Company Trend Analysis - Coca-Cola Pushes Stevia-Sweetened Soda To Evade Sugar Taxes - FEB 2018


BMI View: As the healthification trend continues across developed markets, beverage manufacturers are responding by launching new products with lower sugar or calorie content while also diversifying their drinks portfolio. Coca-Cola is the latest company stepping up its efforts to diversify its portfolio by launching 'Coca-Cola Stevia No Sugar ' , sweetened only with the stevia leaf as the c ompany responds to sugar taxes gaining momentum globally .

On the back of growing health-consciousness among consumers, Coca-Cola is launching a new Coca-Cola drink sweetened only with sweetener derived from the stevia leaf. The new drink, called 'Coca-Cola Stevia No Sugar' promises a drink profile closer to sugar without the bitter aftertaste. While Coca-Cola was already using stevia as a sweetener in 'Coca-Cola Life', it was blended with cane sugar. 'Coca-Cola Stevia No Sugar' is scheduled to be launched in H118 in a market outside of the US.

The focus on drinks with lower sugar content and lower calories comes on the back of the healthification trend as consumers have become more aware of the health benefits and risks associated with the consumption of different types of food. This is particularly seen in developed markets in Western Europe and the US, where the healthification trend has caught on as diabetes and obesity levels continue to rise. With high sugar intake being linked to the rise of these diseases, it has come under scrutiny from consumers and governments alike, with some countries implementing taxes on sugar in order to lower obesity levels (UK, Ireland and South Africa due to implement in April 2018). Replacing sugar with stevia may help Coca-Cola avoid these soda taxes which are calculated based on the sugar content per drink in markets that have introduced them (See: Sugar Taxes: Latest Developments & Analysis, 7 Sept 2017).

Developed Markets To Witness A Slowdown In Carbonated Drinks
Carbonated Drinks, Sales, USDmn, % growth y-o-y
e/f= BMI estimate/ forecast. Source: National Sources/BMI

We are forecasting a slowdown in growth of carbonated drink sales in developed markets where the healthification trend has been more prominent. In the developed markets of United States, we forecast carbonated drink sales to fall by an average of 1.6% per annum over 2017 and 2021. Coca-Cola remains heavily exposed to this, and saw its revenues decline by 5% to USD41.86bn in FY2016 (ended December 31 2016), the fourth consecutive year of negative sales growth. Conversely, in emerging market in India, carbonated drinks is forecast to grow by 8.7% annually over the same period.

This is not the first step Coca-Cola has made in diversifying its product portfolio. Coca-Cola had launched several new products such as 'Coca-Cola Life', a drink sweetened with sugar and stevia, launched in Argentina and Chile in 2013, which was later rolled out in Australia, UK, US and UAE in 2014. 'Coca-Cola Zero No Sugar' was also launched in markets across Europe in 2016 and later in the US in 2017. Coca-Cola has also been innovative in launching new flavours such as 'Coca-Cola Ginger' in November 2016.

However, we believe diversifying its portfolio via acquisitions is the best strategy for Coca-Cola to stay competitive as consumers in developed markets are increasingly switching from carbonated sugary drinks to fresh juices and mineral water instead. Coca-Cola's most recent acquisition in October 2017 witnessed Coca-Cola acquiring premium water brand Topo Chico. This is critical for re-igniting falling sales by tapping into growing non-alcoholic drinks trends, with premium tea, flavoured sparkling waters and others set to see a boom in sales over the coming years (See: ' Adultifying' Trend Transforming Non-Alcoholic Drinks Industry, 20 July 2016).

Coca-Cola's Recent Acquisitions and Investments
Date Brand Acquired Description of Deal
Source: BMI
November 2013 ZICO Pure Premium Coconut Water Coca-Cola first invested in Zico in 2009 and later acquired a majority stake in 2012
February 2014 Green Mountain Coffee Acquired a 10% Minority Stake in Green Mountain Coffee for USD1.25bn
August 2014 Monster Beverage Acquired a 17% stake in Monster Beverage for USD2.15bn
March 2017 Ades Plant-based Beverages Acquired for USD575mn
October 2017 Topo Chico Buys Topo Chico for USD220mn