The Breeze With Beverage Digest
The Breeze With Beverage Digest
Episode 20: Five Story Lines for a Make or Break 2025
To kick off the new year, Duane and John talk beverage industry trends and expectations for 2025 - including pricing power, the energy category, and the US beverage bottling landscape.
Duane Stanford is the Editor & Publisher of Beverage Digest, the leading beverage industry news and data publication.
John Sicher is the former editor and publisher of Beverage Digest, who has since consulted for companies including Coca-Cola, BodyArmor, and PureCircle.
This episode was recorded on January 6, 2025.
Hello, this is the Breeze with Beverage Digest. I'm your host, dwayne Stanford, the editor and publisher of Beverage Digest. The Breeze is where we bring you into the kinds of industry conversations we have here every day. At Beverage Digest, we dissect what's happening, connect the dots and ask the most important question what does this mean? I'm joined by my podcast collaborator, john Sitcher, a former editor and publisher of Beverage Digest, who has since consulted for companies including Coca-Cola, body Armor and Sweetener Company Pure Circle. John, how are you Happy 2025.
Speaker 2:Good morning, Dwayne. Happy to be here. Happy 2025 to you. It should be an interesting year on a whole array of fronts this year.
Speaker 1:Absolutely Not the least of which is this NFL playoffs. I don't know if you got a chance to watch much of it, but you know my Atlanta Falcons are out. It looks like both the New York City teams are out. Buffalo's still in. So let me ask since you're in New York, is Buffalo your favorite for the big game?
Speaker 2:I think I'm going to go with the Chiefs again this year. I mean, uh, they're just, uh, they're an amazing team, and uh, uh, I think I've. My guess is I should. We, I think you and I are are going to repeat our bet again this year. I think I have the Chiefs, and who do you have?
Speaker 1:I'm all in on the Detroit Lions man. They are just firing on all cylinders. Great, fun team to watch. So you know, I don't know If the two of them make it to the final game it'll be a really good, hard-fought game, but I just got to go for the Lions man. That'll be a really good, hard-fought game, but I just got to go for the Lions man. That'd be a fun story.
Speaker 2:You know the Jets and the Giants are really, you know they're sort of pitiful and you know I've always wondered whether or not part of their problem is that they with apologies to the Honickmans, they play in New Jersey. With apologies to the Honickmans, they play in New Jersey. But it's really been a pitiful time for New York professional sports, at least baseball and football, recently.
Speaker 1:Yeah, yeah. Well, you know we've had our heartbreak this year too with Atlanta. But hey, there's always next year, right?
Speaker 2:Always this year, that's right.
Speaker 1:Yeah well, speaking of this year. Right, always this year, that's right. Yeah well, speaking of this year. So John and I decided we wanted to take a look at the five biggest stories of 2024 and just talk about, okay, what were those, what are some of the ins and outs and what do we expect related to those stories for 2025?. So we've come up with a little list together that we're going to kind of noodle through today for you and John. Let's just jump right into it.
Speaker 1:And the first one is the fact that pricing, of course, moderated in 2024, carbonated soft drink pricing and pricing for other categories, but specifically carbonated soft drinks. And you know that, of course, there has been pressure on volume because of various things happening with low and middle income consumers. One of the things I shared at Future Smarts was a look at the carbonated soft drink performance last year and we saw a category that, on the pricing front, grew for the first. You know, three quarters of last year grew about 5.2 percent, and that was after growing 12.3 percent in 2023, and then you saw a volume decline by half a percent and this is at retail, versus a 3.2 percent decline in 2023. So you know the category was fairly resilient, given the fact that pricing was so down. Value growth was half of what we saw in 2023. Value growth was about 4.6% versus almost 9% in 2023. You know what are you thinking for 2025? What can we kind of expect to happen and what's your take on what we saw in 2024?
