No one thought tariffs were going to be easy to deal with, but the volatility of the Trump administration’s signature economic policy is forcing more beverage makers to “reassess” their supply chain strategies, according to BMO Capital’s latest Beverage Industry Quarterly Report.
Major beverage companies, including PepsiCo, Molson Coors, Diageo and The Coca-Cola Company, have been compelled to employ mitigation strategies in key import markets in order to deal with the strained macroeconomic environment.
“Companies with increased exposure to cross-border supply chains and aluminum-heavy SKUs are seeing the greatest impact to margins,” the report said.
In one example, BMO pointed to the 25% tariff on imported aluminum and a 10% tariff on PepsiCo’s concentrate business as a key risk to the company hitting margin goals.
The strain is reflected in the data: Dollar sales were in single-digits for juice, sports drinks, bottled water and carbonated beverages while tea and coffee dollar sales fell 0.4% in the 12-week period ending September 21, according to Circana data provided to BMO.
Volume sales were in the red for all categories besides bottled water (1.7%) and energy drinks (15.3%) during the period.
Despite those headwinds, BMO reported that drink companies are posting organic revenue growth thanks to price structure adjustments, cost management, nearshoring of some suppliers and packaging shifts.
So, where is the beverage industry seeing opportunity?
Many consumers are shifting toward better-for-you products and non-alcoholic alternatives. Volume gains in key categories like health-focused and functional beverages are driving growth while zero-alcohol beer and spirits are “outpacing traditional categories,” the report noted.
Look no further than Recess’ $30 million investment pulled in earlier this week or the $23 million that functional flavored milk and coffee brand Slate landed in September.
Representing this growing demand, BMO cited that publicly-traded better-for-you and functional health drink companies like Bellring, Celsius, Zevia, Oatly and Vita Coco (see below) all outperformed “traditional beverage companies” (Coke, Pepsi, National Beverage Co. and KDP) in stock price performance.