Coke To Bet More On Sugar Water With Bubbles

Consider two things (paywall):

1. Global soda sales and coke’s soda sales are steadily declining:

The pace of Coke’s global soda volume growth slowed to 1% last year from 3% in 2012 as concerns about health and obesity spread. Last month the World Health Organization suggested that individuals limit consumption of added sugars in food and drinks to 6 teaspoons a day—less than the 9 teaspoons in a 12-ounce can of Coke.

Soda volume in Mexico, Coke’s second-largest market, have fallen an estimated 5% or more since the country introduced a tax on sugary beverages in January.

The new drag on Coke’s U.S. business is diet soda. Diet Coke volume has been down for eight straight years, accelerating the decline in the past three. Diet Coke sales plunged 6.8%, in volume terms last year, according to Beverage Digest.

2. But instead of focusing only on diversifying into non-soda beverages,

…the Atlanta-based company plans to double down on its namesake brand. The company is boosting advertising, introducing new products, and using singer Taylor Swift as a pitchwoman. Chief Executive Muhtar Kent has said that last year, when Coke’s U.S. soda volume dropped 2%, was an anomaly. Soda can return to healthy growth, even in the U.S., especially if it is a brand name like Coke, he said.

“Coca-Cola remains magical. We need to work even harder to enhance the romance of the brand in every corner of the world,” Mr. Kent told investors in February. He regularly refers to flagship Coke as the company’s “oxygen” and “lifeblood.”

For starters, he plans to increase global advertising by $1 billion over the next three years. The company spent $3.3 billion last year. Much of the increase will be devoted to soda, including the Sprite and Fanta brands.

But with even Warren Buffet saying “I’m 100% in accord with Coca-Cola’s business strategy and regard Muhtar Kent as the ideal CEO for Coca-Cola” it’s probably a safe bet that Mr Kent (and Mr Buffett) can see the future of Coke’s bubbly sugar water in a way no one else can.

Anti-Trust vs Cable Industry Consolidation

Anti-trust regulators in the US typically do a pretty good job (IMO) when it comes to preventing “excessive” industry consolidation and concentration of power – things that would otherwise inhibit “healthy” competition and hurt consumers.

So what then to make of Charter or Comcast’s chances of buying Time Warner Cable?

But David Gelles, at the NYT’s DealBook thinks there are two good reasons why either company might be allowed to proceed with the acquisition:

Antitrust regulators are understandably skeptical about allowing big companies to get bigger. However, there are reasons why Charter, or even Comcast, might be able to prevail in its pursuit of Time Warner Cable.

Cable operators make two arguments in favor of consolidation. The first is that broadcast and cable networks are demanding ever higher fees for their programming. Cable operators are being forced to pay up, and the consumer is getting hit with higher cable bills. A bigger company would potentially have more bargaining power, and cable operators argue that they will be have more leverage with the programmers, allowing them to keep costs down and save consumers money.

Perhaps. But a more compelling argument made by the cable operators is that while there are a few big companies that dominate the market, they have very little overlap when it comes to customers. In most markets, consumers don’t have a choice between Comcast, Time Warner Cable or Charter, or even two of those three. In fact, most big markets have only one of these available, which might compete against other telecommunications firms, like Verizon and AT&T, and the satellite operators DirecTV and Dish Network.

#2 is fine, but as a consumer, it will be really nice if we actually see the beneficial effects of argument #1 post-acquisition. 

Fashion Icons = IPO-Driven Multi-Billion Dollar Brands

Ralph Lauren (market cap = $15.2B), to begin with, and Michael Kors (market cap = $15.3B. note that it’s ~ $100m more than RL), more recently, are inspiring many new eponymous fashion labels to go public and pull in billions of dollars from investors, writes Peter Lattman, on The NYT’s DealBook.

With his red-carpet gowns, lush cashmere sweaters and jet-set shoulder totes, Michael Kors has influenced fellow designers across the globe.

These days, though, Mr. Kors is inspiring the fashion world not only with his “affordable luxury” merchandise, but also with the extraordinary success of his initial public offering nearly two years ago.

On Wednesday, Marc Jacobs announced his departure from Louis Vuitton to focus on an I.P.O. of his own brand. Last year, Diane von Furstenberg set off speculation about a stock offering when she hired a top-level fashion executive in a push to expand her business. And while Tory Burch has denied any near-term interest in an I.P.O, there are persistent whispers of a Wall Street debut.

Call it the Michael Kors effect.

To some extent, that makes sense. For, if, at some level, fashionable clothes are really not that different from each other (fashionistas, you can stop gasping now), and a high profile celebrity fashion designer has both the design chops and cachet to pull in shoppers repeatedly (no one-trip ponies here), then investors and bankers might be OK with eschewing traditional fears of being overly exposed to a non-diversified set of revenue streams.

The only thing I wonder though is about exposure – or too much of it, to be more precise.

Publicly traded companies, fairly or unfairly, have to show strong quarterly and annual growth numbers to Wall St, lest the stock be punished. And in order to do that, they can either wring more out of their existing customers or expand – geographically and/or across categories. But they need to do it in such a way that the increased visibility doesn’t damage perceived exclusivity, cachet and pricing power (in that order).

That, could be a delicate dance though, after a point. 