Speaker 2:I mean, let me just give you a couple of random thoughts that I have. I mean, I was looking online at some of the pricing for some of the main packages around the country and I looked at Kroger and Albertsons and Publix and you know right now Coke 12-packs I just use them as an example Coke 12-packs are selling in the $9 to $10 range and 2 liters in the $3 range Dwayne. I just think that's too high and the pricing you just mentioned 2024 pricing is way below 2023 pricing. I mean these companies generated pretty good revenue growth over the last couple of years because they were able to get pricing while volume was declining and I think that's going to be very, very hard in 2025.
Speaker 2:I think that carbonated soft drinks have been traditionally every man or every woman's drink and that pricing is just too high right now now and I think it's going to be very challenging for these companies. I I read a report this morning by your friend and the excellent analyst, nick Modi, who said that volume growth is going to basically be the thing he's going to watch in 2025 and we haven't seen volume growth in carbonated soft drinks in a long time. Pricing is going to be more difficult. I think it's going to be a very challenging year for this huge category.
Speaker 1:Yeah, we keep sort of waiting for the other shoe to drop and you know, as someone one of the bottlers pointed out at the conference, at the Future Smarts conference in December, you know, it's sort of like we kind of thought it would happen sooner and now it may be coming home to roost. I mean, volume was not bad in 2024, which was pretty interesting. But that 5.2% pricing growth comes on top of a couple of years of stack growth. So you know the consumer's really seeing that. I mean you point out you know $10 for a 12-pack. I mean we're seeing similar prices here, which was what we saw, you know, in the height of the pricing. So that really hasn't come off. Now what I have seen is a few more sort of a little more promotional activity that's happened as a result. You know, like you know, I saw buy two, get three free at a store recently. Buy two 12-packs, you know you spend $20 and you get three free. So you're looking at, you know what is that $4 12-packs at certain periods. No-transcript.
Speaker 2:Look, I think that.
Speaker 2:Look, you said volume wasn't bad last year.
Speaker 2:Volume wasn't bad on a relative basis, but it was down and I suspect it's going to be down probably more this year, and I think Coke and Pepsi and KDP have to figure out what they're going to do with this huge carbonated soft drink category.
Speaker 2:I do not see pricing declining. I see pricing growth moderating, but you know, with those packages we're talking about the 12-packs around $9, $10, and 2-liter around $3, 12 packs around 9, 10 bucks and two liter around three bucks you know, five percent, even five percent on that is going to basically depress volume even more, in my view, and I think what these companies need to do is they need to basically sharpen their marketing even more than it is. I think they need to basically innovate. I don't think that Coke and Pepsi are both going to try to introduce next year and we're going to get, I think, get into more discussion of this later Things like the prebiotic sodas. I don't think that Coke and Pepsi can afford to let companies like Olipop and Poppy eat their lunch, but I think that 2025 may be the year where the rubber hits the road for the carbon-nitrate soft drink category in these big companies.
Speaker 1:Yeah, a couple things on that. First of all, I'm trying to remember what were volumes doing pre-COVID. I mean, we were looking at down one-ish or so pretty consistently for a number of years. So I do think it is interesting, though that you know, I do happen to believe that consumers have kind of picked up a carbonated soft drink habit again. I feel like that's reflected in some of the. You know, for instance, this year, you know last year in 2024, down for the first three quarters, half a percent. Let's see what happens once all the full fourth quarter numbers come through in our data. But you know that's actually not too bad, given that stack pricing growth. You know it feels like historic versus the historical as we were seeing before. I mean, maybe that's just a blip in 2024 and we're going to move back to what we saw in 2023. But you know that's not too bad right? Look if these companies move back to what we saw in 2023.
Speaker 2:But you know that's not too bad right? Look, if these companies move back to a model of volume down one to 2%, pricing up two to 3%, there's not much revenue growth there and I think that, as Nick Motey said in that report this morning, I think without volume growth, the stock market is eventually going to basically not be kind to a company that's not getting volume growth. I think these companies, basically they have to sell more ounces of what they make and the days of relying on these crazy price growth numbers I think are over, at least over for the time being.
Speaker 1:Yeah, there's only so much decline you can really suffer on the volume side over long periods of time. At some point you've got to figure out a way to get some growth right.
