Selling soft drinks in the United States has recently become an uphill task. Health and obesity concerns have transformed consumption habits. More and more people are choosing beverages that are considered healthier.
Coca-Cola has noticed this trend and has replied with a decisive move: to invest heavily in the protein beverage market. Its strongest bet so far is Fairlife, a dairy brand that has completely changed its business outlook. With this move, the company is aiming directly for the market throne, leaving Pepsi behind in an increasingly diversified battle.
The change of course that could shape the future
For years, Coca-Cola lost ground to drinks like Monster, Red Bull, and Celsius, which captured the young and active audience. The company even tried its luck with its own energy product, Coke Energy, but ended up withdrawing it from the North American market after just one year. Despite some setbacks, the company hasn't given up and is now going big with a new strategy.
In 2020, Coca-Cola acquired all of Fairlife for about $7.4 billion, a deal that became the most important in its 133-year history. The brand had already shown signs of success since Coca-Cola took an initial 42.5% stake in 2012. Since then, sales have grown by more than 1,000%, surpassing $1 billion annually, according to Bloomberg data.
Fairlife doesn't sell regular milk; its products are made with a process that cuts sugar in half and increases protein content, in addition to being lactose-free. This positions it as an attractive option in a milk market valued at $15 billion, according to NielsenIQ. In addition, the rise of medications like Ozempic, which require higher protein intake, has further boosted demand for its shakes.
Blow to Pepsi and bet on sustained growth
Fairlife has become a crucial element of Coca-Cola's growth. Its Core Power line alone, focused on protein shakes for physical performance, accounts for about 48% of its retail sales in the United States. Other products, such as Nutrition Plan and its ultra-filtered milk, complete the offering of this brand that is quickly gaining ground.
Although soft drinks still account for 60% of global sales, Fairlife represents between 4% and 4.5% of the sales mix, according to Morgan Stanley. "We believe Fairlife's business is underestimated and can significantly boost the stock's value," analysts noted. They also estimate that Fairlife could add between 1% and 1.4% to Coca-Cola's global growth over the next five years.
Coca-Cola's own CEO, James Quincey, confirmed that Fairlife was "the number one brand in contributing retail revenue in the first quarter," during the first quarter earnings call. In response to strong demand, capacity expansion is already underway, with new plants planned for the end of 2025. The company seems determined to change the rules of the game and leave Pepsi further and further behind.