Coke Stock: Sweetening Its Value Proposition

Coke Stock: Sweetening Its Value Proposition

We drink twice as many sugary drinks today as we did 30 years ago. However, American soda consumption has fizzled in the most recent decade. Increasing obesity concerns and growing regulatory pressure have soda giants re-evaluating every aspect of their products' nutrition profile. And last week Coca-Cola took a big step with game-changing potential.

Breathing new life into carbonated soft drinks
Coca-Cola announced that it will introduce Coca-Cola Life, a mid-calorie carbonated soft drink that will be sweetened using a blend of sugar and stevia, a plant-based, no-calorie sweetener. Coca-Cola, which recently signed a multiyear partnership agreement with one of the world's largest stevia producers, has used the all-natural sweetener in dozens of its products. Yet this move represents the first time Coke has done so in its flagship brand.

The cola giant will roll out the product in Argentina, where stevia has been widely used for centuries. The company enjoys an impressive 50% market share in the South American country, where consumption of Coca-Cola products is 364 servings per capita annually, nearly four times the worldwide average. Since its flagship Coca-Cola brands are huge case-volume growth drivers, a successful launch of Coke's Life product in Argentina may eventually lead to a jolt in carbonated soft-drink volume growth in other markets.

Let the mid-calorie cola wars commence
Coke seems to be responding to PepsiCo's efforts on this front. PepsiCo rolled out Pepsi Next, which contains 60% less calories and sugar than its flagship soda, replacing some of the high-fructose corn syrup with artificial sweeteners like sucralose. PepsiCo CEO Indra Nooyi asserts that the company is waiting on FDA approval for a natural, low-calorie sweetener that won't compromise taste, claiming stevia is an ineffective sweetener in colas due to its bitter aftertaste.

Just in case these efforts don't turn around the declining soda consumption trend, cola giants are hedging their bets by offering an ever-increasing number of healthier drink choices. More and more, consumers are reaching for waters, teas, juices, and sports and energy drinks, and Coke has diligently grown this part of its portfolio. Its Odwalla and Innocent Drinks acquisitions as well as its majority stake in Zico coconut water, a niche beverage touted for its hydrating properties, evidence this. Meanwhile, PepsiCo is pumping up the nutritional profiles of its beverages and snack foods.

Foolish takeaway
Concerns regarding cola's role in our nation's obesity epidemic have never challenged major soft drink makers like they do today. Can a stevia-sweetened Coke breathe new life into the dying carbonated soft-drink category? Whether or not the cola maker has found the holy grail of sweeteners remains to be seen. But by offering a growing portfolio of noncarbonated drinks and a mid-calorie version of its flagship soda, Coca-Cola is playing all angles of the court.

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Fool contributor Nicole Seghetti owns shares of PepsiCo. Follow her on Twitter: @NicoleSeghetti. The Motley Fool recommends Coca-Cola and PepsiCo and owns shares of PepsiCo. Try any of our Foolish newsletter services free for 30 days. We Fools don't 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.

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