Beverage Companies See Growth Opportunities

PepsiCo and Coca-Cola have been working hard to increase their exposure in one of the fastest-growing international markets: India. With a population of 1.2 billion people, this is important information, as it increases growth potential for both companies.   

Prior to PepsiCo's recent announcement about an increased investment in India, both companies had committed $5 billion to India by 2020. And before PepsiCo's recent announcement, it looked as though Coca-Cola had the edge. Despite PepsiCo increasing its investment to $5.5 billion, Coca-Cola might still have a slight edge in India. However, PepsiCo has closed the gap.

Coca-Cola's sustainable and responsible growth

Source: company website

Coca-Cola aims for sustainable and responsible growth in India. Sustainable and responsible go hand-in-hand. For instance, if Coca-Cola can build out its infrastructure in India in an environmentally friendly manner, it will create jobs, improve communities, and lead to a positive consumer reaction to the brand.

Coca-Cola sees India's demographic, economic, and social situations as key growth drivers. Coca-Cola will invest the majority of its capital in innovation, distribution, cold drink equipment, and manufacturing capacity.

Coca-Cola has already seen consistent unit case volume growth throughout India. It owns the two top-selling soft drink brands in India: Thumbs Up and Sprite. It also owns the top-selling juice drink: Maaza (a mango-focused drink launched in the 1970s).

Through affordability and brand diversification, Coca-Cola has established strong brand loyalty throughout the country. Coca-Cola's $5 billion investment should only help strengthen its position.

PepsiCo's increased investment in India is likely to help PepsiCo without harming Coca-Cola. These two companies have grown simultaneously in many different geographic markets for decades. That's not likely to change in India, especially considering India's vast population of 1.2 billion people.

PepsiCo increases its investment in India

Source: company website

When there's a growing economy with 1.2 billion people, increasing investment is logical. PepsiCo sees big potential in India, and it's focusing on four key initiatives: Innovation, Manufacturing, Infrastructure, and Agriculture.

PepsiCo will rely on innovation to expand its food and beverage offerings, which will expose the company to a broader range of consumers. PepsiCo will significantly increase its manufacturing capacity to meet consumer demands. In regard to infrastructure, it will ramp up its selling and delivery methods, relying on technology to enhance efficiencies.

PepsiCo will put emphasis on rural communities. If these communities can be built up and out, this will create new growing markets. As far as agriculture, PepsiCo will provide local farmers with quality seeds, training, capital, and insurance. In addition to improving the homes and social standings of Indian farmers, this should also improve the company's supply chain.

PepsiCo is growing its Quaker and Tropicana brands in India due to increased consumer demand for convenience and nutrition. In related news, PepsiCo has partnered with Tata Water Plus to offer India's first nutrient water.

Out of India

New Sparkling Fruit2O Click Here to Download Image

Source: Company Website

Dr Pepper Snapple Group might not have any plans for India, but it recently announced that it's in on sparkling water growth. It will partner with Sunny Delight Beverages for its new sparkling Fruitzo fruit-flavored water.

This move makes a lot of sense for Dr Pepper Snapple simply because the company is going along with industry trends. Yes, sometimes business is that simple. Actually, everyone loves simplicity, including consumers. This is what Sunny Delight Beverages is banking on with its subtle and simple, no-calorie, no-sugar, no-carbs, no-caffeine, sparkling water fruit beverage.

Sunny Delight Beverages and Dr Pepper Snapple aren't blindly rolling the dice; they have something to go on. Sunny Delight Beverages offered limited distribution in the Northeast and the consumer and retail responses were strong, which is what led to the expansion plans.

Fruitzo fruit-flavored sparkling water comes in four flavors: Raspberry Lemon, Grape, Mixed Berry, and Strawberry.

Foolish takeaway
Dr Pepper Snapple is trading at 15 times forward earnings, versus valuations of 18 times forward earnings for PepsiCo and Coca-Cola. Additionally, Dr Pepper Snapple yields 3.20%, versus 2.80% for Coca-Cola and 2.60% for PepsiCo. This makes Dr Pepper Snapple very tempting, and it's likely to be a quality long-term investment. However, PepsiCo and Coca-Cola are much larger companies, with greater geographic expansion capabilities, broader brand portfolios, superior marketing power, and stronger brand recognition. 

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Dan Moskowitz has no position in any stocks mentioned. The Motley Fool recommends Coca-Cola and PepsiCo. The Motley Fool owns shares of Coca-Cola 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.

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