Coca-Cola and PepsiCo wade into booze amid an uncertain future
https://www.fooddive.com/news/coca-cola-and-p...ood%20Dive
After making their long-awaited debuts in alcohol, Coca-Cola and PepsiCo are pausing to learn more about the category before deciding whether to make it a bigger part of their multibillion-dollar beverage empires.
Coca-Cola and Molson Coors first teamed up in 2020 to create Topo Chico Hard Seltzer, which hit U.S. shelves earlier this year in nine states. After a promising launch, Molson Coors announced it would roll out the beverage nationwide in 2022. PepsiCo and Sam Adams maker Boston Beer followed this summer with plans to launch a hard offering under the Mtn Dew brand expected to reach shelves early next year.
Coca-Cola, whose portfolio includes Sprite, Fairlife milk and Honest Tea, is assessing the alcohol category before determining whether to expand its presence, CEO James Quincey said during the company's second-quarter earnings call in July. "We want to learn and understand more before we decide anything one direction or the other," he said.
Beverage companies have been moving aggressively to expand their portfolios in recent years to include teas, sports and energy drinks and sparkling waters as consumers look for more choice while curtailing their consumption of sugar-laden liquids. John Boylan, a senior equity analyst with Edward Jones, said alcohol adds yet another option depending on the occasion or a consumer's beverage preference at the time.
"We don't really think that [PepsiCo and Coca-Cola] are going to morph into full-blown alcohol companies. I think this is out of their bailiwick, but we do think that they'll look at areas where it makes sense," Boylan said. "They're just looking for any avenue where they can put a beverage in front of the consumer."
Alcohol represents a lucrative opportunity for nonalcohol companies whose own industry lacks meaningful growth on a scale large enough to impact the bottom line, said Nathan Greene, an analyst at Beverage Marketing Corporation.
"There's plenty of products hitting the market. In fact, there's all-time high levels of innovation, but the Coke and Pepsi ballpark scale — what they're looking for, what they call success — it's fairly limited right now," he said. "Alcohol represents the greatest margin generation opportunity, even if it is with a partner, compared to various nonalcoholic products."
A major reason the soda giants have chosen to partner is because of the complicated three-tier distribution system enacted in 1933 to prevent any one player from dominating the industry like gangsters had during Prohibition. Federal law says alcohol producers can only sell their product to state-licensed wholesalers. The distributors in turn sell the alcohol products to state-licensed stores where consumers can then purchase it.
For alcohol makers like Molson Coors, AB InBev and Boston Beer, their decades of experience navigating the convoluted system has proven useful in attracting new partners to the space. It's also provided them with opportunities to add to their portfolio a potentially lucrative brand with instant market recognition and minimal upfront investment.
"We don't really think that [PepsiCo and Coca-Cola] are going to morph into full-blown alcohol companies. I think this is out of their bailiwick, but we do think that they'll look at in in areas where it makes sense. They're just looking for any avenue where they can put a beverage in front of the consumer."
John Boylan
Senior equity analyst, Edward Jones
Quincey noted that unlike soda, tea, juice, water or coffee, where Coca-Cola dominates along with PepsiCo, alcohol is a different industry altogether with unique characteristics and regulatory requirements. The fact that Coca-Cola is noncommittal could indicate just how crowded it considers the category to be, or that it wants to see how demand plays out in the coming months before deciding how to respond.
PepsiCo appears to be taking a similarly measured approach. In an email, PepsiCo told Food Dive the partnership with Boston Beer allows both companies to tap into their expertise. In the beverage giant's case, this includes its iconic Mtn Dew brand and deep customer base, combined with the alcohol maker's insight in brewing and developing hard seltzers and hard teas.
In June, PepsiCo filed a trademark application that indicated the beverage and snack giant could eventually decide to sell alcoholic beverages under the Rockstar brand name. For now, PepsiCo downplayed any further expansion plans, telling Food Dive: "We currently do not have plans to launch alcoholic versions of any other brands, but [we're] always evaluating."
Even before PepsiCo announced plans to enter alcohol through its Boston Beer partnership, the beverage and snack giant dabbled in the category through a pair of nonalcoholic cocktail mixer brands this year called Neon Zebra and Unmuddled. The drinks are designed to appeal to consumers spending more time at home who want to avoid complicated cocktail recipes or large-format mixers.
Greene speculated the partnerships with alcohol companies could place Coca-Cola and PepsiCo in a better position to enter cannabis if the FDA legalizes the sale of the compound in food and beverages, potentially making it easier for manufacturers to sell these products across state lines.
Similar to beer, wine and spirits, alcohol companies have the distribution network and likely more familiarity of the legal requirements around cannabis. MolsonCoors is partnering with Hexo to try out new products, including one with THC in Canada and CBD-based beverages in select U.S. markets, while Boston Beer has created a subsidiary that will oversee research and innovation into nonalcoholic cannabis beverages.
"There is definitely an element of future proofing here," Greene said. "Cannabis is likely the next big thing ... and beverage is definitely pushing pretty hard to be a product format of choice for cannabis at scale."
PepsiCo recently introduced Rockstar Unplugged, a functional beverage line that contains hemp seeds as a way to encourage relaxation and improve mood. Unlike cannabis, hemp legally sold in the U.S. must contain 0.3% or less of THC, the compound that creates the feeling on being high.
As tastes and values change, especially among younger consumers, beverage makers aren't losing sight of their core offerings that continue to generate tens of billions of dollars in sales. But at the same time, they have little choice but to position themselves for future growth by testing out new categories even if the future is anything but clear.
