Here Is Why Flat Soda Sales Won't Keep These Beverage Makers Down

It is a bad time to be bubbly.

That is the message sent to the soda industry this month as five more U.S. jurisdictions voted to place extra taxes on sugary, carbonated beverages. Philadelphia became the first major city to do so in June.

Consumers consider the sweetening agents found in many soda beverages unhealthy, a description whose definition tends to fluctuate as rapidly as Western consumers' tastes. Whether sweetened with high fructose corn syrup, aspartame or even natural sugar, soda is perceived as being damaging waistlines and overall health.

But with the consumer and even political environment turning flat for soda, companies that produce fizzy drinks are looking elsewhere for beverage bucks. And their strategies seem to be working.

Last month, Coca-Cola (KO) reported weak third-quarter results that were helped only by sales in what it refers to as its "stills" category, which includes iced tea, juice, sports drinks and water. Although soda sales were slow, with even Diet Coke declining in North America, stills volume grew by 2%.

Despite the headwinds, investors are still buying Coca-Cola as a long-term play. Its stock hasn't cratered.

"We know that consumers are looking for less sugar," said Coke Chief Operating Officer James Quincey. "We are expanding the selection of low- and no-calorie products, and we are reformulating products to reduce added sugars."

On Tuesday, Coke competitors Dr Pepper Snapple (DPS) and PepsiCo  (PEP)  said that they had separately purchased smaller, non-soda beverage companies to give their businesses an added boost.

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Dr Pepper Snapple said that it has agreed to purchase Bai Brands for $1.7 billion. Bai Brands makes unusual beverages from the extracted fruit of coffee beans.

The drinks are supposedly rich in antioxidants and naturally low in calories. The small company also produces lines of coconut water, gourmet-flavored sparkling water and ready-to-drink iced teas.

This could be a good move for Dr Pepper Snapple, which already has a sizable portfolio of non-soda drinks in its Snapple brand.

Bai Brands will give the company an added boost into the niche of "gourmet" drinks popular with millennials. It will also hopefully give Dr Pepper Snapple a foothold on grocery shelves at health food supermarkets such as Whole Foods Market.

On the other hand, PepsiCo said Tuesday that it will purchase kombucha producer KeVita for an undisclosed amount. Kombucha is a probiotic-punched fermented tea drink popular on the health food scene.

PepsiCo already has added insulation from the decline in soda consumption via its lucrative snack food lines, including perennial favorite Frito-Lay. In fact, during the past year, PepsiCo has performed well in terms of overall sales, thanks to its product portfolio other than soda.

However, a great play still to be found in this anti-soda climate is SodaStream (SODA) . This Israel-based company doesn't produce drinks but rather, the equipment for consumers to make their own.

The company used to market its carbonation machines as do-it-yourself soda kits. However, SodaStream has managed to successfully re-brand its products as gourmet sparkling water beverage makers.

Along the way, it has successfully boosted its stock, as well.

Investors should continue to watch this anti-soda pop player.

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The author is an independent contributor who at the time of publication owned none of the stocks mentioned.

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