Soda industry looking like cigarettes: Top analyst

Is the soda business going the way of big tobacco?

That's the alarm being sounded by one of the world's top beverage analysis. Vivien Azer, senior research analyst at Cowen and Company, says soda consumption volumes are starting to look a lot that of cigarettes in the U.S.

(Read: R.J. Reynolds Tobacco Co. names new president)

"While cigarette volumes have been declining for about 35 years now, the soda industry has been suffering from declines over the last decade," Azer said. She noted that as with cigarettes, young people just aren't drinking soda as previous generations did. In 2007, she said, once-per-day youth soda consumption was 34 percent. By 2013, it had fallen to 27 percent. "That does not bode well for the future trajectory of industry volumes," she said.

To offset the threat of declining soda revenues, large beverage companies have been building out their portfolios. Coca-Cola has recently invested in Keurig Green Mountain and Monster Beverage. PepsiCo has been in the snack business in a big way for years, merging with Frito-Lay in 1965.

Today, Coca-Cola's soda business is roughly 60 percent of its revenues. But for PepsiCo, fizzy drinks make up about a quarter of its sales. Yet that doesn't mean Azer thinks PepsiCo can do a good job of diversifying. Like activist investor Nelson Peltz, Azer thinks PepsiCo is better off in pieces.

"We're calling for a breakup on that one because we do think that there is a lack of focus on beverages," Azer said. "Given that Pepsi is operating in such challenged a category, you really need to execute with a lot of precision and great strategic focus in terms of turning around or trying to offset the volume weakness, and we haven't really seen that from Pepsi unfortunately."

(Watch: Cramer's Mad Dash: Clorox & Monster Beverage)

However, PepsiCo's board remains confident of holding the company together, which it calls its "Power of One" strategy , Azer said.

"The board has given CEO [Indra] Nooyi at least a year to prove that the 'Power of One' strategy can work," Azer said. "Looking at the market share trajectory for Pepsi's business though, we don't see a strong inflection point in the trends for the North American beverage business. So if they can't really turn around North American beverages, it's very hard to make the case that the 'Power of One' is actually working."

To see the full interview with Azer on the soda business, watch the above video.

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