Speaker 2:Exactly right.
Speaker 1:Exactly right, you know, I think one of the things too, john, is in 2025, I mean, I think and I'm curious your thoughts on this, but it seems like what happens with the consumer in 2025 is going to be pretty key. So if the companies need to start, you know, continue to price it, you know, $10 for a 12-pack and maybe they use some precision promotions to make sure they're watching the volume side of that and giving consumers who need value. Value, I mean, a lot of that's going to depend. The success of that is going to depend on how the consumer feels through 2025, no, Right.
Speaker 2:I mean, and you know I think we have to look at the soft drink consumer and you know the soft drink consumer is traditionally a middle income, to some degree lower income consumer. I think lower income consumers over index on soft drinks relative to the overall soft drink market. And I think you're right, I think that consumer spending power is going to be a very important factor. But the bottom line is, I think these companies really have to sharpen their marketing and their innovation. I don't think Carbonated soft drink volume turned negative and has been consistently negative, but for maybe one year, for decades now, they've got to get this category growing again in volume and I think they're great brands, I think they're products people love. I think the fact that Coke Zero and Pepsi Zero are growing show that it's possible. But you know there are real challenges ahead for these companies in this category, dwayne, I think so let's take a look at some of the companies within CSDs.
Speaker 1:And so our second topic, john, that we wanted to talk about was the fact that Coke has been outperforming on CSDs. Pepsico has been underperforming, you know, dr Pepper brand Dr Pepper, regular Dr Pepper tied in our numbers in you know, 2023 with PepsiCo, in terms of volume, in terms of the size of that brand, regular Pepsi versus regular Dr Pepper. You know, I think you sort of, when we were noodling this through, you said you know why is Pepsi blue right now? If you look at the carbonated soft drink numbers from last year, I mean you've got one thing that's really striking is the fact that Coke and Pepsi both priced pretty similarly in 2024 and 2023. Coca-cola got a little more pricing in 2024. But when you move over to the volume side, I mean Coke was up half percent in our numbers and PepsiCo is down almost three percent. I mean that's quite. You know. You talk about the Cola Wars. I asked during my opening remarks at Future Smarts whether we actually still have a Cola Wars. What do you think? Opening?
Speaker 2:remarks at Future Smarts, whether we actually still have a Cola Wars. What do you think? You know, I think, look, I've got great regard for Pepsi. They've got great brands, I think, pepsi. And I think that over the many years that I watched this industry, I saw the pendulum swing back and forth between Coke and Pepsi.
Speaker 2:I think right now there are two things Pepsi has to consider, maybe three things, I think. Number one it's got to sharpen its marketing on brand Pepsi. Very importantly, it's got to figure out what to do with Mountain Dew. I think that when I started covering this industry back in the 1990s, Mountain Dew was really a young people's energy drink. Young people used Mountain Dew to stay up late to study. It was basically an energy drink. And then along came energy drinks and I think basically that took away a lot of Mountain Dew's positioning. And Mountain Dew has not done very well in recent years. And Mountain Dew is a huge, huge brand for PepsiCo. So they've got to figure out the positioning and marketing on that brand and get it, if not growing again, at least not declining as much.
Speaker 2:And thirdly, I think that Pepsi's got to look at its bottling system. I think that it is my belief that a big company can really only do one thing very well. And you look at companies like Apple. They said they're not going into search, that's not their area of expertise. They're staying and making you know great, great devices with great software. I think that if I were Pepsi, I would be looking at thinking about how basically I could restructure the company so that I was focusing on my brands, marketing my beverage brands and maybe considering changing the ownership of my company on bottling operation. I think that for a franchise independently on bottling system probably works better than the system Pepsi has now.
