The beverage industry has placed a solid bet during the first 8 months of 2022. Indeed, the defensively oriented group has significantly outperformed the major market indexes thanks to its pricing power, competitive dynamics, and competitive dynamics. healthy and strong characteristics of secular growth.
Morgan Stanley recently called space a favorite in July as a bulwark against market volatility. The company’s analysts say that even among consumer staples and CPG companies examined by conservative investors, the beverage companies “clearly outperform”. Specifically, Monster Beverage Corporation (MNST), Coca-Cola (NYSE:KO) and PepsiCo (PEP) was cited as a favorite. Aside from Monster, every company posted positive earnings in 2022 that contrasted with the S&P’s double-digit decline. The superiority of beverage names such as Pepsi- a partner of C Holdings (CELH), Lacroix-maker National Beverage Corp. (FIZZ), and Vita Coco Company (COCO) is even more pronounced. However, the dynamics for alcoholic beverages were less uniform. While the Constellation Brand (STZ), Brown Forman (BF.BELL) and Molson Coors (CLAP) both performed better than their non-alcoholic counterparts, the Boston Brewing Company (SAM), Anheuser-Busch InBev (BUD) and Duckhorn Portfolio (NAPA) is inefficient.
The lagging nature of many names is not only due to a feeling of boredom with COVID, but a significant change in consumer tastes. Nowhere is this more evident than about cutters. Boston Beer Company (SAM) CEO Dave Burwick said in a recent earnings call. “Secondly, and tied to the macroeconomic environment, we are seeing a volume shift from hard beers back to premium light beers at lower prices, especially in people between 35 and 44 years old.”
However, besides the shift to light beer instead of draft beer, there is also a widespread shift away from high-calorie and high-alcohol products. “One of the most innovative and exciting alcohol trends to emerge in recent years is the growing popularity of low- or ABV-free beverages,” a recent report on the behavior of consumers from DoorDash said. “With moderation, more consumers globally are using non-alcoholic and low-alcoholic beverages.” The report cites a sales increase of more than 30% at the end of 2021 for both projects through 2022. According to Grandview Research, the segment has continued to grow into 2022 and is expected to expand with compound annual growth rate of 5.2% over the next 8 years. many years. Around 58% of consumers globally are switching to low-ABV, low-alcohol cocktails and beverages, the company’s research says. “With increasing consumer acceptance of alcohol-free and low-alcohol categories, manufacturers in the market are responding to new trends and have innovated existing product categories, which potentially bode well for future growth.” What’s interesting is that the no-echo beverage could be the best for the portfolio in the years to come.
Wildcard M&A: Instead of the depressing effects of alcohol, consumers seem to increasingly look to energy drinks and lower-calorie options for absorption. For example, Celsius Holdings’ latest earnings report shows (CELH) its domestic sales grew 171% in just one year. This growth is only expected to accelerate thanks to the company’s distribution partnership with PepsiCo Inc. (PEP). Shortly after that acquisition, rumors swirled that Bang Energy VPX producer could be acquired by Keurig Dr. Pepper (KDP). While both sides quickly poured cold water on that prospect in the days after the rumor first surfaced, it was still far from the first possible M&A in the energy drink sector. For example, Bloomberg reported in November that Monster Beverage (MNST) is likely exploring a deal with Constellation Brands (STZ), a report bolstered by a similar report from CNBC in late February. Axios also recently reported that Keurig Dr. Pepper (KDP) could be C4 Energy replacing Bang. That said, Benjamin LaFrombois, a partner at MG+M Law Firm that focuses on mergers and acquisitions, isn’t expecting blockbuster acquisitions. Instead, “Buffett-like” shares are held by Pepsi (PEP) at degrees Celsius (CELH) can set a standard. “Like the C deal, future beverage deals will revolve around strategic and tactical benefits for each business; not financial speculation or taking high risks,” he told SeekingAlpha. “In the beverage industry, Covid has reduced innovation and new products. The focus is on core products fine-tuned with taste, that’s why you get ingredients that work well. Right now, trades are tactical. No one recognized their ski tip in the drinks. “Overall, he expects the ‘smaller, tactical’ M&A action to focus on energy, low-calorie and ‘better-for-you’ options in the beverage sector. In short, deals. The translation seems more like Coca Cola’s takeover of Fairlife after a strategic stake than a compelling deal to take over Costa Coffee in 2019. However, that doesn’t mean Coca Cola (KO) would not want to compare with PepsiCo (PEP) wheel and handle as late. “Because of Covid, Coca-Cola (KO) focuses on core products and eliminates much of its product development. Besides the flavor changes to core products, they are slow to come back with innovation and new products,” notes Laframbois. “Expect conservative deals with a high probability of success like deal C. However, Coca-Cola looking at alcoholic beverages is also worth a look.” He noted that juice could also be an area of interest for Coca Cola, after discontinuing many brands in the field in recent years. For example, Odwalla juice was cut from its portfolio in 2020 because Coke management said it was not suitable for the company’s offerings after careful cost-benefit analysis. While juice demand actually declined between 2019 and 2020, at the time of that analysis, Statista data showed juice demand rebounded strongly in 2021 and 2022.
Meanwhile, President of Embarc Advisors Jay Jung added that geography is an important factor for Coca Cola (KO). “There is certainly room for more Coca-Cola acquisitions in the coffee and energy drinks sector. These are big growing segments,” he told SeekingAlpha. “Expect more M&A activities in overseas markets. In the US, expect more of a wait-and-see approach to see if some categories become large enough in size with sustained strength. “
What to see: The upcoming Barclays Global Consumer Goods Conference is one of the most watched meetings of the year related to the beverage sector. Coca-Cola’s (KO) the appearance at this week’s event was unique in Look for Alpha’s Catalyst Clock.