Story of the month

Nils Bosse-Parra, Portfolio Manager, ODDO BHF Asset Management.

“Coca-Cola generates 30% of its sales with low-calorie drinks”

Diet drugs from pharmaceutical companies such as Novo Nordisk and Eli Lilly continue to cause a stir on the stock market. The Danish manufacturer Novo Nordisk, which can barely keep up with deliveries, has become Europe’s most valuable company thanks to Wegovy, a drug originally developed to combat diabetes. As the very expensive medication, which is particularly popular in the US, is designed to combat obesity by curbing appetite and is supposed to lead to a permanent change in eating habits, the new health trend is also keeping manufacturers of food and high- calorie drinks on their toes. After all, if the new drugs lead to less consumption of sweets and soft drinks, this will ultimately have an impact on their sales and profit figures.

Novo Nordisk has been one of our favorite companies for some time now. At the same time, however, we also see a lot of potential in the major food companies like as Nestlé and soft drinks such as Coca-Cola. Is there a contradiction here? After all, companies like Novo Nordisk benefit from the fight against obesity, which is fuelled by excessive consumption of snacks and sugary drinks. But despite all the concerns about the impact of appetite suppressants on consumer goods companies, there was no sign of it in Coca-Cola’s quarterly figures, for example. In beverage sales, Coca-Cola not only impressed with strong sales figures, but was also able to push through higher prices. While the share prices of Coca-Cola, Nestlé and Pepsi were under pressure for several weeks in view of the new weight loss drugs, Coca-Cola even raised its outlook for the year. Coca- Cola’s CEO does not expect a major impact from weight-loss drugs, despite concerns expressed by retailers such as Walmart.

Large companies like Coca-Cola can also adapt to changing consumer habits. For example, almost every beverage in the Coca-Cola product portfolio has a zero- or low-calorie variant for health-conscious consumers. Continuous investment is also being made in this segment. In addition to one of the best-known brands in the world, Coca-Cola has also built up a portfolio of other beverages (e.g., Georgia coffee, Innocent fruit juices, Costa Coffee, Fuze iced tea).

From Coca-Cola’s point of view, sales injections do not represent a structural threat due to the highly diversified brand portfolio. In total, the Coca-Cola universe consists of around 400 brands, with the majority of sales coming from the well-known international brands. Demand is not very sensitive, especially in times of economic downturn. A strong growth driver is the range of beverages with reduced added sugar, in particular Coke Zero. The product continues to record double-digit growth. Sales of low- calorie and zero-calorie drinks currently account for around 30 % of total volume, and the trend is rising. Competitor PepsiCo is also increasing its focus on the growing healthier alternatives business.

Finally, Nestlé also offers a broader product portfolio ranging from Nescafé to mineral water in addition to sugary iced teas and chocolate bars. Nestlé is expanding its range of plant-based foods and beverages to be consumers’ first choice for a varied diet. Nestlé Health Science products, ranging from medical nutrition to pharmaceutical solutions, are created through collaboration with a global network of healthcare providers, research organizations and healthcare professionals. Nutrition therapies are offered to people who want to compensate for nutritional deficiencies in their active lifestyle as well as for people who require specialized nutrition for an underlying condition. The trend towards a healthier, lower-calorie diet has therefore also affected the food industry – if only because the demand for such products is increasing. The growth trend towards better health and quality of life is relevant not only to pharmaceutical companies, but also to the food industry.

Past performance is not a reliable indicator of future performance and is not constant over time. None of the above companies constitutes an investment recommendation.