Coca-Cola’s US$7B Fairlife investment thrives as consumer trends evolve

USA – Coca-Cola’s expansion beyond soda is gaining momentum through its US$7 billion investment in Fairlife milk, which has become the company’s fastest-growing U.S. brand. 

A report by Bloomberg indicated that the ultra-filtered milk, known for its high protein content and lactose-free formula, has seen retail sales surge from an estimated US$90 million in 2015 to over US$1 billion in 2022. 

Despite this success, Wall Street remains unconvinced, with Coca-Cola’s overall revenue still heavily reliant on soda sales, which account for about 60% of the company’s total earnings.

Coca-Cola Chief Executive Officer James Quincey emphasized the significance of Fairlife in the company’s strategy to diversify beyond sugary beverages. 

“Fairlife has blossomed into a great business,” he said. 

However, reports indicate that despite this growth, the company’s overall financial performance has been driven more by price increases than by rising sales volumes. In the last quarter, prices rose by 10%, but volume sales declined by 1%. 

Analysts noted that this trend reflects Coca-Cola’s struggle to shift consumer preferences towards healthier options, a challenge also faced by its main competitor, PepsiCo.

Coca-Cola’s investment in Fairlife has proven to be one of its most expensive acquisitions. 

A report by company filings revealed that the company initially estimated it would pay US$320 million in performance-based outlays for Fairlife’s acquisition. 

However, the final cost is now projected to reach US$6 billion, pushing the total price tag of the brand to approximately US$7.4 billion over five years. 

This makes it the largest brand acquisition in Coca-Cola’s 133-year history.

The increasing popularity of Fairlife has been linked to changing dietary trends, including the rise of GLP-1 weight-loss drugs, which encourage higher protein intake. 

Fairlife offers 13 grams of protein per cup compared to the 8 grams found in regular milk, making it a preferred choice for many consumers. 

Bill O’Brien, CEO of Reyes Coca-Cola Bottling, acknowledged the challenge of meeting demand, stating, “I need more supply. I need more supply.” 

This demand has led Coca-Cola to expand its production capacity, with the company recently breaking ground on a US$650 million milk processing plant in upstate New York, set to begin operations later this year.

Fairlife’s journey traces back to Select Milk Producers, a U.S. dairy cooperative that developed an ultra-filtering process to enhance milk’s nutritional value. 

The brand debuted in 2014 as part of a joint venture with Coca-Cola, which initially took a 43% stake before acquiring full control in 2020. 

While Fairlife’s premium pricing has not deterred consumers, the brand faced controversy in 2019 when animal abuse allegations surfaced at Fair Oaks Farms, a facility linked to its supply chain. 

Protests and lawsuits followed, prompting Coca-Cola to sever ties with the farm and settle legal claims.

Despite these challenges, Coca-Cola sees Fairlife as a key driver of future growth. The brand remains available only in the U.S. and Canada, but the company aims to expand its reach, with about a third of U.S. households having already tried it. 

Reports indicate that the transition in leadership, with Tim Doelman stepping down and Becca Kerr taking over Fairlife’s oversight, will be closely watched as Coca-Cola continues its push into the dairy market.

Quincey’s tenure as CEO has been marked by efforts to reshape Coca-Cola’s portfolio amid declining soda consumption. 

Under his leadership, the company has made significant acquisitions, including a US$5.1 billion purchase of Costa Coffee and a US$5.6 billion investment in BodyArmor. 

However, Fairlife has emerged as the most promising venture, helping offset declines in other beverage categories. 

At a recent investor conference, Quincey reaffirmed his confidence in the brand’s potential, stating, “The product is fantastic; the marketing work has been done; the innovation work is done; the capacity is coming online. It’s got tremendous growth prospects.”