Credit outlook for US non-alcoholic beverage companies in 2014 stable despite increased risks, Fitch says; strong brand positions in diverse and higher growth geographic regions with lower per-capita consumption key for long-term stability
December 18, 2013
– The 2014 credit outlook is stable for U.S. non-alcoholic beverage companies, despite increased risks, according to Fitch Ratings. Mitigating factors such as strong brand positions in diverse and higher growth geographic regions with lower per capita consumption are key for long-term stability.
The beverage industry views the long-term demographic trend towards an expanding middle class in many developing markets as favorable. Offsetting these expectations is the increasing global attention on obesity and related chronic diseases. Companies will need to maintain breadth across their beverage portfolios in diverse geographic regions with leading positions in non-carbonated drinks to mitigate the operational and financial impacts of expected long-term declines in the carbonated soft drink (CSD) category.
The U.S. beverage industry has shown accelerating declines, particularly in the CSD category, as consumers seek alternative beverages, reduce calories or choose healthier options. Renewed concerns over artificial sweeteners have resulted in a growing structural shift with regular brands outperforming their diet equivalents in most cases. Fitch does not expect volume declines to change materially during at least the first half of 2014 given the lack of innovation drivers and tepid consumer demand.
Fitch believes more substantial innovation will occur in the beverage industry as PepsiCo Inc. and The Coca-Cola Company leverage advances in natural sweetener or flavor enhancer development. As such, companies will likely focus on accelerating commercialization and promotion of new lower calorie products. Fitch views stevia development as being still in the early stages of its product lifecycle. More consumers could walk away from CSDs in the next couple of years if innovation fails given the ample alternatives.
The full report '2014 Outlook: U.S. Non-Alcoholic Beverages' is available at 'www.fitchratings.com' or by clicking on the link.
Additional information is available at 'www.fitchratings.com'.
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