The decrease in CSD consumption growth is pressuring KO to expand into the non-CSD segment. Though KO has increased its non-CSD offerings, traditional soft drinks still dominate its product line, and the company may not benefit from the high growth rates of the non-CSD market as much as its competitors might.
Increasing commodity costs and a weakening U.S. economy will negatively impact Coke's earnings. Coke's second quarter earnings fell 23% largely because of a write-down at it's partner Coca-Cola Entreprises due to increasing costs and weak demand. Soft drinks are not as recession proof as most assume; Coke's margins will remain under pressure as long as North America remains weak and costs keep rising.
"We anticipate that the operating environment, especially in North America, will continue to be challenging as we finish 2008 and move into 2009"- Coke Chief Executive Officer Muhtar Kent, Q3 2008 Analyst Call
Consolidation among food retailers might further reduce KO’s pricing flexibility. As the food retailing industry becomes dominated by fewer and fewer companies, they’re gaining significant power to negotiate for lower prices.