Coke vs. Pepsi… Are the Cola Wars Finally Over?
by Tony D’Altorio, Investment U Research
PepsiCo (NYSE: PEP) is one of the world’s most familiar consumer food and beverage companies, offering brands like Frito-Lay, Gatorade, Tropicana and Quaker.
It’s best known, of course, for is its flagship soft drink brand… and its rivalry with Coca-Cola (NYSE: KO).
The Coke vs. Pepsi conflict raged on for decades across the country on supermarket shelves, fast food restaurants and the like.
Coke always held the bigger market share in this area. But at times, Pepsi – fueled by smarter and more aggressive advertising campaigns – moved ahead.
Many investors believe the cola war is still going strong. But that’s where they’re wrong.
Sure, the TV commercial designed to show that PepsiMax tastes better than Coke Zero rather smacked of the blatant competition in the 1980s and 1990s. But in reality, Pepsi surrendered; the war was lost.
Yet in comes Indra Nooyi, PepsiCo’s CEO as of 2006, and the game completely changes.
A former management consultant, she decided not to duke it out directly with Coke. Instead, she’s trying to redefine the playing field…
Pepsi’s New Strategy: Better-For-You Products
U.S. Consumption of carbonated soft drinks has steadily declined in the past decade.
Part of that comes down to the array of alternative beverages the market now offers. Part of it comes down to health concerns in a nation with an obesity problem.
But rather than buck the trend, Ms. Nooyi seeks to refocus Pepsi. “Lifestyles have changed,” she notes, “And we have to modify our products.”
In that spirit, she’s focusing the company more on water, juices, teas and sports drinks.
Pepsi’s top brands in those areas include Aquafina and Gatorade. And while it trails in soft drink sales, it leads the world in ready-to-drink teas through Lipton, while its Tropicana wins out in juices/nectars.
The company is betting big on creating healthy foods through its Quaker Oats, Gatorade and Tropicana divisions. And it just began the Global Nutrition Group to deliver breakthrough products.
Nooyi says the new Group “is part of our long-term strategy to grow our nutrition business from about $10 billion in revenues today to $30 billion by 2020.
To further that goal, Pepsi hired several well-known nutritionists to direct its efforts at reducing fat, sodium and sugar in its products. Already, Lay’s potato chips have 25% less sodium… and by 2011, they’ll be made from 100% natural ingredients.
As Caroline Levy, a CLSA analyst, noted, “PepsiCo is currently focused on better-for-you” products.
Coke’s Consistent Strategy Wins the Cola War
Meanwhile, Coca-Cola doesn’t seem to care about what Pepsi has accepted. CEO Muhtar Kent not only continues to focus on selling soft drinks globally, but even vows to rebuild Coke sales in the U.S. market.
- And admittedly, Coke’s beverage volume in North America dropped only 2% last year. 2009 was extremely difficult economically on top of a relatively cool summer.
- In comparison, Pepsi’s beverage volume in the same region plunged 8%.
According to Beverage Digest, this makes Coca-Cola brand the uncontested U.S. heavyweight.
Indeed, looking at all carbonated soft drinks, Coke brands commanded 41.9% of the total market last year compared to PepsiCo’s 29.9%.
The same goes for the companies’ flagship brands. Through 2009, Coca-Cola commanded 17% of the U.S. soft drink market; Pepsi held only 9.9%.
And while both brands have been declining, Pepsi is doing so at a slightly faster rate.
Pepsi Admits Defeat… Goes On New Health Kick
As far as Pepsi is concerned, the cola wars are over. It now needs to focus on convincing investors that it has the right focus in this new health kick.
Currently, the Global Nutrition Group is little but a nice marketing tool. Whether Pepsi can really develop healthier foods and drinks while still coming up with new types of chips and soda flavors… well, that’s the question.
It recently reduced the top end of its guidance for earnings growth this year from 13% to 11%. This may be due to increased investment in nutrition… or because of a difficult, competitive global environment.
Coke, among others, continues to steal market share away from Pepsi.
Ms. Nooyi should not neglect the company’s core business. Carbonated beverages still produce much of the company’s sales and for now, they’re still key to Pepsi’s future health.
Good Investing,
Tony D’Altorio
Coke vs. Pepsi... Are the Cola Wars Finally Over?,Any investment contains risk. Please see our disclaimer.
25 Responses to “Coke vs. Pepsi… Are the Cola Wars Finally Over?”
Comments
By submitting your comment you agree to adhere to our Comment Policy and Privacy Policy.
Check out our selection of daily investment research:
 |
 |
The cola wars can not be over for I have been a big part of it for a long time. If you stop the cola wars then i will never drink Pepsi or Coke ever again.
