Wells Fargo Securities reported on this week’s Beverage Digest’s Conference in New York City, which included presentations by executives at Coca-Cola Co., Pepsi, Dr Pepper Snapple Group, and Coca-Cola Enterprises Inc. as well as Nestle NA Waters, Green Mountain Coffee Roasters (GMCR), PureCycle, and Pepsi/Coca-Cola bottlers.
Despite promising innovation and global opportunities highlighted, Wells Fargo remains cautious on the sector given ongoing challenges in carbonated soft drinks (CSD)s, particularly Diets, in North America.
Key takeaways from Coca-Cola Co.’s CEO, Muhtar Kent, include:
(1) 2020 vision remains critical and achievable.
(2) Coke Life (naturally sweetened Coke) has been in Argentina for six months and Chile more recently and has “done better than expected.”
(3) India is doing very well, significant opportunities in China despite competition; (4) Innovation is critical—the best ideas reside outside the company—incubation centers in Israel, China, Japan, and beyond provide significant opportunities (e.g. plant bottle, developed in India);
(5) Single-serve is an opportunity—highlighted Freestyle’s success.
Bottom line: Coca Cola Co. continues to leverage its global business and brand strength to drive long-term growth and profitability, Wells Fargo reported.
Coca-Cola Enterprises Inc. (CCE)
CCE’s CEO John Brock discussed the company’s numerous sustainability initiatives as a key strategic priority and competitive advantage. CCE’s priorities for the future include (in order):
(1) Expanding into contiguous geographic regions within Western Europe at reasonable prices.
(2 ) Expanding brands in W. Europe, particularly in the juice and juice drink category (limited interest in water) to better align portfolio with European NARTD industry.
(3) Expanding elsewhere, potentially the U.S. at some point. While the failure to reach an agreement to purchase the Germany territory appears to be largely based on valuation, Brock did indicate that Germany remains of interest.
Bottom line: CCE’s shareholder-friendly strategy and strategic priorities remain favorable for investors, in our view, however valuation is rich, noted Wells Fargo.
Pepsi’s Simon Lowden, CMO of PepsiCo NA Beverages, spoke about the strategic importance of the integrated model and highlighted the fact that seven products were launched this year that have already achieved $100M in retail sales, including Kickstart, which has had $170M in sales in its first 12 months. Lowden focused on Mountain Dew, which has largely bucked the CSD/Cola trends, and has been a strong performer due to design and product innovation. Lowden also described the successful trial of Touch Tower (similar to Coca-Cola’s Freestyle).
Bottom Line: Wells Fargo remains remain cautious on Pepsi, as despite pockets of strength, the beverage business remains under significant pressure
Dr Pepper Snapple Group (DPS)
DPS’s CEO, Larry Young discussed DPS’s portfolio and strategy. Key takeaways include:
(1) DPS is unlikely to receive any further payments in the event of further refranchising to existing DPS bottlers— “we’ve never charged before”;
(2) Packaging driving growth, less so pricing—need to focus less on volumes and find a balance with the right price for the right package in the right channel;
(3) DPS must diversify away from its CSD focus—new innovation expected from Mott’s in 2014—DPS remains intent on “building” rather than “buying” brands;
(4) Marketing dollars being cut back in response to better understanding the return on marketing investments—DPS is more focused and selective with its marketing spend;
(5) Snapple underperforming expectations with K-Cups;
(6) New distribution, including online sales, a priority.
Bottom line: Wells Fargo is encouraged by DPS’s initiatives, but remain concerned in the short-term given its CSD-focused portfolio.