Problems at Coca-Cola (KO)
Coca-Cola (NYSE: KO — $253 billion) is a giant in the world of beverages, owning roughly 200 brands that together are consumed over two billion times per day. Beyond its namesake sodas, Coca-Cola’s drinks include Sprite, Fanta, Powerade, Dasani, SmartWater, BodyArmor, a stake in Monster Beverage, and many others. Investors view Coca-Cola as an American icon, a royalty on thirst, and a stable company in a rapidly changing world. The Bear Cave sees things differently.
The Bear Cave believes Coca-Cola faces a perfect storm of new headwinds including a rapidly changing advertising landscape that benefits upstarts, cultural issues within the company, and a future with diminished demand driven in part by weight loss drugs Wegovy and Ozempic. Coca-Cola is now competing in a new world order where Prime trumps Powerade, Celsius takes share from Monster, and Liquid Death kills Dasani. In sum, The Bear Cave believes Coca-Cola is an out-of-touch bureaucracy that is positioned against the winds of progress.
Nowhere is the weakness in Coca-Cola’s model more apparent than the success of upstart brands that have grown rapidly on the backs of TikTok, Instagram, and influencer partnerships.
For one example, look at the growth of Prime, a hydration, recovery, and energy drink company led by YouTube superstars Logan Paul and KSI. Launched in January 2022, Prime hit over $250 million in sales in its first year and did over $510 million in sales for the 12 months ending August 2023, according to NielsenIQ data. By comparison, BodyArmor, which was later acquired by Coca-Cola, didn’t hit $250 million in sales until seven years after its 2011 formation.
In Prime’s January 2022 launch video, which has garnered over seven million views, Mr. Paul said,
“There needs to be a consumer and cultural shift regarding hydration beverages that we have to lead.”
Below, Mr. Paul and KSI fight in a Prime promotion and kids fight to grab Prime as soon as it’s restocked in a grocery store.
Actor Patrick Schwarzenegger, son of Arnold Schwarzenegger, tweeted last week that Prime’s growth “is f***ing insane. Could easily be a public company in a year.”
One public company that is rapidly taking share in the beverage space is Celsius (NASDAQ: CELH — $13.9 billion), a better-for-you fitness drink that became popular through promotions with Instagram and TikTok influencers. Celsius’s revenue is up ~20x from about $50 million in 2018 to nearly $1 billion in the last twelve months, and the stock is up over 4,200% during the same period.
Below, Celsius partner and Instagram model Cindy Prado poses with a Celsius Oasis Vibe can and says, “It’s part of my daily routine to drink my Celsius.”
In short, the failure of Coca-Cola to truly innovate and connect with younger generations has led to ever-expanding opportunity for upstarts to come in and take share — first slowly, and now rapidly.
Other examples of Coca-Cola’s eroding moat abound.