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Speaker 1:I think that's going to be a real important question in 2025 and emerged at the end of last year. I mean, you've got some independent bottlers out there that you know clearly believe re-enfranchising is the way to go. They want territory, I think. I mean, as I sit here today, though, I think all signs point to PepsiCo. It will not franchise. Don't think they will re-franchise their bottling system, especially in any meaningful way in 2025, not even sure in the next couple of years. I think the different question is should they? And Nick Mody has come out very strongly in a report and also at our conference during an analyst panel I held with him and Bonnie Herzog at Goldman and Lauren Lieberman at Barclays, and we talked a lot about this issue and Nick's point is that they should, but he doesn't believe that they will. They may do some interim restructuring to sort of try to help that cost side of the ledger, because as volumes decline and that underperformance settles in, it just makes it a much tougher business for them.
Speaker 1:And the independent bottlers, of course, concern, because you know you need investment money on. You know marketing those brands in a way that you know, consumers, you know buy them more and pay more for them and all the things that you're looking for, and I think there's a real question now about how that's exactly going to work, and so I think that is definitely going to be a really interesting story in 2025. You know, I think probably what we're going to see is various interim steps to sort of get a handle on that, but I think the big fear would be if you let this go too far. Do you, you know, head towards some sort of death spiral that you know really forces you to act, and maybe not in the most optimal way, but you know? The other question is you know, are you in a hole such that even working your way out of it becomes very, very difficult? Question is you know, are you in a hole such that even working your way out of it becomes very, very difficult? So it's going to be a really crucial question.
Speaker 2:Look, I think that one of the issues that Pepsi has is, you know, coke had some big bottlers like Consolidated United. When they began their refranchising, they successfully brought in outsiders like Reyes. There are some good, strong, big Pepsi bottlers out there the Honickmans, pbv, buffalo Rock. I don't know to what extent they would want or be interested in taking on more territory. Pepsi's probably going to have to do what would probably have to do, what Coke did, and that is bring in some outsiders to take on territory, I think at the right price. Owning a Pepsi franchise is an attractive thing. They've been in a growth slump recently, but they've got great brands and there's no reason to believe that they can't reverse their results over the next few years, that they can't reverse their results over the next few years. So one issue is going to be, you know, the financial implications of selling off big hunks of their territory, probably at valuations which may not be, you know, too attractive to PepsiCo.
Speaker 1:You know, here's another really important point, I think in all this and Bill O'Brien, the CEO of Ray's Coca-Cola Bottling, made this point when I asked him at Future Smarts. You know what he thought about a Pepsi re-franchising and you know, basically posed the question. You know, you guys have said for years that this competition is really important. Well, you know, do you have a Cola Wars now and is it important for them to compete and do you think that they're going to re-franchise in order to become more competitive with you?
Speaker 1:And one of the points he made that you know, obviously I mean this is sort of the coke perspective, but but I do think it rings true to me and that's the fact that even if they were to re-franchise in some kind of meaningful way in the next year or two I mean his point was that it could take 15 years as it did the coke system since they began their refranchising to actually pull it all together and then do the things that you need to do in terms of collaboration within that refranchise system when it comes to everything from IT collaboration to procurement, to governance.
Speaker 1:How do you work together, how do you share supply chain, all of those things that those things are really sort of the magic behind it all, so to speak, to use the Koch marketing parlance, and that those are the things that take some time once you actually even make the decision to do it. So you know, his expectation is that I mean reading between the lines he's basically looking forward to Koch having a good bit of runway here to continue to, you know, create the kind of share gaps that we've seen. Perhaps.
Speaker 2:Right. Look, you know, when Indra Nooyi was running PepsiCo, she was a strong believer in owning the bottling system because she thought that having control over route to market was an advantage, and you know I understand why she felt that way. But I think that on the flip side of that, as I mentioned earlier, you know, marketing and selling big brands like Pepsi and Mountain Dew and Gatorade is a very complicated, management-intensive, financially-intensive business, and I think they're great brands and it's my gut feeling that the brands would do better eventually under a franchise-owned system. But, as you said, it wouldn't be simple, it probably wouldn't be fast. But I will take the liberty of disagreeing with you, dwayne. I think that we're going to see signs in the next year or two of Pepsi having some interest in beginning some kind of refranchising effort.
