How Cola Companies Are Winning the War Against Obesity

by Trefis Team
-3.31%
Downside
43.29
Market
41.86
Trefis
KO
Coca Cola
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It might be a tough road ahead for soft drink companies such as Coca-Cola Co (NYSE:KO) and PepsiCo (NYSE:PEP) as the regulatory environment keeps getting harsher. However, the companies are certainly not losing the battle as they continue to improve their product portfolio and seek to enhance their public image. Moreover, with lobbying, the companies ensure legislation aimed to vilify and tax the industry are delayed or reconsidered. We estimate a $71 price for Coca-Cola, which is in line with the market price.

See our full analysis for Coca-Cola

Coca-Cola Launches Stevia Version of Sprite in France

After the French government approved the soda tax, effective from January 2012, Coca-Cola has decided to add stevia to its drinks Sprite and Nestea. Stevia is a natural, low calorie sweetener made from the stevia plant, a herb native to parts of South America. [1]

France is not the only country to approve of a tax on soft drinks. Earlier in 2011, Hungary passed a legislation which imposed a fat tax on items with high fat, salt and sugar contents. Soft drink companies claim they are made the scapegoats of rising obesity rates in developed countries. Moreover, with the budget deficits of most economies in a mess, taxing the soft drink companies is an easy source of revenue. The governments, on the other hand, argue that obesity related diseases amount to a huge economic burden on the government-funded healthcare and thus they have every right to tax the soda companies.

Both the sides have valid arguments but the bottom line is that taxes are on a rise. Soft drink companies along with cigarette companies often fall victim to unreasonably high level of taxation. With increased healthcare now under the U.S. government, beverage companies have to dynamically adapt to the changing external environment.

Lobbying Works

As per recent estimates, PepsiCo and Coca-Cola Co and the American Beverage Association have spent a staggering $70 million on lobbying. And all the money spent isn’t going waste. Recently, Hawaii lawmakers killed a proposed soda tax that would have burdened the consumers with an additional 17 cents on a single-serve bottle. This was the second failed attempt to enact this particular levy. Similar attempts to enact such levies have failed in 30 other states. [2]

The U.S. Carbonated Soft Drinks (CSD) market has witnessed a negative growth in the last few years, according to Beverage Digest, as consumers switch to healthier alternatives. Thus, beverage companies are putting a greater emphasis on products such as juices, RTD teas, etc. which are perceived to be relatively healthy. On the bright side, emerging economies offer tremendous growth opportunities as the regulations are still lax and health awareness is low. Recently we also talked about how Coca-Cola is benefiting by pushing “non-fizzy” drinks.

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Notes:
  1. Coca-Cola Adds Stevia to Sprite in France, WSJ, March 9, 2012 []
  2. Anti-Obesity Soda Tax Fails as Lobbyists Spend Millions: Retail, Business Week, March 13, 2012 []
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  • commented 2 years ago
  • tags: KO DPS KFT PEP
  • Good analysis.Thank you