Turns Out Consumers LOVE Headphones Made By Celebrities

A while ago, I talked about headphones becoming like perfume, with celebrity branding as the only differentiator. 

And what a differentiator it is!

The Economist writes (stuff in bold = my emphasis, below),

Among the first to spot the potential of this market was Dr Dre, an American rapper-cum-tycoon. In 2008 he and Jimmy Iovine, a record producer, launched their Beats range of headphones, to great success. They have all but created a new product category: premium-priced ($100-plus) cans whose sound quality is good enough, but which mainly sell on their brand image.

Beats Electronics and its founders have proved adept at using celebrity endorsements and product placement to plug their headphones. In America the company now has almost half the market for premium-priced cans, compared with 21% for Bose, a longer-established maker. Beats headphones are bassy: that’s what hip-hop fans want, but might not suit opera lovers. Overall, though, they are a lot better than the earbuds that come free with most portable devices.

Very impressive, wouldn’t you say?

Inexpensive Cameras, Like PCs, Are Dying

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In 2013, Fujifilm thinks that humans will take about 1.6 trillion pictures. That’s an amazing increase over the 100 billion we took just 13 years ago. 

But, many (most?) of those are being taken on SmartPhones and such, and that is hurting the camera business badly, writes Daisuke Wakabayashi on The WSJ. 

So what is the industry doing?

For starters, they are paring the number of pointless cameras they make:

“Everyone in this industry recognizes the market is changing,” said Hiroshi Tanaka, corporate vice president at Fujifilm, the No. 5 camera maker. “The question is what we can do about it.”

Fujifilm plans to halve its product line—down from 20 models last year, limiting the number of less expensive devices while introducing more premium cameras. Panasonic said it plans to reduce the number of “entry-level” models with a goal of slashing fixed costs at the camera business by 60% over the next three years.

And then, they are trying to make the surviving ones better:

Mr. Matsudaira (a Canon exec) said his goal is to cooperate—not compete—with the smartphone. The palm-sized PowerShot N, a square point-and-shoot camera that Canon introduced earlier this year, can send photos easily to a smartphone while allowing the user to take “creative shots” that alter the original picture with different filters.

“The job of the camera had been only to take beautiful pictures, but we started seeing people using smartphone cameras to share and interest started drifting that way,” Mr. Matsudaira said “We have no intention of competing with the smartphone.”

But is that going to be enough to save this category? 

I am really not sure.

SmartPhone users that take pictures using their phones value convenience more than anything else, in my opinion (confirmed anecdotally and otherwise). So if SmartPhone cameras continue to get better and better – higher quality, more options, and some day, a working optical zoom lens – in 5 years, why would anyone want to carry a 2nd dedicated photo taking device?

Point-and-shoots, RIP. 

American and US Air – Not Destined To Be Together?

After United+Continental and Southwest+AirTran – not to mention Delta+Northwest – everyone thought American+US Air was a fait accompli (because mergers are a solution to the airline industry’s historic “wretchedness problem“). 

No, said the DOJ today and filed a lawsuit to block it. 

Interestingly, according to an NYT article, it cited those past mergers as the reason why it thought this one, which would have created the world’s largest airline, shouldn’t be allowed. Those transactions, it contends,  led to higher prices and fewer choices for air travelers – something it says it can’t allow yet again.

And according to a blog post on The WSJ’s CFO section, not only is the DOJ not bluffing, but its case might be built on some pretty damning evidence:

Experts in antitrust law tell Reuters that the Justice Department lawsuit signals a sincere intention to block the deal, not just a negotiating ploy to get concessions before possible approval. Jonathan Lewis, an antitrust lawyer in Washington, called the suit “very powerful” because it quotes company documents and executives anticipating higher prices through consolidation. “If there were going to be a settlement, it probably would have happened already.”

As the WSJ points out, the Justice Department built its lawsuit largely on company executives’ own past comments. The 56-page court submission is full of remarks company officials allegedly made in settings from industry conferences to internal publications, the Journal says. The lawsuit quotes US Airways President Scott Kirby as saying that industry consolidation has allowed airlines to increase fares and charge fees for services like checked baggage. And the department said a US Airways presentation last summer observed that fewer airline competitors had allowed the industry to “reap the benefits.”

But what about the financial health of these airlines should they stay separate?

American, for one, will take a hit – though not a fatal one, says this excerpt from another WSJ article

A scuttled merger would prolong AMR’s stay in Chapter 11, perhaps until late 2014, said another person close to the process. The company would have to fashion a new reorganization plan to emerge from court protection as an independent company, revise its financial projections and negotiate anew with bondholders, unions and other creditors—all of which would take considerable time.

As for US Air, it’s stock took a 13% hit following the news, as was to be expected.

But very interestingly, other airlines’ stocks suffered too because a resurgent US Air might actually do things that are detrimental to the industry:

Investors worried that if American were forced to remain independent, it might try to bulk up to the size of merged behemoths Delta Air Lines Inc. and United Continental Holdings Inc. That could cause industry capacity to grow and earnings prospects to diminish, according to J.P. Morgan Chase & Co.

For now, both airlines are putting up a brave face, vowing to fight the DOJ and promising to complete the merger before the year.

Who’s going to prevail? My money is on the DOJ.

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