Global beverage industry: volume pressures ease, focus on costs

The outlook for the global beverage industry remains stable, reflecting a resilient performance and companies' continued focus on reducing capital investments and costs amidst a still difficult consumer environment, Moody's Investors Service said.
Although there are signs that consumer spending trends have started to stabilise or improve, the rating agency does not envisage changing the outlook to positive in the near term.
"Moody's does not anticipate a marked pick-up in demand in 2010, although volume performance should improve after a very challenging 2009. However, regional differences remain: a decline in volumes continues in most mature markets such as the US and Western Europe, whilst Asia and Latin America have shown more resilience, supporting top-line growth for companies exposed to those regions," said Yasmina Serghini-Douvin, a Paris-based Moody's analyst.
Moody's said that Eastern European countries, including Russia, have experienced slower-than-expected economic growth which is projected to gradually recover in H2 2010. The rating agency also notes that business conditions in Japan have stabilised, although domestic growth opportunities in that country remain limited.
Moody's predicts that volumes will likely remain soft in 2010 across all segments of the industry, although volume trends have already reached a trough. The rating agency highlights that governments are seeking to wipe out national deficits via excise duty on alcoholic beverages, and cautions that the tightened regulatory environment in Europe with duty increases on alcoholic beverages since January, will create an additional burden for the industry.
Moody's expects corporate activity to continue across the industry in the next 12 to 18 months, although not on the scale of 2007-2008. Recently, the North American market witnessed significant developments from leading soft beverage companies which led to rating actions. The Coca-Cola Company (rated Aa3, stable) and PepsiCo (Aa3, stable) reshaped their relationships with some of their key bottlers, as well as with others, such as Dr Pepper Snapple. Overall, the beverage companies will maintain prudent financial policies, with moderate returns to shareholders and investments.