Company Trend Analysis - Coca-Cola To Step Up M&A In Functional Beverages - 10 JULY 2017

BMI View: In a bid to diversify its portfolio away from a reliance on carbonated beverages, Coca-Cola is instigating a n M&A drive, which we expect will be focused on increasing the company ' s exposure to functional beverages in line with consumer demand.

Coca-Cola has a strong and well-established portfolio of non-alcoholic drink brands, including 21 brands that generate more than USD1bn in annual retail sales. However, the company is still overly reliant on carbonates which make up 64% of total volumes. New CEO James Quincey, who took over in May 2017, has outlined plans to reduce the proportion of volume sales attributed to carbonates to below 50% over the next decade. We believe this to be ambitious and certainly not achievable organically. As a result, we expect Coca-Cola to ramp up merger and acquisition (M&A) activity over the coming years, investing in smaller rivals in fast-growing areas of the drinks sector as part of long-term diversification efforts to become a 'total beverage company'.

We highlight functional beverages (energy/relaxation drinks, enhanced waters, ready-to-drink tea/ coffee, plant-based alternatives) as outperforming categories in line with consumer demand for premium products that offer both convenience and health benefits. Possible companies that Coca-Cola could target for bolt-on acquisition in these areas include Monster Beverages (energy drinks), Primo Water (water solutions), La Croix (sparkling water) and Reed ' s Inc (craft soda and herbal teas).

Coffee & Tea Outperforming As RTD Market Booms
United States - Selected Drink Categories, USDmn, % growth y-o-y
e/f = BMI estimate/forecast. Source: BMI, National statistics

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