Perhaps more than at any other time in history, Coca-Cola and PepsiCo have taken different paths in the US non-alcoholic beverage market. The companies’ strategies have diverged most noticeably when it comes to owning their US bottling systems. The soda makers also differ when it comes to balancing investment in carbonated soft drinks within a broader beverage portfolio. Until recently, they even diverged when it came to new brands, with PepsiCo more willing to buy outright and Coke more likely to have invested and bought later. Now there may be another area of differentiation – hard seltzers. Late last month, Coca-Cola went all in on the fast-growing US hard seltzer category, signing up Molson Coors Beverage to manufacture, market, and distribute Coke’s new Topo Chico hard Seltzer. The deal gets Coca-Cola over a significant hurdle when it comes to navigating the country’s complex alcohol distribution system and getting Topo Chico Hard Seltzer off to a fast start nationally. In addition, the deal gets the brand on trucks owned by its soft drink bottling partner, Reyes Holdings, which is the country’s largest independent beer distributor. Meanwhile, PepsiCo’s executives indicated they may remain on the sidelines, at least for the foreseeable future.
PEPSICO’S HARD SELTZER TAKE. During an Oct. 1 earnings conference call, a couple days after the Molson Coors/Coke announcement, PepsiCo CEO Ramon Laguarta was asked about his plans for the hard seltzer category. “Our 100% focus today is getting the energy strategy right” he said, citing work to boost recently acquired Rockstar Energy, accelerate distribution for Bang Energy, and penetrate the energy sector even further with Mtn Dew. “That’s taking a lot of our focus and that’s going to be our priority, especially in 2021.” He went on to offer the boiler plate response that “we look at every opportunity,” such as CBD (which, like Coke, PepsiCo has passed on so far) and now “alcohol,” as he put it. Laguarta added that he has people looking at such opportunities long term. “We’re reflecting. We’re thinking, ‘What are the best options?’” he said. “We will make a decision in the coming quarters whether this is an area PepsiCo wants to play in.” Then he asked a key rhetorical question: “How do we capture a lot of value in this opportunity? Given the three-tier system, it’s not obvious how you capture a lot of value. So, first, do we play, or not? Second, who do we play with, and who do we partner with to maximize the value for PepsiCo?” During an interview with BD following the earnings call, PepsiCo CFO Hugh Johnston added that any hard seltzer decision is “out a ways, whichever direction we’re going to go in.” He added: “We turn over every stone looking for growth. There are some other priorities right now that are the focus.”
PERSPECTIVE. While PepsiCo may simply be playing its cards close to the vest, Laguarta’s commentary indicates the company will, at best, take a wait-and-see approach to the hard seltzer category. Even if PepsiCo were interested in jumping in, they don’t have an obvious sparkling water platform to build on, as Coke did with Topo Chico (that product already is used as a popular alcohol mixer in some regions). PepsiCo’s Bubly is an unlikely candidate for a hard seltzer. Then there is Laguarta’s question about finding a partner, which would need to have reach and experience within the US alcohol beverage market to make a hard seltzer worth prioritizing for PepsiCo. Molson Coors solves that problem for Coca-Cola. Could PepsiCo team up with longtime global collaborator AB InBev? While such an outcome doesn’t appear imminent based on today’s comments from PepsiCo, the hard seltzer category isn’t going away. And, the long-predicted crossover between non-alcoholic and alcoholic beverages and distribution in the US is finally here in earnest.
TOPO CHICO DETAILS. Coke’s hard seltzer will launch in the US during the first half of 2021, the company has confirmed. Flavors will be Tangy Lemon Lime, Exotic Pineapple, Strawberry Guava and Tropical Mango. The drink will be packaged in a four-flavor variety pack of 12- oz slim cans. The product will be contract manufactured initially. Molson Coors already distributes hard seltzers Vizzy and Coors Seltzer.
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