Coke’s Growth Plan Calls for a Milk Mustache

Coke Milk

Coca-Cola (KO) is entering the premium milk market, hoping that a lactose-free dairy alternative can help it offset moribund sales of its namesake soda pop.

Fairlife is the name of the highly modified milk that, apart from appealing to folks who are lactose intolerant, is also modified to have more protein and less sugar than whole milk. That’s a good thing, since sales of traditional milk have fallen sharply since 1970. Milk alternatives like Fairlife, on the other hand, are growing briskly.

Coca-Cola’s move may or may not succeed, but the one thing we know is that it isn’t really a surprise. The Atlanta-based beverage behemoth has been expanding beyond carbonated soft drinks for years as a way to compensate for soda consumption trends that find folks sipping fewer colas.

From the Odwalla purchase in 2001 to deepen its reach into fruit juices to the 2007 acquisitions of bottled-tea specialist Fuze and the $4.1 billion deal for the company behind Vitaminwater, Coca-Cola isn’t afraid to cut a big check to diversify. Last year it took significant stakes in single-serve coffee champ Keurig Green Mountain (GMCR) and energy drink speedster Monster (MNST).

Making a play for premium milk isn’t really a shock after Coca-Cola has bought its way into enhanced waters, juices, and energy drinks. If you can drink it, there’s probably a Coca-Cola subsidiary playing a part, as long as it’s not liquor.

Getting Ready to Pop

Coca-Cola posted another quarter of meandering financials on Tuesday. Net revenue declined 2 percent relative to the prior year’s holiday quarter, as a hit on currency translations and structural items more than offset a 1 percent uptick in the unit volume of sparkling beverages and a 2 percent gain in noncarbonated products.

Coca-Cola’s adjusted profit did beat Wall Street expectations, and that, along with experiencing at least marginal year-over-year growth in its carbonated beverages category, was enough to please the market. However, at the end of the day, the reason that Coca-Cola shares have closed higher for six straight years is that it continues to diversify.

There are now 20 brands in the Coca-Cola portfolio raking in at least $1 billion in net retail sales a year. Gold Peak tea, Fuze tea, and I Lohas mineral water recently became the last three additions to that elite club. Iced teas have been a hit worldwide for Coca-Cola, and I Lohas may not be a household name around here, but the mineral water is big in Japan.

Coca-Cola is naturally hoping that Fairlife stretches that club’s enrollment to 21 brands. It won’t happen overnight: Convincing folks to pay up for an enhanced dairy product could prove challenging. However, one can never underestimate Coca-Cola’s reach. It has a thick Rolodex of chains and distributors, making it easier to get its product out there. With so much of its growth coming from non-soda brands, one has to wonder if the next step for Coca-Cola is a name change.

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