This is a guest post. The author runs the blog My Financial Shape, documenting his family’s journey to Financial Independence by 2024 by establishing various passive income sources such as dividend-paying stocks, etc.
The sweet Dividend King
The Coca-Cola Company is without any doubt one of the most popular stock holdings for millions of Dividend Growth Investors and Long Term oriented Investment Portfolios. The company plays in the exquisite league of the prestigious Dividend Kings, consisting of a group of 30 businesses that managed to increase their shareholder payouts for at least 50 consecutive years. That’s quite an achievement, to grow consistently top- and bottom-line to do that. And in the case of The Coca Cola Company, we are talking about 58 years of climbing dividends.
PepsiCo’s and Coca Cola’s battle of the giants
The Coca-Cola Company and its main rival Pepsi have been competing quite fiercely for over 110 years.
Both companies have provided their shareholders with outstanding returns for decades and still continue to generate generational wealth.
It’s interesting to compare the different growth and diversification strategies of the two giants.
Today, PepsiCo generates more revenues from its food brands than from its beverages and over decades – through massive organic growth and very clever acquisitions – has transformed into the world largest snack producer and is the main player in the beverage businesses (Quaker Oath), competing with Kellog and General Mills. See here an article on PepsiCo’s diversification strategy the company followed for over a century. In fact, today, PepsiCo has more resemblance with Swiss-based Nestlé (the world largest food maker and number two beverage player) than with The Coca Cola Company.
While PepsiCo – through its combinations of food and beverages – has achieved higher revenues and market capitalization than The Coca-Cola Company, that company is the undisputed Number One when it comes to beverages. The Coca-Cola Company has also higher margins on its products, its profitability is consequently higher than in the case of PepsiCo and it’s also less leveraged.
Coca Cola’s diversification strategy
For the last two decades, sales of its soda products have been on the decline in many countries, or at least under pressure on a global scale. In the so-called developed countries, people tend to drink less carbonated sugary drinks like Coca-Cola, Fanta, Sprite, etc. Or let’s put it that way: consumption is still enormous, but it’s clear, that sales growth can not compare with past decades. The Coca-Cola already has an unmatched global presence, you can drink your Coca-Cola nearly everywhere. So, it’s quite saturated.
However, The Coca Cola Company very successfully managed to compensate sales pressure on carbonated sugary drinks through a variety of measures:
- price increases
- “optimising bottle size” (smaller size which kind of has the effect of a premiumisation of the products),
- efficiency gains through streamlined production and distribution processe
- a huge refrenchising project which includes bottling companies around the world
This set of actions not only strengthen Free Cash Flow generation for the mid and medium-term, but it’s also part of a very sophisticated diversification strategy. Yes, Coca-Cola has a clear focus on beverages. But don’t think that they just offer unhealthy sugar water.
The Coca Cola Company offers much more than just Coca Cola
Yes, the very popular soda is of course an incredible success and still the most important cash cow of the 134 years old beverage giant. But The Coca-Cola company has expanded into a range of additional offerings.
Just to name some of the most popular ones:
- Dasani, a brand of bottled water. The Coca Cola company launched it in 1999. As Nestlé, Danone and PepsiCo, The Coca Cola Company has realized the huge growth prostpects for bottled water (plain and sparkling).
- Energy Brands, one of the company’s most successful subsidiaries with its main brands VitaminWater and SmartWater, offering healthier alternatives to traditional soda products.
- Fuze Beverage sells Ice Tea and non-carbonated fruit drinks. The product range is quite broad also including healthier offerings
- The Minute Maid Company has become a very important brand, setting the focus on fruit juice. Few people know, that The Coca Cola Company is one of the world largest orange juice producer, including brands like Simply Orange etc.
- Costa Coffee, a British coffeehouse really has enormous growth potential to benefit of the growing coffee industry, in particular on the back of The Coca Cola Company’s unmatched global distribution channels and presence around the world
- Ades with its plant-based bevarages has gained popularity recently in particular among young people
- Powerade, a sports drink created, manufactured, marketed by The Coca Cola Company (its main competitor: Gatorade from PepsiCo).
Moreover, The Coca-Cola Company owns almost hundreds of larger and smaller water brands, amongst others Vio, Apollinaris, Römerquelle, etc.
The Coca-Cola Company has also an increasingly strong position in the energy dring market, through its brand Burn. The company also owns a majority stake in Monster Beverage Corp.
Few people know, that The Coca-Cola Company is a very successful player in the dairy (milk) market. In 2014, the giant went all-in into milk, with an intriguing recipe for success: less sugar, more protein. Its core brand Fairlife has become a competitor for several products of companies like Danone and Nestlé.
The Coca Cola Company is well suited for further growth
The company has been an incredibly interesting investment for shareholders around the world for more than a century. And there is still a lot left in the pipeline.
During the COVID-19 pandemic which led to restaurants, bars, parks, etc. being closed in 2020 and 2021, The Coca-Cola Company remained relatively resilient. Of course, Nestlé and PepsiCo through their strong position in food and snacks coped even better. But let’s not forget that The Coca-Cola Company has not yet fully finalized its global refranchising project. Currently, the dividend payout ratio is rather high, around 75 %, but chances are good, that Free Cash Flow generation will get a strong boost in 2022 and the coming years, on the back of the full rollout of its different products.
Just think of the potential of Costa Coffee which of course was hit by lockdowns, in particular in the UK.
The Coca-Cola Company offers choices for its customers all around the world. Whether it’s milk, coffee, fruit drinks, energy water, sparkling mineral water, ice tea, lemonade, or the classic Coca-Cola soda: The Coca-Cola Company has an enviable range of beverages. The company will adapt swiftly and in the process even increase its profit margins which is in essence the fuel for long-term growth.
You are responsible for your own investment and financial decisions. This article is not, and should not be regarded as investment advice or as a recommendation regarding any particular security or course of action.