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Why Taco Bell and Popeyes Want to Serve You Breakfast
As a Coca-Cola (NYSE: KO) shareholder, I was quite unnerved by recent talk centering on the issue of a soda tax. I'm sure PepsiCo (NYSE: PEP) shareholders were likewise frightened. According to Bloomberg, President Barack Obama is apparently open to the concept. In theory, funds generated from such a tax could be used to help defray the costs associated with a new health-care paradigm.
Besides raising money, what would be the justification behind such a governmental strategy? Well, excess sugar consumption can be dangerous. It can lead to all kinds of complications. You know the drill: obesity, diabetes, etc. When health issues like those rise, the cost of health care increases as well.
I'm not going to deny that drinking too many sugary beverages is unhealthy. But I do worry about the implications for shareholder value as it relates to this business. Taxing Coke and Pepsi because of concerns over health effects will hurt brand equity, as well as have a direct impact on growth in case volume. The North American market, which has been weak for carbonated sodas, certainly doesn't want another thing to worry about.
Without a doubt, those who own stock in such companies need to keep an eye on this. Hopefully, the government will look to taxing cigarettes and alcohol more heavily. Who could argue with that? Actually, a lot of people would take issue with that suggestion, but when it comes to dangerous products, those two categories should be at the top of the list. I don't think a can of sugar water can compete.
Look, I get that drinking too much Coke is inadvisable. Actually, so do the managements of Coca-Cola and PepsiCo. That's why they've been trying to expand volumes in waters and juices as a way of offsetting lagging growth in their flagship products. The market has already spoken, to some degree, on unhealthy beverages.
What this discussion should tell these companies is that, whether a new tax comes along or not, they need to redouble efforts at marketing the healthier side of their drink portfolios. They shouldn't, however, forget their flagship products, either. At the end of the day, Coca-Cola wants Coke and PepsiCo wants Pepsi to be strong contributors to the bottom line. Those trademarks are important, after all, and can be utilized as drivers for the long term.
I don't believe shareholders should panic. We're hopefully not close to getting a sin tax on cans of sugar. If we do, then projections would have to be adjusted for the businesses involved. We'll just have to see what develops.
Disclosure: I own Coke; positions can change without notice.
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Reader Comments (Page 1 of 1)
9-10-2009 @ 3:06PM
roman said...
Hey Steven buy another stock, taxing sodas is good for America.
9-10-2009 @ 4:54PM
Brad said...
Id rather see people healthier, and health care cost going down. I really don't care about Pepsi or Cokes bottom line, but im sure they will be just fine when everyone is drinking diet.
9-10-2009 @ 4:49PM
Daniel said...
Hey Roman,
Perhaps we should tax anything that is unhealthy. I suppose that would be good for America? Let's make fatty foods so expensive that nobody can afford them. Then we can all be healthy!
Aside from the fact that nobody should have the right to tell me how much of a product to consume (Yes raising a products price is doing exactly this), why should we be targeting sodas instead of other products? While we are running peoples lives we should try and reduce the amount of red meat people eat, and candy they consume. Where do you draw the line?
9-11-2009 @ 12:03AM
Gari said...
Coke and Pepsi are addictive enough, people will keep drinking them, so I wouldn't be worried for the stocks. Anyway, they will expand a lot in poor countries.
And anyway, why buy those stocks? It each investor right to put his (her) money where his (her) ethical concerns are.
But it IS unhealthy, and as cigarette, if you don't ban them totally, let the users pay part of the costs of the consequences of their habits on the overall (bad) health of the US citisens.
9-11-2009 @ 6:57PM
walkersee said...
What about sugar cereal, bakery goods, anything containing sugar, and while they are at it what about all the other snack items fried in oil such as potatoe chips,
corn chips, etc. Just ban all sugar from the US. Why just pick on certain products.
9-12-2009 @ 4:07PM
thedude said...
Why not have excessive taxes on anyone with a BMI exceeding ?%
How about excess taxes on people who have sedentary jobs that may leave them prone to heart disease ? Like US senators and all office workers
Then we need to tax joggers because they might have heart attacks (ala Jim Fixx (sp?) or they may be hit by cars increasing the cost of health care
We need to have more taxes on brick layers beacuse they might drop a brick on their head
We need to tax ballerinas more because they could stub their toes
We need heavier taxes on video games as they may provoke an epileptic seizure or just cause sedentary behavior
Seriously the caffeine in beverages is far worse than the sugar. and the sugar substitutes used in diet drinks is far worse than pretty much anything else you can consume.
They can have my sugar when they pry it from my cold toothless gums. LOL
9-16-2009 @ 4:06PM
Ross said...
I don't see a compelling argument here not to tax these soft drinks. It reads like a kid more concerned about money than anything else. There are at least three paragraphs that convey the same message just with different wording.
"What this discussion should tell these companies is that, whether a new tax comes along or not, they need to redouble efforts at marketing the healthier side of their drink portfolios."
This is exactly what this tax is designed to do.