Coca-Cola Collaborates with Constellation Brands to Launch FRESCA Mixed

The Coca-Cola Company (KO) has tapped Constellation Brands (STZ) to create FRESCA Mixed, a line of spirit-based ready-to-drink (RTD) cocktails. The launch is expected in the U.S. later this year.

Fresca is a grapefruit-flavored soda and Coca-Cola’s fastest-growing brand in its U.S. soft-drink portfolio. It has become a popular cocktail mixer.

Constellation Brands produces beer, wine, and spirits. Its products sell under brands such as Corona, SVEDKA, and Modelo. Coca-Cola notes that Constellation Brands’ distilled manufacturing expertise and expansive distribution network make it an ideal partner to bring Fresca Mixed to market.

Diversification

Coca-Cola is seeking to diversify beyond its traditional soft-drink segment and is excited by the opportunities in the alcoholic beverage segment. The deal with Constellation Brands to produce flavored spirit cocktails under the FRESCA Mixed brand marks its latest expansion in this space. In 2018, Coca-Cola launched an alcoholic drink under the Lemon-Dou brand in Japan.

In 2020, the company partnered with Molson Coors (TAP) to produce and distribute Topo Chico Hard Seltzer in the U.S. The product has been a success and has shown Coca-Cola that people are excited to see their favorite beverage brands included in ready-to-drink alcohol products.

Dan White, who heads Coca-Cola North America’s New Revenue Streams unit, commented, “Third-party relationships with licensed alcohol manufacturers show how we are following the consumer, taking an agile, experimentative approach to expanding our brands’ reach based on the evolving landscape.”

The unit helps identify new revenue opportunities for Coca-Cola as the company seeks long-term growth. It supports the company’s efforts to become a beverage provider for all tastes and occasions.

The company sees a huge revenue opportunity ahead for FRESCA Mixed. It says that the adult alternative beverages and ready-to-drink cocktail market is currently valued at $8 billion and is expected to grow 15% over the next three years. The spirit-based ready-to-drink market, which FRESCA Mixed targets, is expected to see volume growth of more than 33% annually by 2025.

Analysts’ Take

Guggenheim analyst Laurent Grandet recently upgraded Coca-Cola stock to a Buy from a Hold. Grandet assigned the stock a price target of $66, which suggests 9.15% upside potential. The analyst mentioned strong emerging markets and a compelling valuation as some of the reasons for his bullish outlook.

Consensus among analysts is a Strong Buy based on 8 Buys and 2 Holds. The average Coca-Cola price target of $63 implies 4.18% upside potential to current levels.

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