Speaker 1:Yeah, I wouldn't, I would not bet against that. I think some signs are probably the most we'd see. I mean, you almost think they have to. There has to be some signs, right. But I think in terms of a wholesale change of strategy, I would bet against that right now. Wholesale change of strategy. I would bet against that right now, personally.
Speaker 1:Okay, you know one other thing that's interesting though in this whole conversation and you brought up a really good point about you know, for years they believe PepsiCo believes you know, in part because they operate a Frito-Lay business, all aspects of that that you know they're an operating company and that they can do, they can operate, and that's part of why they wanted to own most of the franchise, most of their bottling system, because they do believe that they, that there's benefits there and that they know how to operate. Someone has made the point to me you know recently, a couple of people that you know that on its face seems, you know, like an interesting way to look at it. But the fact is, operating a beverage business, especially in the modern, in this kind of very highly competitive, fragmented beverage industry that we're in now, it's very different than operating a snacks business where 60 percent of the store aisle are your brands and where you really are only competing with really strong regional brands. It's a very different operating environment and that may be part of what's, you know, putting a wrench and throwing a wrench in the works here when it comes to that strategy. So we'll see. It'll be interesting to see.
Speaker 1:Next, john, let's turn over. Let's move on to our next item, which is energy drinks. You know, you and I have done a show talking about the slowdown in energy drinks. Everyone's seen what's happened with Celsius their share price down as a result of some things going on in terms of their sales growth slowing. You know, what do we expect to see in 2025? What are you thinking about in terms of the energy drink story as we move forward?
Speaker 2:Look, I'm bullish on energy drinks. I think that they, like carbonated soft drinks Dwayne they've gotten expensive. I think that, as we've talked about in previous podcasts, many consumers right now, notwithstanding what looks in some data like a great economy, many consumers are pinched. The amount of discretionary spending that they have is very tight and I think that that's been a problem for energy drinks which, like carbonated soft drinks, have gotten very expensive. However, I think that the appeal of energy drinks is going to continue.
Speaker 2:I think that the fact that they provide this functional benefit of energy is going to continue to make them popular with consumers. To make them popular with consumers, I will predict that by the end of 2025, we're seeing some improved growth for energy drinks. I think that one of the problems that energy drinks has had over the years is they have not really dramatically increased household penetration. A lot of the growth has become coming from existing consumers. I suspect that with the some of the new energy drinks coming into the market you talked about it at your conference expanding the consumer base, the house is going to be possible for energy drinks and I think that, as the consumer spending catches up a bit, as new drinks come in which give the category a chance to expand the consumer base. I think we're going to see a resumption of some growth in energy drinks over the course of this year.
Speaker 1:Yeah, I mean, I do think you know brands like Celsius have brought some new users into the category. I do think, though, that you have to ask okay, well, how much you know more room is there to bring even more users in. The people you're bringing in, to what extent are they sticking with it? Are they just coming in because of social media? What have you? Are they? You know questioning ingredients. You know that's always an issue. You know you get into various, you know like the healthier energy category and you feel like, oh, that's an energy drink I can do. Maybe the flavor profile is a little more acceptable, you feel like it's got this healthier and kind of lifestyle aura. But once you get into it, you know taste becomes, you know, more and more important as people repeat, ingredient panels can become more important, especially if you have others coming to the market saying, hey, we really have a healthier alternative. I mean a lot of that, you know. The question is, you know, to what extent can you continue to recruit new people into those categories? Red Bull has just come out with a zero sugar. You know another zero sugar version. You know Monster's done really well with its zero sugar. I think there's a lot of you know potential upside there. I mean, the market is the energy drink market is clearly moving to zero sugar, in the same way that we've seen with carbonated soft drinks. That's where you're going to see the growth.
