Coca-Cola Turning Toward Milk

Coca-Cola Co., which has lost a couple of major acquisitions to archrival PepsiCo Inc. in recent weeks as it looks to expand beyond carbonated drinks, is developing milk products for children, analysts said Tuesday.

Douglas Lane, a Merrill Lynch analyst who first heard of the planned milk-based drinks at a Coca-Cola marketing meeting a few weeks ago, said the products would sit on regular store shelves and not require refrigeration.

“They are getting into dairy-based products, which is a new and up-and-coming segment,” Lane said, adding that the company will be marketing “flavored milks.”

Robert Baskin, a spokesman for Coca-Cola, the world’s No. 1 soft-drink company, said Tuesday that it has several “innovation and research projects” underway involving milk and other types of drinks. But he declined to confirm a Wall Street Journal report that it had launched an initiative called Project Mother to market milk products for children up to 12 years old.

The newspaper reported that Coca-Cola was planning to test five milk-based products early next year and would focus on markets with high milk consumption rates, including Europe, Latin America and the United States.

Coca-Cola, which has been struggling to fend off antitrust regulators in Europe and a re-energized PepsiCo in North America, already markets Minute Maid and Fruitopia juice drinks, Powerade sports drinks and Dasani water.

But Lane said the company has been looking to expand into more high-growth, noncarbonated beverage markets for about a year.

Purchase, N.Y.-based PepsiCo has had a string of victories over Coca-Cola in recent weeks that boosted its noncarbonated drinks line.

PepsiCo agreed to buy Quaker Oats Co., with its prized Gatorade drink, after Coca-Cola walked away from takeover talks. PepsiCo also beat out Coca-Cola in the race to buy fast-growing South Beach Beverage Co. and its SoBe line of fruit, energy and tea-based drinks.

Finding new markets is especially crucial for Coca-Cola now. Last week, the company said it would likely report volume growth in the fourth quarter below analysts’ expectations due to softness in several domestic and international markets.

“If Coke can create some new categories while at the same time keeping their focus on carbonated soft drinks, I think that they can still do very well,” said J.P. Morgan beverage analyst John Faucher.

Richard Joy, an analyst with S&P; Equity Group in New York, said a milk product could have other advantages, such as cultivating younger customers.

“If you start kids out on a Coke brand product, they may stay with Coke as they get older,” Joy said.

In New York Stock Exchange trading, Coca-Cola shares rose $1.13 to close at $60.