Reply
i like pepsi more than coca-cola.
Reply
Taste your Pepsi, than taste the Coke compare it to the original Coke. The best kind of Coca-Cola is the original from a fountain…the can’s okay too.
Reply
WHYYYYY
Reply
I am gonna have to disagree with that, and here’s why, COCA-COLA IS THE BEST!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!
Reply
Coca-Cola will when this war. Actually, it already won. Coke is the number one pop in the world, and people everywhere enjoy it. Coke has much more advertisements and customers than Pepsi. Coke snuck its way into theaters and into our hearts. Coca-Cola is the cool drink with no alcohol that anyone of any age will enjoy. While Pepsi’s fizz is loosening, Coke’s is just beginning.
But, of all Coke products, the original wins-hands down!
Reply
The best would be to go to the movies, buy a large popcorn with x-tra butter, and a large, fountain, original Coke.
…
Oh, NOTHING beats that!
Reply
pepsi is the best & less risk to diseases.
Reply
Coke and Pepsi have definitive differences in taste and quality. Personally, Regular Pepsi is my preference as Coke tastes like sugar on my teeth. In terms of Diet drinks, I think diet coke tastes like medicine, while diet Pepsi tastes better. My favourite drink in the 90s was Crystal Pepsi, but I don’t see it in Canada any more. However, Pepsi Max with Ginseng is quite good for me now! Until Coke has 100% of the market, the Cola wars are not over!
Reply
Pepsi needs to place more attention to its Frito Lay brands, when people buy coke or Pepsi soft drinks they compliment with chips or cakes. Pepsi shouldn’t worry bout beating coke with soda, let consumer buy coke, but make sure that same consumer drink that coke, with a bag of lays brand chips or cakes. And if the consumer prefers Pepsi, than it’s a complete win for pepsico.
Reply
Do you ever see a coke ad trying to outdo Pepsi? They don’t have to. When you’re the best, it,s a given. Give it up Pepsico. You’ll never be number one. Try a coke and you’ll see.
Reply
Pepsi….for when there’s no Coke.
“The invention of lying”
Reply
Today on twitter people are twitting Coke vs. Pepsi & I got $50.00 voucher for picking Coke so I think the Alpha on this is flawed. Also Coke only sale’s soda as far as I know & what happens when Coke grows to where is can’t expand further world wide. I like Pepsi because they are more diversified & have a lot more room to grow over the next 20 yrs.At least I should hope so.
Reply
I hate the taste of Pepsi..even when I go to KFC(who insists on just selling PEPSI!!!)and I get it with a meal I throw it away..yuck..Coke for me..always and forever!
Reply
Give me Pepsi any day over Coke!!!
Reply
Coke and Pepsi bring out the best in each other. They each push one another to do their best and try new things so dont end the war
Reply
the cola wars are far from over! Both soft drinks are good though I prefer pepsi to coke because coke is just too carbonated
Reply
i like coca cola because they give pure taste me
Reply
pepsi is the bomb
Reply
I prefer Pepsi to Coke cause Coke tastes like pure sugar and is too harsh with it’s carbonation.
Reply
Just going from memory here… But Coke owns Powerade, Minute Maid, Dasani water, and Vitamin Water. To say that Coke isn’t competing in the “healthy” beverage sector is to completely misinterpret the facts.
Reply
I kinda like RC over both of em. lol
Reply
Coke is too strong and Pepsi is too weak/light. RC is just right not too strong and not too weak. Just my opinion.
Reply
If I were to choose between Coke or Pepsi, I would have to say Pepsi hands down. Coca-Cola is used to test/neutralize acid content on battery cables, that to me scares me, this is why, if I had to choose, Pepsi would be the choice between the two. Quite frankly, however, whether the war is won or not, it doesn’t matter to me, as long as there is some type of orange soda to drink, I am fine. (I also prefer other fruity soft drinks, like grape and sometimes strawberry drinks, but that is another story altogether…), anyways, as far as the Coke vs. Pepsi dilemma, GO PEPSI!, As far as the worldwide dilemma in pops/consumption…Sunkist kicks all their butts! (Oh, and Crush/ Orange Slice too
)
Reply
One more thing: If you are going to invest in one of them, it sounds like Coca-Cola would be the better one to invest in, because it sounds like they’re trailing the market in profits against Pepsi. I would check the stats of both of them, however before you make a decision based on investments in any corporation, whatever it be Pepsi, Coca-Cola, Pay-less Shoes, Applebees, etc., check the stock market stats and base them on what you can afford. Then check longevity and stock ups and downs of the business. As far as investing, it is always a risk, but in this case, it sounds like Coca-Cola would be better.
Reply