As Wall Street takes stock of 2005, it’s clear that soft drinks
and non-carbonated thirst quenchers have put a sparkle in industry
analysts’ eyes this year, despite company performances that have been
challenged recently by a downpour of pricing increases.
New 2005 products are keeping consumers coming back
for more. In fact, Citigroup beverage analyst Bonnie Herzog expects a
strong showing from PepsiCo for 2005 thanks in part to “more
promising ... beverage innovation such as ... Aquafina FlavorSplash and
Sparkling, and flavor line extensions on Gatorade and Propel,” she
writes in a recent research report.
Also drawing rave reviews from analysts this year was
the bottled water segment, which has continued its path of upward mobility.
Volume growth soared as the category shifted focus from bulk to bottled
products and sales of premium-priced enhanced waters, such as
Glaceau’s Vitamin Water, took off, reports beverage analyst John
Faucher at JPMorgan. “The category continues to shift away from bulk
packages to multi-packs of branded water,” he writes in a recent U.S.
beverages research report.
Another segment on the upswing in 2005 was sports
drinks, which “continue to grow at a torrid pace with very strong
volume gains and slightly positive pricing,” according to JPMorgan.
“The energy drink segment has grown 88 percent
annually over the past seven years, and we project it will grow at a
healthy mid-teen rate over the next three years,” writes
On the alcohol side of the aisle, beer pricing wars in
2005 have left analysts wary about the category’s prospects for the
year ahead. “...We believe the national price war should abate by
early 2006,” writes Citigroup’s Herzog, “but expect mini
price wars in major markets to continue to wage deep into the
Merrill Lynch beverage analyst Christine Farkas also
foresees ongoing pricing issues for beer. “We continue to be
concerned over the industry’s pricing,” she reports, “and
while there are early signs of some stabilization in several markets, it is
difficult to suggest with strong conviction that prices have
Herzog adds: “Until industry leader
Anheuser-Busch focuses on implementing revenue enhancement initiatives, we
think industry profitability will continue to be at risk. We see 2006 as a
reset year and believe marketing and innovation investment will be up as
the industry tries to save the flailing image of beer.”
The bright spots in the beer marketplace for 2005 were
imports, notably Corona and Stella Artois, and craft beers — and both
segments could offer opportunities for brewing heavyweights too, analysts
“Some of the recent initiatives, including
seasonal brews and the Michelob Specialty Sampler, could provide major
brewers with some firepower against their
smaller, more nimble craft competitors,” Herzog reports.
In fact, brewers could gain a much-needed boost from
uniting against other alcohol categories next year rather than duking it
out among themselves, analysts say. “We would like to see more
brand-oriented, brand building messages that do not involve extreme focus
on direct competition,” Herzog writes. “Given the rise of wine
and spirits, we think it is critical for domestic brewers to develop
messages that can help beer compete against other categories.”
And those other categories — spirits and wine
— toasted stronger volume growth in the past year compared with beer.
“A competitive pricing environment, favorable demographics, a strong
cocktail culture, health concerns and continued popularity of wine among
young adult drinkers” have all contributed to that growth, reports Merrill Lynch’s Farkas. BI
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