The Beverage War Gets Hotter!

Himanshu is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

There weren’t many non-alcoholic beverage choices available some years ago. People had limited choices for drinks to choose from. But with growing population and changing tastes and preferences consumers need variety, especially the youngsters. This begets a number of innovations in the industry and the growing attractiveness of the industry calls for a stiff competition among the market players.

This competition is indeed getting tougher since beverage giants such as Coca-Cola (NYSE: KO) and PepsiCo (NYSE: PEP) are making it quite interesting with new strategic moves each day.

In a recent article, I had discussed how these players are heading into a great future with their amazing efforts to increase their market share. Also, I talked about how Coca-Cola was lagging behind on the innovation front compared to its peer PepsiCo, which has been quite active. Wait…Coca-Cola is here with a larger story.

A Huge Leap…

Coca-Cola recently closed its much awaited acquisition of Aujan Industries, a leading beverage maker in Saudi Arabia. This acquisition will prove to be very fruitful to the Atlanta-based beverage maker in a number of ways.

Firstly, Aujan offers a line of fruit drinks in the Middle East which are quite popular throughout the region along with another nonalcoholic beverage, Babrican. This will help in expanding Coca-Cola’s portfolio of juice offerings further. This can be a potential answer to PepsiCo’s low calorie drink called Pepsi Next since both are targeted at the health conscious customers.

Secondly, this makes the largest beverage provider by market share to move towards its goal of expanding its footprint in the emerging markets, Middle East being one of them. This can become a strong weapon in Coca-Cola’s arsenal since Aujan is among the largest independent beverage providers in the region and will add millions of revenue to the acquirer’s top line.

A key product licensed by Aujan is a British fruit drink which caters to the Muslims, especially during their holy month of the year. This will be another strong product for Coca-Cola.

Some More Positives…

Saudi Arabia is among the countries that have a very high per capita consumption of nonalcoholic drinks, making it an obvious attraction for Coca-Cola. Moreover, the beverage market in the region is largely untapped and therefore has great demand for sweet beverages.

Additionally, Saudi Arabia and Egypt are among the more populous economies in the Middle East. Hence, they serve as a large market to Aujan Industries, forming a large chunk of its revenue. In fact, sales in Egypt have been growing remarkably for Aujan and this will help Coca-Cola reap the benefits going forward.

Considering PepsiCo’s moves, it has been quite active with new releases to keep the customer hooked. Moreover, it is a more diversified company with a significant presence in the food market. Apart from expansion into a range of Gatorade products, which targets the sports nutrition market, PepsiCo is making strong moves in the food segment. With the increasing popularity of different flavors of yogurt, PepsiCo has entered into a partnership with a German dairy company to set up the largest factory for yogurt production. This can help PepsiCo witness even better days.

For Coca-Cola, its strategy of expanding into new geographical markets, particularly the emerging ones have been quite beneficial. The positive effects of expanding into China and India drove its recent quarter’s revenue 3% north. This highlights the company’s prospects with the deal in Saudi Arabia.

The Takeaway

Even though PepsiCo’s presence in the food industry makes it a safer option, it pulls down its margins. Coca-Cola, on the other hand, has been growing slowly and steadily. Its growing market share and expanding presence is turning it to be a huge giant. With the plan of more than $30 billion of investment in expanding its geographical presence Coca-Cola looks quite attractive. I think investors should definitely give it a thought.

justhimanshu has no positions in the stocks mentioned above. The Motley Fool owns shares of The Coca-Cola Company and PepsiCo. Motley Fool newsletter services recommend PepsiCo and 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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