Where Are The Bubbles? Soda Companies Continue To Experience Losses

Soda isn’t the drink it used to be as consumers are increasingly reaching for water, coffee, and juice instead. Fear of obesity, diabetes, and other health concerns can help explain the soda industries sluggish performance.

Last year soda sales declined .6% to $28.7 billion and per capita consumption, continuing its downward slide since 2005.  Meanwhile, in 2011 commodity prices caused an increase in soda price. Prices continued inching up in 2012. The question worrying analyst is whether this down turn is the new industry norm . [Related Beverage Trend: All Brewers Will Soon Sell The Unthinkable: Wine Coolers]

Although companies such as Coca-Cola ( KO), Pepsi ( PEP), and Dr Pepper Snapple ( DPS) are trying to tap into faster growing beverage markets like sports drinks and juices, soda still represents 25% of the U.S. market. Although 75% of Dr Pepper Snapple’s sales come from carbonated soft drinks and 90% of revenue is from the U.S. However, sales for carbonated beverages have been growing strong abroad.

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A few examples of major beverage producers tapping into growing markets include Coca-Cola’s Zico, which is a coconut water beverage, and Pepsi’s fruity Naked juices. There has also been a big push to develop zero calorie natural sweeteners, which represent 30% of the U.S. soda market. Pepsi launched Pepsi Next last year, while Coke is testing low-calorie versions of Sprite and Fanta. Dr Pepper Snapple is also looking to launch 10-calorie versions of 7-Up and Sunkist.

Business Solutions: Investing Ideas

Soda is loosing ground as a staple in the U.S. As consumers grow more health conscious, soda sales will continue to fall and take on the form of an occasional treat, rather than its old stand-by as a meal’s counterpart. The costs of developing new sweeteners must also be considered when looking at these companies. Pepsi’s chief executive has said that they are 90% closer to a breakthrough in sweeteners, but acknowledged the last 10% is the hardest. 

Will these costly experiments pay off in the long run? Currently, Pepsi Next and Dr Pepper 10 have less than 1% market share. These investments could prove to be futile if current consumer trends are here to stay. The strategy you want to see these companies implement going forward is tapping into the faster growing beverage niches.

Let's look into some of the big soda players, which have seen nice growth despite the trends:

Interactive chart:  1- year returns for  Coca-Cola Co (KO),  PepsiCo Inc. (PEP),  Dr Pepper Snapple Group (DPS) and SodaStream International (SODA).  The average 1-year return for these soda stocks is 17% .

Written by KAPITALL'S Nick Sousa