Speaker 1:Last year, you know, john, looking at the category, you know through the first three quarters the category pricing was up 2% versus almost 7% the year before. Dollar sales were up 3% versus 12% in 2023. That's a quarter of the rate of growth that we saw in 2023. Volume up 1% versus 5% in 2023. 2023, I mean that's pretty striking. So my question is, as we kind of noodle through this, are we going to get closer to to the kind of numbers we saw in 2023? Are we just going to tick up in 2025? And what does success look like in that regard? Do you think to really feel like this is not a long-term problem for the category?
Speaker 2:Again. My mother told me no one should rely on their own personal crystal ball, which I now basically ignore my mother's advice. I think that energy drinks will probably tick up to maybe 3% or 4% volume growth. Maybe 3% or 4% volume growth, maybe 3% or 4% pricing growth. I think that translates into maybe 7% 8% revenue growth. I think that's what we can maybe look at for 2025 and 2026. I think the days of astronomical double-digit growth are over now, but I think this category, given what I believe to be its appeal, should be able to grow revenue in the high single-digit range for some years to come.
Speaker 1:Yeah, I think that makes a lot of sense. I think if that's what we see in 2025, I think people will be quite happy about that and feel good about that progress. I do think we're going to. You know, when things shake out with the economy, I do think we're probably going to have another. You know we will upswing again in the energy category and get back to some of the potential rates, you know, within the next couple of years that we saw previously. So I'm with you. I feel pretty optimistic about that category.
Speaker 1:Let's turn to prebiotics. Got a couple more issues. So prebiotics were. You know we had Olipop at our conference this year, ben Goodwin, one of the co-founders. You know Poppy and Olipop are two brands in this whole gut soda segment that have gotten a lot of attention.
Speaker 1:They've done Super Bowl ads, you know. You sent me a text yesterday about the Golden Globes and the fact that Olipop and Poppy were both advertised on that. That's quite interesting. Caught one of the ads. It's actually pretty funny. The Olipop ad Pretty good ad. You know what we learned? Bevnet had a little story about uh, it looks like pepsico and coca-cola uh, are going to do their own gut soda brands. Uh, I think there's more to come on that. Um, you know what are we? How do we thinking about? Uh, gut sodas in 2025. I mean, I think it's a really interesting segment. But you know, I don't know, with some of these it depends on whether the consumers really settle into that as something that becomes part of their routine long term, or is it something that is really just sort of the new thing of the moment?
Speaker 2:Look, I think that what Olipop and Poppy have shown is two things. Number one is that people like sparkling beverages, but they want their sparkling beverages to do more than just taste good. So along come Olipop and Poppy, and I see a certain analogy to energy drinks, and they've said that you can have a great taste in carbonated soda low sugar, low calories, and guess what? It's going to basically help your digestion, it's going to give you some health and wellness benefits benefits and I don't think Olipop and Poppy are going to be get up to, you know, a gargantuan size, but I think they're going to continue to grow and I think what they've shown is that there is room for growth and carbonated soft drinks. But maybe those carbonated soft drinks have to work a little bit harder than simply taste good.
Speaker 1:I think Coke and Pepsi are smart to create their own. I do wonder if that's what they're doing. If they're really, are they really making a bet on that segment long term? Or are they basically hedging, in essence, to make sure, okay, if that category has, you know, can be sustained that segment for some meaningful amount of time, even a few years? Do we want to make sure we're playing in it so that the two lead competitors aren't just running away with the market? I mean, that's one thing. And then if it is a long-term proposition, in the same way that PepsiCo created its own sparkling water category, I mean, the whole fever around sparkling water that was so hot for a few years, you know, subsided but it still remained a relevant category and still is today. They created their own brand and now sort of you know, coca-cola has aha. They've taken that out of retail for the most part and PepsiCo stands.
Speaker 1:You know that seems like a good strategy. Rather than spending, you know, several billion dollars to buy one of those brands in the category that A, are you going to, in a segment that A, are you going to be able to really sort of get the same kind of growth? Is it going to work the same way in your portfolio as it would as a standalone. But also, you know, are you going to really be able to recoup that investment in any meaningful short time and is it going to be a distraction for your you know, more important carbonated soft drink business? It seems like a pretty good strategy from where I sit.
