Analysis - CSD firms should forget innovation, focus on pricing
The CSD category continues to be dogged by health fears
US soft drinks firms should tackle the “perennial decline” in the CSD category by growing profits through raising prices, instead of focussing on product innovation, an analyst has argued.
In a note today (24 October), Bernstein Research said it expects CSD volumes in North America to remain “weak”, going forward. This will be due to the “tepid macroeconomic environment, a weak consumer base with less discretionary income, increased awareness about health and wellness, and enhanced anti-obesity regulation”, the note said.
The note came after Dr Pepper Snapple Group (DPSG) yesterday announced flat nine-month sales and a slide in volumes. However, profits edged up 2% in the period.
In particular, soft drinks companies, including DPSG, have expressed alarm at the drop in sales for diet soda recently, due to consumers' fears around the artificial sweetener aspartame. DPSG has invested heavily this year in its low-calorie TEN range and is still confident it will bring “lapsed” consumers back to the category.
But, Bernstein said that DPSG and it competitors – Coca-Cola Co and PepsiCo - could be forced to rethink their strategies due to a “fundamental shift in diet CSD demand dynamics”. The note said: “Is product innovation a worthwhile effort ... in the context of perennial demand decline? Or, should the companies simply focus on growing profits through pricing inceases, as we have always argued?”
Looking ahead, Bernstein also said DPSG may have to consider “cost-savings” to offset weak top line growth, “simply to meet earnings expectations”.
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