"This is definitely a learning exercise. What we think is likely happening here is that they're looking at this space, and if it works out, that might be a good springboard into something else," Boylan said. "What that something else might be, we don't know."
https://www.fooddive.com/news/coca-cola-and-p...ood%20Dive
After making their long-awaited debuts in alcohol, Coca-Cola and PepsiCo are pausing to learn more about the category before deciding whether to make it a bigger part of their multibillion-dollar beverage empires.
Coca-Cola and Molson Coors first teamed up in 2020 to create Topo Chico Hard Seltzer, which hit U.S. shelves earlier this year in nine states. After a promising launch, Molson Coors announced it would roll out the beverage nationwide in 2022. PepsiCo and Sam Adams maker Boston Beer followed this summer with plans to launch a hard offering under the Mtn Dew brand expected to reach shelves early next year.
Coca-Cola, whose portfolio includes Sprite, Fairlife milk and Honest Tea, is assessing the alcohol category before determining whether to expand its presence, CEO James Quincey said during the company's second-quarter earnings call in July. "We want to learn and understand more before we decide anything one direction or the other," he said.
Beverage companies have been moving aggressively to expand their portfolios in recent years to include teas, sports and energy drinks and sparkling waters as consumers look for more choice while curtailing their consumption of sugar-laden liquids. John Boylan, a senior equity analyst with Edward Jones, said alcohol adds yet another option depending on the occasion or a consumer's beverage preference at the time.
"We don't really think that [PepsiCo and Coca-Cola] are going to morph into full-blown alcohol companies. I think this is out of their bailiwick, but we do think that they'll look at areas where it makes sense," Boylan said. "They're just looking for any avenue where they can put a beverage in front of the consumer."
Alcohol represents a lucrative opportunity for nonalcohol companies whose own industry lacks meaningful growth on a scale large enough to impact the bottom line, said Nathan Greene, an analyst at Beverage Marketing Corporation.
"There's plenty of products hitting the market. In fact, there's all-time high levels of innovation, but the Coke and Pepsi ballpark scale — what they're looking for, what they call success — it's fairly limited right now," he said. "Alcohol represents the greatest margin generation opportunity, even if it is with a partner, compared to various nonalcoholic products."
A major reason the soda giants have chosen to partner is because of the complicated three-tier distribution system enacted in 1933 to prevent any one player from dominating the industry like gangsters had during Prohibition. Federal law says alcohol producers can only sell their product to state-licensed wholesalers. The distributors in turn sell the alcohol products to state-licensed stores where consumers can then purchase it.
For alcohol makers like Molson Coors, AB InBev and Boston Beer, their decades of experience navigating the convoluted system has proven useful in attracting new partners to the space. It's also provided them with opportunities to add to their portfolio a potentially lucrative brand with instant market recognition and minimal upfront investment.
"We don't really think that [PepsiCo and Coca-Cola] are going to morph into full-blown alcohol companies. I think this is out of their bailiwick, but we do think that they'll look at in in areas where it makes sense. They're just looking for any avenue where they can put a beverage in front of the consumer."
John Boylan
Senior equity analyst, Edward Jones
Quincey noted that unlike soda, tea, juice, water or coffee, where Coca-Cola dominates along with PepsiCo, alcohol is a different industry altogether with unique characteristics and regulatory requirements. The fact that Coca-Cola is noncommittal could indicate just how crowded it considers the category to be, or that it wants to see how demand plays out in the coming months before deciding how to respond.
PepsiCo appears to be taking a similarly measured approach. In an email, PepsiCo told Food Dive the partnership with Boston Beer allows both companies to tap into their expertise. In the beverage giant's case, this includes its iconic Mtn Dew brand and deep customer base, combined with the alcohol maker's insight in brewing and developing hard seltzers and hard teas.
In June, PepsiCo filed a trademark application that indicated the beverage and snack giant could eventually decide to sell alcoholic beverages under the Rockstar brand name. For now, PepsiCo downplayed any further expansion plans, telling Food Dive: "We currently do not have plans to launch alcoholic versions of any other brands, but [we're] always evaluating."
Even before PepsiCo announced plans to enter alcohol through its Boston Beer partnership, the beverage and snack giant dabbled in the category through a pair of nonalcoholic cocktail mixer brands this year called Neon Zebra and Unmuddled. The drinks are designed to appeal to consumers spending more time at home who want to avoid complicated cocktail recipes or large-format mixers.
Greene speculated the partnerships with alcohol companies could place Coca-Cola and PepsiCo in a better position to enter cannabis if the FDA legalizes the sale of the compound in food and beverages, potentially making it easier for manufacturers to sell these products across state lines.
Similar to beer, wine and spirits, alcohol companies have the distribution network and likely more familiarity of the legal requirements around cannabis. MolsonCoors is partnering with Hexo to try out new products, including one with THC in Canada and CBD-based beverages in select U.S. markets, while Boston Beer has created a subsidiary that will oversee research and innovation into nonalcoholic cannabis beverages.
"There is definitely an element of future proofing here," Greene said. "Cannabis is likely the next big thing ... and beverage is definitely pushing pretty hard to be a product format of choice for cannabis at scale."
PepsiCo recently introduced Rockstar Unplugged, a functional beverage line that contains hemp seeds as a way to encourage relaxation and improve mood. Unlike cannabis, hemp legally sold in the U.S. must contain 0.3% or less of THC, the compound that creates the feeling on being high.
As tastes and values change, especially among younger consumers, beverage makers aren't losing sight of their core offerings that continue to generate tens of billions of dollars in sales. But at the same time, they have little choice but to position themselves for future growth by testing out new categories even if the future is anything but clear.
"This is definitely a learning exercise. What we think is likely happening here is that they're looking at this space, and if it works out, that might be a good springboard into something else," Boylan said. "What that something else might be, we don't know."
