Here’s Why Coca Cola Will Not Be “Sweet” In The UK

Recently With the UK government planning to introduce a “sugar tax” aimed at high sugar carbonated drinks, The Coca-Cola Company (NYSE:KO) is looking at modifying its drinks to ensure that some of them do not fall under the levy.  The tax is expected to be imposed in two bands, one for total sugar content above 5 gm per 100 milliliters and a higher band for sugary drinks with more than 8 gm of sugar per 100 milliliters. While most of Coca Cola’s drinks will fall under the higher brand, the company introduced Coke Zero Sugar in UK – a re-branded version of Coke Zero, which will not contain sugar.  This product will be launched in other western European countries from September this year and later in the U.S. The shift towards healthier drinks is critical for Coca Cola to grow revenues in the long term and the company’s strategy to position Coke as tea which can be had “with” or “without sugar” can appeal to diverse consumer preferences.

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According to Coca Cola, 43% of its products sold in the UK are from its lower or no sugar drinks and the company wants this number to increase to 50% by the end of 2020. Diet Coke, Coke Zero and Coke Zero Sugar are aimed to meet the demands of a certain section of the company’s consumers who are calorie conscious and do not prefer artificial sweeteners.  However a sugar tax will increase the price of Coca Cola’s sugary fizzy drinks and a migration to low sugar alternatives is likely. According to our estimates Coke Zero, Sprite Zero and other smaller brands account for more than 15% of Coca Cola’s valuation and we expect the revenues from these brands to increase to around $9 billion by the end of our forecast period.

Coca Cola has invested more than $11 million for marketing Coke Zero Sugar, its biggest investment in a product launch in the past ten years. By making it explicitly known that this variant of Coke does not have sugar, the company is trying to attract consumers who are looking for healthier options, while maintaining the taste. This will also ensure that this product is saved from the tax levy making it a more healthier and cheaper alternatives, which should increase demand.

As Coca Cola is struggling to grow revenues, even as sales of carbonated soft drinks decline and governments target sugary drinks for extra taxes.  The company’s focus on drinks such as Coke Zero Sugar  can enable it to grow revenues in the long term.

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