Coca-Cola Life To Launch In Mexico Amid Increased Soft Drink Scrutiny

+7.77%
Upside
60.13
Market
64.80
Trefis
KO: The Coca-Cola Company logo
KO
The Coca-Cola Company

Health and wellness concerns continue to cast a shadow over sugary sodas. Consumers have also remained skeptical about the safety of artificial sweeteners in the low/no calorie versions of these drinks. The use of the natural sweetener stevia has also met criticism, as customers find the tastes of their favored sodas altered. However, despite the slowdown in demand for carbonated soft drinks (CSD), beverage makers such as The Coca-Cola Company (NYSE:KO) remain committed to the goal of finding a solution to the high sugar problem in soft drinks, without compromising taste and quality. The company launched its naturally-sweetened Coca-Cola Life in Argentina and Chile last year, and in U.K. this year. After months of testing, the drink will now launch in the two biggest markets for Coca-Cola, the U.S. and Mexico, in September.

We estimate a $41.86 price for Coca-Cola, which is roughly in line with the current market price.

See our full analysis for The Coca-Cola Company

Relevant Articles
  1. Should You Pick Coca-Cola Stock At $60 After Q4 Beat?
  2. Down 10% This Year Is Coca-Cola Stock A Better Pick Over AbbVie?
  3. What’s Next For Coca-Cola Stock After 4% Gains In A Week Amid Q3 Beat?
  4. Down 15% This Year Will Coca-Cola Stock Rebound After Its Q3?
  5. Which Is A Better Beverage Pick – Coca-Cola Stock Or Monster Beverage
  6. Pricing Actions To Bolster Coca-Cola’s Q2?

Carbonate Sales In Mexico Have Declined This Year

Mexico is the largest consumer of Coca-Cola’s beverages, with per capita consumption in the country almost 1.85 times that in the U.S., the largest Coca-Cola market in terms of volumes. Despite the large consumption of soft drinks in Mexico, volumes for sugary beverages could continue to grow due to increasing disposable incomes, as the country’s economy is expected to expand by 3.9% in 2014, up from 1.3% in 2013. However, while Mexico is the world’s largest per capita consumer of sugary sodas, it is also the world’s fattest country. Around 15% of Mexico’s population aged 20 years and above has diabetes Type 2, and 70% of the adults are overweight. [1] In the wake of increasing health concerns and costs of treating ailments, the Mexican government passed a one-peso-per-liter (~8 cents) tax on sugary drinks, effective as of January 1. The tax has on an average made soda more expensive by around 8%. With more than half of the country’s population living below the national poverty line, a price rise dissuaded some price-sensitive customers from soft drink consumption, causing a 3% decline in Coca-Cola’s net Mexico volumes in the second quarter, after falling by a low-single-digit percent in Q1. [2]

Coca-Cola’s Bid To Breathe Life Into Falling CSD Sales In Mexico

Along with Coca-Cola, the company’s biggest bottler Coca-Cola Femsa’s CSD sales also fell 6.4% through June, owing to the impact of the soda tax. [3] Coca-Cola also lost out to its primary soft drink competitor PepsiCo, which witnessed a rise in Mexico CSD volumes and a 3% growth in overall Latin America volumes in the second quarter. In a bid to reverse the trend of falling CSD sales in Mexico, and boost its market share in the country, Coca-Cola will now launch its flagship low-calorie drink Coca-Cola Life, which uses the natural sweetener stevia, in Mexico.

Mexico accounted for around 13% of Coca-Cola’s overall volumes last year, only second to the 19.7% volume contribution by the U.S. [4] Contracting volumes in Mexico due to price rises could further hinder growth for the company’s CSD portfolio, going forward. Coca-Cola had already launched its low-calorie Coca-Cola Life in Argentina in June last year, and followed it with the launch of the drink in Chile in November. Sold in green colored cans, Coca-Cola Life caused a 7% rise in beverage volumes in Argentina last year, despite weak economic conditions in the country. Coca-Cola Life, which has two-thirds the calories in regular Coke, will now aim to attract the calorie-conscious consumers. In addition, the company is also using plastic bottles made of 30% plant resin, providing an eco-friendly experience. As Coca-Cola relies on experiential marketing to accelerate sales, positive brand perception for Coca-Cola Life could boost the company’s cola-drink sales in Mexico in the coming months. In fact, a study suggests that the chemical “4-Mel” used in some soft drinks for coloration is carcinogenic. [5] Although the Coca-Cola samples taken in this study used low levels of 4-Mel, presence of cancer-causing ingredients is bad publicity for sodas and could hurt consumer demand. Coca-Cola Life will aim to build on its healthier for humans and the environment perception to garner higher volume sales in Mexico.

See More at TrefisView Interactive Institutional Research (Powered by Trefis)
Get Trefis Technology

Notes:
  1. Soft Drinks in Mexico, euromonitor.com []
  2. Poverty headcount ratio at national poverty line“, worldbank.com []
  3. Coca-Cola launches mid-calorie soda in a Mexico battling its bulge, wsj.com []
  4. Coca-Cola annual report 2013 []
  5. Potential carcinogen found in certain soft drinks“, January 2014, wilx.com []