Coca-Cola Co KO is recognized globally as a beverage giant with roughly 200 brands under its name and products consumed over two billion times each day.
Though traditionally viewed as an emblem of American enterprise and stability in fluctuating markets, a Thursday short report by Edwin Dorsey’s “The Bear Cave” addresses alleged discrepancies between the perceived stability of Coca-Cola and the unfolding reality.
Shares traded down 1.1% on the report’s release, and Coca-Cola did not immediately respond to Benzinga’s request for comment.
Here’s what investors need to know.
Disruptive Upstarts: Coca-Cola is dealing with stiff competition from nascent brands flourishing primarily through modern advertising platforms like TikTok, Instagram and influencer partnerships, Dorsey wrote to investors.
Prime, a start-up founded by Logan Paul and KSI in January of last year, brought in over $250 million in sales within its first year, which illustrates the rapid ascent possible for new entrants utilizing influential platforms. Dorsey lined up Prime’s growth against BodyArmor, a brand later acquired by Coca-Cola, which didn’t book $250 million in sales until seven years after it was founded.
Similarly, Celsius Holdings, Inc. CELH, a “better-for-you” fitness drink company that leverages influencer endorsements, saw its revenue spike from about $50 million in 2018 to nearly $1 billion recently, leading shares to surge over 4,200%.
In essence, Coca-Cola’s failure to innovate and resonate with younger demographics is catalyzing the rise of competitive upstarts, thereby eroding its market share, Dorsey said.
Market Saturation And Brand Innovation: The bottled water market, saturated with numerous contenders, is seeing innovative brands like Liquid Death outpacing stalwarts such as Dasani with its unconventional marketing and brand positioning. Liquid Death’s sales trajectory, from $2.8 million in 2019 to an anticipated doubling in 2023 from $130 million in 2022, indicates a shifting consumer preference in the $15 billion market.
Dorsey also noted Coca-Cola’s Dasani saw a roughly 3.9% decline in sales, aggregating to approximately $950 million for the 52 weeks ending May 21, 2023.
Corporate Culture And Diversity Initiatives: The report said the corporate ethos at Coca-Cola is a focal point, with diversity initiatives and corresponding policies undergoing scrutiny and subsequent modifications, reflecting a shifting internal environment.
Dorsey said the organization’s attempted imposition of diversity requirements for collaborating law firms led to widespread criticism, legal threats and subsequent policy retractions, highlighting potential misalignments within corporate strategy and external expectations.
Impact Of Weight Loss Drugs: The emerging popularity of weight loss drugs such as Wegovy and Ozempic — a Novo Nordisk A/S NVO drug that suppresses appetite and alters taste preferences — poses additional challenges to Coca-Cola, Dorsey said. The drugs may have pivotal implications for consumer beverage preferences, possibly diminishing the appeal of Coca-Cola products.
Investor Perspectives: The shifting beverage landscape and evolving consumer preferences induced reflections among investors, including Warren Buffett, Coca-Cola’s largest shareholder, regarding the company’s sustainability in a dynamic market.
Dorsey highlighted that in a 1999 interview, Buffett spoke about his investment in Coca-Cola and said the company had “marvelous share of mind around the world,” and he’d give “that same answer 10, or 15, or 20 years from now.”
To that end, nearly 20 years later in a May 2018 CNBC interview, Buffett spoke about the investment again and said, “It doesn’t look as good as it did five or 10 years ago.”
It should be noted that Buffett’s Berkshire Hathaway Inc BRK BRK owns 400,000,000 shares of Coca-Cola at just over $28 billion. Coca-Cola accounts for 6.92% of the entire Berkshire portfolio, according to its latest 13F filing.
The company is navigating a transformative beverage landscape characterized by the rise of disruptive upstarts, changing consumer preferences, corporate cultural upheavals, intensified scrutiny on environmental practices and potential repercussions of weight loss drugs, Dorsey’s report underscored.
KO Price action: Shares of Coca-Cola are trading down 0.95% at $57.88, according to Benzinga Pro.