Speaker 2:I think you put it well. I think it's probably, at least initially, a hedge. I think that you know one of the challenges I think that Coke and Pepsi face, and other big consumer product companies do too, is they've got these gargantuan brands like Coke and Diet Coke and Sprite and Pepsi and Diet Pepsi and Mountain Dew and Gatorade, and the culture of these companies is very much oriented around these big brands as well. It should be. And a lot of the intellectual and financial resources and I say intellectual as well as financial the intellectual and financial resources of these companies go to these big brands and I think, like other consumer product companies, it's hard for them to basically deal with, grow, support, nourish smaller brands.
Speaker 2:We've seen that with Pepsi's acquisition of Sobe. I don't know really where that brand is now. We saw it with Body Armor, coke's acquisition of Body Armor, which basically declined for several years after they bought it. So with these brands, yeah, I think you're right, dwayne. I think it's rough, at least with the Coke and Pepsi starting prebiotic brands. It's probably a hedge initially and I think that a lot's going to depend upon where the consumer goes with these products, but I think it's certainly the right thing for them to do, to play in that part of the sparkling beverage category.
Speaker 1:I mean years ago, during the Indra Nooyi years, pepsico clearly came to the conclusion that the carbonated soft drink category was not the growth engine of the future. Coca-cola maintained a different view of that and their strategies have played out largely as a result of those overall strategic views of that category. You saw PepsiCo much more aggressive in investing in some of those other beverage categories, you know, whether it be sports drinks or even sparkling water. I sort of wonder now, if you don't, if we're not at a point where, looking at what's happened over the last 15 years as those strategies have played out and of course we talked about the refranchising, the operational piece of that earlier whether you know we've kind of got an answer that you know you can keep counting out carbonated soft drinks.
Speaker 1:You know, in the 90s and 2000s, you know, neville Isdell, you know, talked about coming back into Coca-Cola and everyone seemed embarrassed to sell carbonated soft drinks and you see, you know he said no, we're going to be, we're going to be proud of our major product category and people like this product. And you've seen what's happened since. You know, in some ways it does feel like, at least for now. I mean, obviously this is a dynamic market. Who knows what happens over the coming decades, but for now it seems like there's, you know, at least a pretty clear answer that you can keep counting out carbonated soft drinks and you can, you know, beat it up and do whatever, but it's a viable category that consumers uh appreciate and that can uh, you know, spin off a lot of cash and can be a, you know, a very valuable product category you know, I think that sort of going back, going back to uh poppy and ollie pop.
Speaker 2:I think one of the things that coke and pepsi and to some degree kdp have to do is give consumers moms consumers permission to buy these brands, to feel good about buying these brands, to feel good about giving their kids these brands. You know, one should never do market research based upon anecdotes. But you know, as I talk to younger people who are friends of my daughter, I just don't see, you know, young families bringing carbonated soft drinks into their house, encouraging their youngsters to drink carbonated soft drinks. I think that figuring out a way to give permission or license to younger consumers to drink carbonated soft drinks, feel good about them, have mom and dad buy them for them, is so important to the future health of this category and without that the future health of this category might not be so good.
Speaker 1:So, john, we have a couple minutes. Let's get to our last topic. You know storyline of 2024 and spin it forward to 2025. And that's this kind of dust up between Keurig Dr Pepper and Coke Rays. You know Keurig Dr Pepper has terminated Coke-Cola Rays' license to sell Dr Pepper in California starting later this year. They're currently in a legal lawsuit around that. That's sort of grinding its way through the Texas court.
Speaker 1:I talked to both leaders from KDP and Ray's Coca-Cola at our conference. They both were very gracious in their remarks towards each other. Clearly there's still a very collaborative working relationship with those two companies each other. Clearly there's still a very collaborative working relationship with those two companies. But a real difference of opinion when it comes to the extent to which it makes sense for KDP to take on that brand in California versus let a strong bottler like Ray's Coca-Cola still distribute that product in California and also raises questions or intrigue or makes it quite interesting.
