Firm warns of impending cola wars

By Hayley Brown

- Last updated on GMT

Related tags Coca-cola

An investment advisory firm is predicting a fresh bout of “cola wars” that will see Pepsi lose market share.Altium Securities said that...

An investment advisory firm is predicting a fresh bout of “cola wars” that will see Pepsi lose market share.

Altium Securities said that “competitive tensions between the top two brands remains high”. The launch of a global marketing campaign by Coca-Cola, in addition to aggressive price cuts, indicated the resumption of “cola wars”, it added.
“In our view, pricing and marketing activities by Coca-Cola need to be monitored closely as we feel they may attempt to regain lost market share,” said Wayne Brown, analyst at Altium Securities. “This would place significant pressure on Britvic to drive further growth in Pepsi.”
Pepsi responded to Coca-Cola’s threat with the launch of a new marketing campaign and refreshed logos. The battle for market share “could be worse than we have seen for many years”, predicted the firm.
In its advisory notes to clients the investment commentator said that the previous launch of Coke Zero led to Britvic’s profit warning in 2006. Management at Britvic, however, denied that this was the case, blaming the profit warning on other factors impacting the soft drinks market.
Altium Securities published a “sell” rating on Britvic’s stock after analysing the company. Continued pressure by retailers to offer customers better value for money could further pressurise margins, it added, not least through greater emphasis on own-label products versus higher-priced branded alternatives.
Within the licensed trade Brown said the rapid rate at which pubs, bars and restaurants were closing also increased risk to Britvic. Britvic’s Irish business had also deteriorated, and following a strategic review, the cost of making 145 people redundant and the restructuring programme is expected to be around £10M (in addition to the £16M spent last year), added Brown.
According to Britvic’s 2009 Soft Drinks Report, Pepsi-Cola’s value rose 15% in take-home channels in 2008 to £258M. Coca-Cola rose just 1% in value in the same channels, although it does command a much larger market share, worth £969M.
Cola’s value share of the drinks market for the 52 weeks ending January 25 2009 [Taylor Nelson Sofres (TNS)] was 21.5%, up from 19.5% in 2007. It was the fastest growing category in the drinks sector, followed by one-shot drinks, which was increased 3.4% year on year. Mineral water lost the largest value share and was down -8.3% from last year.
Branded cola value sales up 6.8% on last year, compared with own-label cola which was down 0.1%, according to TNS data for the 52 weeks ending January 25 2009. Cola’s value share of the drinks market is now 21.5%, up from 19.5% in 2007.

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