Coke vs. Pepsi: Where's the Fizz?
The Coca-Cola vs. PepsiCo rivalry has been around for so long that it's almost an investing cliche. Look at any pair of dominant competitors, no matter the industry, and its natural to think of one of them as Pepsi to the other's Coke.
But the truth is, those two companies don't compete that directly. Last quarter, Pepsi's U.S. drink business only accounted for about a third of its revenue, and even less of its operating profit. Pepsi's snacks and food business is much more important to its bottom line, contributing around 60% of earnings. Some investors have even called for Pepsi to change its name to something more fitting for a snack business than a drink company.
In the beverage arena, where Coke and Pepsi still butt heads, Coke has been adding market share. Last quarter, Coke grew its volume by 1% in North America. That increase was helped along by an 8% jump in its still beverage portfolio, with sales successes in sports drinks, water, and tea. But the company's sparkling beverage business turned in strong results too. In the earnings call, CEO Muhtar Kent put the spotlight on the North American region, which he called "the long-term growth market for our sparkling beverage business."
Pepsi's latest beverage results, on the other hand, were less sparkling. Total volume in the Americas fell by 1 percentage point on the year, thanks to weakness in the carbonated beverage business. But the company has some high hopes to turn the cola business around. As CEO Indra Nooyi recently put it, Pepsi is after "disruptive innovation" in the soda space. It's been investing in new, lower-calorie recipes that avoid the taste associated with artificial sweeteners. If the FDA review process goes well, Nooyi says the advancements "could potentially alter the trajectory of our cola business in a meaningful way."
That kind of talk makes it seem like Pepsi wants to shake up the cola wars again. But it doesn't need a soda revolution to power strong results. After all, Pepsi's food business grew by a solid 8% in North America last quarter. With Pepsi expanding its Doritos megabrand, and Coke winning with Coke Zero, there's no reason that both companies can't succeed at growing their respective businesses.
There is absolutely no question that Coca-Cola has been great to long-term shareholders, but the company faces some new threats to its continued market dominance. We've recently compiled a premium research report containing everything you need to know about Coca-Cola. If you own or are considering owning shares in the company, you'll want to click here now and get started!
The article Coke vs. Pepsi: Where's the Fizz? originally appeared on Fool.com.Fool contributor Demitrios Kalogeropoulos has no position in any stocks mentioned. The Motley Fool recommends Coca-Cola and PepsiCo. The Motley Fool owns shares of PepsiCo. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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