Speaker 1:Kdp's long-term plan when it comes to their distribution system, they clearly have been creating what they call the maroon system now that they can extend to brands like Electro Elite, which they have, and La Cologne Coffee. You know company-owned bottling network that they can use as the third major system outside of the white system. That would give people an alternative, other entrepreneurs an alternative to distribute their products and go to market in a meaningful, scaled way in the US. It's been really interesting to watch. How do you think that's going to play out and what are your general thoughts on that?
Speaker 2:You know, many, many years ago there was a gentleman who ran Dr Pepper and helped build Dr Pepper by the name of Foots Clements and some of your older subscribers and podcast listeners probably remember him and they decided many, many, many years ago they wanted to take Dr Pepper out of a regional Southwest brand and make it a national brand. And they had a very clear franchising strategy which was get the best bottler in every market. And they did that. And over the years, dr Pepper grew and grew and grew and grew and their pitch to bottlers was to Coke and Pepsi bottlers was that their Coke and Pepsi bottlers products did better when it was on a display with Dr Pepper and they talked about that for years and years at bottler meetings. So, switching to the other side of this, the KDP decision to basically pull Dr Pepper out of the Coke bottle in Southern California, you know, duane, I'm a strong believer that smart people don't usually make dumb decisions and I think the people running KDP are very smart, very strategic. They've shown that over the years.
Speaker 2:Having said that, I don't fully understand taking Dr Pepper out of the Reyes system in Southern California. I simply do not believe that Dr Pepper. I think it. I don't. I simply do not believe that Dr Pepper at not in a Coke or Pepsi bottler is going to have the reach and market penetration that it does. It will certainly make their company own bottler in Southern California stronger. It'll probably make 7-Up stronger, a&w stronger. I think they have Snapple in Southern California. I think Dr Pepper will help their business in Southern California. I'm not sure, at least in the short term or the immediate term it's going to help Dr Pepper.
Speaker 1:Yeah, I think the one takeaway for me in my conversation with Andrew Archambault from Couric Dr Pepper he's the company's president of US Refreshment Beverages was that, you know, I basically asked him you know, long term, you know, years down the road, do you guys foresee taking back, you know eventually, all Dr Pepper distribution?
Speaker 1:And his message was you know there's a never say never sort of component to the answer always. But what he was trying to get across, I believe, in that conversation was that this is a very specific circumstance that makes sense for them, based on operations they already have and the scale they're trying to achieve in a certain part of their business and operations contract that you know made this possible, and that this would not, should not, be read as something that means they're going to be trying to or can, or or that they even can. You know that they have the contractual ability to go and take back dr pepper franchises you know across the country. Um, they seem to see this as a very specific circumstance. So, you know, we'll see. I think long term they do seem to be making the decision to play more of an operator role when it makes sense for some of the reasons I said earlier. So that will be in 2025. Another one that we'll watch really closely, and I'm sure we'll be talking about that as well.
Speaker 2:John, you know. Look, dr Pepper is a powerhouse brand. I think, if my memory is correct, in your 2023 data, it actually tied with Pepsi. That's how good a job KDP and its predecessors have done with that brand. So there is no doubt in my mind that any territory in the US which is an independent system territory not a Coke or Pepsi system territory where the independent bottler does not have Dr Pepper now and gets Dr Pepper it'll be a stronger business. What they have to weigh is, as I think you just said, is making that territory stronger for their other brands that may be losing some Dr Pepper penetration and presence. How does that balance out? Does that give them a stronger business or not? And again, as I said, they're very smart. They're very strategic. Maybe they're looking at Southern California as a test market and see how it works out, but, as I said, it was a head scratcher for me when I read your story on that.
Speaker 1:John, I'm really excited about this year. I think it's going to be another dynamic year in the industry. I'm really looking forward to chatting with you through the year as well. It's great to get 2025 started off with this great conversation. I really appreciate it. And just to be clear, so you've got Chiefs right and I'm going Lions and we'll see what happens, you know, if they get to the big game.
Speaker 2:I'm Mahomas all the way.
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