Wednesday, August 21, 2013

Is it Game Over for Coke and Pepsi?


Recent earning reports from soft drink manufacturers are highlighting what seems to be an irreversible trend – soft drink consumption in the US is falling. In 2010 – we drank 0.5% less than the year before. In 2011, the drop was 1%. Last year we drank 1.2% less fizzy sugar water. In fact, 2012 was the year with lowest soda consumption since 1987.
This is great news for public health, because despite what the beverage industry will tell you, sugar water is the top calorie contributor in the American Diet. So, should investors be selling off their Coca Cola shares?

Not so fast. Industry captains have been anticipating this change for the last 20 years and as a result have divested and expanded their portfolio of products and brands. While the diet drinks are not picking up all the loss from full calorie drinks, there is the growing category of sports drinks (Gatorade is owned by PepsiCo, and Powerade by Coca Cola). These drinks are nutritionally comparable to cola, but enjoy a health halo powered by endorsements from some of the world’s top athletes.
The beverage Goliaths also own stables of fruit drinks, iced teas, bottled water, and more. PepsiCo went even further and owns snack food brands such as Doritos, Lays, and others.

But the ace all these companies have is the Third World. Expanding economies are thirsty for a taste of America, and nothing symbolizes the US more than our iconic fast food and beverage brands. So while cola sales are dropping here, in India Coke is growing at 20% year over year. Incidentally, India is also the country with the largest number of people with diabetes in the world (45 million!).
The big picture is that humanity is continuing to consume unnecessary calories from companies whose need to grow profits comes at a hefty price – our health. Governments around the world are powerless to stop the economic growth that comes along with these industries. As a result, little time bombs are ticking in billions of people’s bodies.

At one point in the future, the price of our excess consumption will be so high that junk food and beverage companies will see a global decline. They will either adapt or disappear. But for now, it’s still game on.

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