Morgan Stanley (MS) is out with positive comments on the beverage industry, saying it is among the safest places for investors to put money due to the pricing power, post-Covid recovery, and the benign competitive dynamics of the industry.
We certainly agree with that note, but when it comes to the competitive landscape, however, similar to how Costco's (COST) membership business model differentiates it from other retailers, PepsiCo's (PEP) snack business and its powerful margins and cash flow are a significant differentiator vs. Coca-Cola (KO) , Keurig Dr Pepper (KDP) , and Zevia (ZVIA) . We saw that in spaded with the company's June quarter results even as it teased the potential for another round of price increases given higher than usual levels of inelasticity for its products. Also similar to Costco's move into fresh foods, a strategy that keeps customer returning, the same holds true with the snack business at PepsiCo even as it adds healthier for you offerings, which should help it attract spending dollars vs. other snacking companies like Utz Brands (UTZ) .
PEP shares have traded off modestly following the company's recent June quarter earnings, and we continue to see this dividend dynamo company as best of breed. We've built out the position size in recent weeks, and will look to do so in the coming ones as well.