Zacks outlook report highlights Coca-Cola, PepsiCo, Keurig Dr Pepper and Fomento Economico Mexicano

June 28, 2021

According to Zachs Investment Research, consumers are emerging from the COVID-19 environment with an increased consciousness for active lifestyles and healthy eating habits, which has given prominence to natural, plant-based and organic ingredients in food and beverages.

Soft drinks, with no preservatives or added colors, low sugar content, and no artificial sweeteners, are the clear choices today, Zachs reported. Gaining in popularity are drinks with plant extracts, natural fruit flavors and not-from-concentrate juices.

Because of these these changes, Zachs noted, the carbonated soft drinks (CSDs) category has been witnessing accelerated downward trends. The CSD category has been losing share since 2017 mainly on the obesity concerns due to its high sugar and artificial sweetener content. This forced consumers to switch to healthier on-the-go options like juices, tea, coffee, energy drinks, sports drinks and flavored water.

Such trends have kept soft drink companies on the heels in terms of bringing innovations to their products to suit consumers' needs. Here are four beverage companies Zachs is watching, and why:

The Coca-Cola Co.

Zachs said the global beverage behemoth has been benefiting from the effective execution of strategies to evolve as a consumer-centric total beverage company. In the evolving industry, the company is poised to gain from strong volumes for its trademark Coca-Cola, sparkling flavors, and the nutrition, juice, dairy and plant-based beverage category.

Additionally, the company remains committed to restructuring its growth portfolio by actively transitioning brands to powerful trademarks. Coca-Cola is speeding up investments to expand its presence in the channel more than the pre-crisis levels. It is also consistently strengthening consumer connections and further piloting various digital-enabled initiatives through fulfillment methods to capture the online demand.

PepsiCo

The global leader has a competitive edge over its competitors as it sells both snacks and beverages, which are complementary food categories. It has been gaining from resilience and strength in its global snacks and foods business, as well as growth in the beverage category.

Zachs noted that PepsiCo's beverage business is impressive. Brands like bubbly, Starbucks, Mountain Dew, Gatorade and Pepsi reported strong growth in first-quarter 2021.

Keurig Dr Pepper

The hot and cold beverage company has been benefiting from solid market share gains and growth across all segments, including increased opportunities in its Packaged Beverages and Coffee Systems businesses.KDP has been witnessing market share gains across several major categories, including CSDs, teas, juice drinks, apple juice, vegetable juice, coconut water, mixers and premium unflavored water. It is also seeing a gradual recovery in restaurant traffic, which is supporting the Beverage Concentrate segment.

KDP expects increased household penetration across both hot and cold beverage portfolios to continue. And its market share growth is being supported by efficient marketing and product innovation strategies. Also, investments to boost distribution platforms and e-commerce operations bode well, Zachs said.

Fomento Economico Mexicano

Also known as FEMSA, this company has exposure in various industries, including beverage, beer and retail, which gives it an edge over its competitors. The company participates in the beverage industry through Coca-Cola FEMSA, which is the world's largest franchise bottler for Coca-Cola products.

The company continues to focus on offering customers more options to make contactless purchases by intensifying digital and technology-driven initiatives across operations. The company's Coca-Cola FEMSA is leading the way with its omni-channel business, while FEMSA Comercio is progressing with the adoption of digital initiatives. Within its OXXO store chains, FEMSA is on track with its investment in digital offerings, loyalty programs and fintech platforms to evolve stronger after the pandemic and over the long term.

Click here to see the full report by Zachs Investment Research.

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