at 21 times earnings while offering a 2.80% yield. Monster is trading at 31 times earnings and doesn’t offer any yield. This makes Monster a high risk/high reward investment.
Pepsi, which makes snacks as well as beverages, relies on brands like Gatorade, Aquafina, Tropicana, Doritos, Cheetos, Quaker, and Pepsi itself for top-line growth.
Monster might not be as diversified, but it has achieved cool status in the 18-35 age demographic, which can drive sales a long way.
It would be difficult to go wrong with Coca-Cola or Pepsi. Their product and global diversification are likely to lead to solid growth in strong economic environments, and resiliency in weak economic environments. Dividend payments will also help investors when economic times are difficult. If either stock depreciates significantly, investors can use that dip as an opportunity to cost-average down.
Dan Moskowitz has no position in any stocks mentioned. The Motley Fool recommends Coca-Cola, Monster Beverage, and PepsiCo. The Motley Fool owns shares of Monster Beverage and PepsiCo. 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. Is this post wrong? Click here. Think you can do better? Join us and write your own!