NEW YORK -- Beverage companies, pinched by a year of stiff declines in U.S. soda sales, may be headed toward a little relief in North America, according to Dow Jones report. Early numbers that track store sales and other data suggest the industry may be done with the worst declines in the United States. While soda pop volumes are not poised for any dramatic rebound, the large beverage companies could begin to see some sequential improvement from last year in the region.
Some new marketing campaigns from giants PepsiCo Inc. and Coca-Cola Co. seem to be helping, as lower gasoline [image-nocss] prices are aiding soft drink sales in convenience stores. "Things are not going to be as bad as they were in the fourth quarter in 2008. Volumes will be better in the first quarter than the fourth," said JPMorgan analyst John Faucher.
Coca-Cola and PepsiCo are set to report quarterly earnings next week and the companies' comments on North America will be closely watched. Any better-than-expected volume numbers "will be perceived very favorably," said Esther Kwon, an analyst at Standard & Poor's.
The two multinationals face a host of other pressures, such as the fluctuations in foreign currencies that have pressured the companies' revenue in recent quarters. Also, emerging markets are not growing at the breakneck speed of previous years. Higher-priced drinks such as ready-to-drink teas are likely to continue to be hurt by consumers trading down. That said, fewer pressures in the key U.S. market would be a big positive for two beverage makers.
Volumes in the U.S. carbonated soft drink market fell 3% in 2008, and both Coca-Cola and PepsiCo lost market share, Dow Jones said, citing Beverage Digest. But more recently, Dr Pepper Snapple Group Inc., which sells both fizzy drinks and ready-to-drink teas, offered a glimmer of hope by reporting better-than-expected results. The company, which is smaller than Coca-Cola or PepsiCo, said fourth-quarter soda volume fell less than 1% as consumers reached for cheaper drinks and shunned more expensive ones such as Snapple.
The U.S. carbonated soft drink market has seen volume drops in recent years as many consumers reached for noncarbonated drinks. The recession sharpened those declines, pushing both Coca-Cola and PepsiCo to invest in reviving the soda category, which they both view as key for the industry. Coca-Cola launched a fresh marketing campaign it calls "Open Happiness," and PepsiCo has sought to create more buzz around its brands through new packaging and branding for several products. The two beverage giants have also been experimenting with smaller-sized bottles and packs at more attractive prices, such as Coca-Cola's efforts to widen distribution of a new 16-oz. bottle priced at 99 cents.
"I'm seeing a lot of commercials from Coke and Pepsi that are exciting and fun," George Kalil, president of privately held Kalil Bottling, Tucson, Ariz., told the news agency. His company sells a mix of beverage brands including Coca-Cola's VitaminWater and Snapple. "It helps the whole industry. They may get the biggest benefit, [but] we all get a piece of the action."
The stabilization in North America may not be sufficient to completely override other pressures the industry faces, said Dow Jones. Both Coca-Cola and PepsiCo have been fairly guarded in their forecasts for the year, acknowledging the challenges of the global slump in spending.
Faucher said Wall Street's consensus earnings expectations for Coca-Cola and PepsiCo for this year may still be too high given outside factors such as currency fluctuations. Lower commodity costs will be a positive, but Kwon said she expects most of those benefits to show up mainly in the second half of the year.
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