1 Risk Beverage Companies Should Worry About
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Consumer Reports magazine, ShopSmart in Volume 8 Issue 1, recently published a report called “Buzz kill: What energy-drink labels don’t tell you” highlighting the dangers of caffeine in energy drinks. These dangers can have repercussions on the share prices of companies that make energy drinks.
Too much caffeine
Sometimes drinking coffee (100 mg of caffeine) or a can of soda (46 mg of caffeine) can give you a jolt of motivation; however, ShopSmart’s report outlines hazards of caffeine and uncertainty surrounding the amount of caffeine in energy drinks. An overdose of caffeine can lead to death. According to the article, most healthy adults can safely consume 400 mg of caffeine per day, pregnant women around 200 mg per day, and kids/teens should only consume 45 to 85 mg per day. In a test of 27 top selling brands (three samples a piece); the report indicates in some cases, that caffeine exceeded the amount presented on labels.
Some publicly traded beverage companies share in the guilt of selling energy drinks containing caffeine surpassing the labeled amount and/or exceeding the recommended daily limits for certain groups of people. Two brands, Venom from Dr. Pepper Snapple (NYSE: DPS) and Jamba distributed by Nestle (NASDAQOTH: NSRGY) tested as containing caffeine exceeding the label, adding to the hazards of those particular drinks. Venom tested as containing 220 mg of caffeine exceeding the 160 mg label claim by 60 mg. Jamba tested at 98 mg exceeding the labels 18 mg. With unreliable labeling, for whatever reason, it pays to consume these beverages with caution.
Coca-Cola’s (NYSE: KO) NOS High Energy performance drink actually tested as containing 224 mg which was less than the 260 mg on the label, still exceeding recommendations for pregnant women and children/teens. Pepsico’s (NYSE: PEP) AMP Energy contained 142 mg of caffeine exceeding a healthy dose for your average teenager. Pepsico’s Starbucks branded Doubleshot contained 162 mg. Monster’s (NASDAQ: MNST) X-Presso and Monster Energy drinks contained 221 mg and 184 mg respectively, both exceeding the recommended daily amounts for children/teens.
Lawsuits and activism surrounding caffeine’s dangers and labeling mishaps already threaten the beverage industry. According to Monster’s 2011 form 10K, the company is the defendant in a Canadian class action lawsuit concerning the proper labeling and adverse reactions to energy drinks. According to ShopSmart, Monster Beverage and Pepsico bare scrutiny from the New York attorney general for overstating the effects of the natural ingredients and understating the effects of caffeine. Legal action is also being pursued against Monster due to the death of 14 year old Anais Fournier. All of this could have a negative impact on top and bottom line results.
Most larger companies can absorb lower demand due to their diverse line of products. However, Monster Beverage derives over 90% of its revenue from one segment simply labeled “Energy Drinks.” Investors need to take heed of increased information risk surrounding labeling and caffeine health hazards. Increased regulations and added stigma from the health risks will put a greater strain on Monster Beverage.
The entire beverage industry faces a transition stemming from increased health awareness as they figure out what the health conscious consumer wants. If dangers are determined, most large companies can pull their energy drinks without much harm to the shareholders. Investors in companies with more focus on energy drinks such as Monster Beverage need to pay close attention since the majority of revenue comes from highly caffeinated energy drinks. People could lose taste for its products.
stockdissector owns shares of Coca-Cola mentioned above. The Motley Fool owns shares of Monster Beverage and PepsiCo. Motley Fool newsletter services recommend The Coca-Cola Company, 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!