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Coca-Cola vs PepsiCo

Introducing Head-to-head, your deep dive covering the world’s fiercest corporate competitors all the way from inception to the present day. This week we are comparing two giants from the consumer staples sector…

*Data correct as at 22/06/22

Coca-Cola ($KO) and PepsiCo ($PEP) have not only conquered the $680 billion soft drink industry, but they have also arguably helped shape society and culture as we know it today. Some call it the result of sensational and distinctive branding, others say it is the culturally penetrating advertising that does the trick. Whatever it is, you would be hard-pressed to find a cafe, bar, friend’s fridge, or football match without these two icons in attendance.

Cut From The Same Cloth

The formula of both drinks were invented by American pharmacists. Dr. John Pemberton from Georgia composed Coca-Cola which was first introduced as a bottled medicine in 1886 selling for 5¢ at a nearby Pharmacy. The Coca-Cola Company that we all know and love today, was thereafter officially founded in 1893. Caleb Bradham from North Carolina established a bottled beverage that was first named “Brad’s Drink” back in 1898 and due to its popularity, the Pepsi-Cola Company was incorporated in 1902. Bradham eventually sold the trademark of the company and after a number of different owners, and product readjustments, it finally merged with Frito-Lay in 1965, to become PepsiCo.

The two companies managed to coexist in peace for much of the 20th century. However, around the 1980s, marketing campaigns and notable strategic manoeuvres from both sides brought on the “Cola Wars” causing chaos and ferocious rivalry within the beverage industry.

Fact Drop: The first iterations of both Coca-Cola & Pepsi predate the Wright Brothers first flight (1903), the invention of tea-bags (1904) and the publishing of Einstein’s theory of relativity (1905).

Same Same, But Different

As an industry leader, Coca-Cola knows a thing or two about successful global marketing and operations.

Licensed Bottlers: Using this strategy, the company can take advantage of huge growth opportunities of serving many diverse geographic areas. Coca-Cola manufactures the “magic” syrup, that is thereafter sold to licensed Coca-Cola bottlers, who have territorial agreements in place with Coke. The bottlers mix the concentrate with sweeteners and filtered water. They subsequently distribute the finished product to local retail shops, restaurants, and vending machines.

Fixed Assets Efficiency and Distribution Network: The licensed bottlers blueprint allows the company to be truly global and scalable without having the burden of buying and maintaining local real estate. Since the bottlers are autonomous local businesses, they run all the admin work for Coca-Cola. The company is therefore able to focus on selling more concentrates and further immortalise the brand. As a result, Coca-Cola does not have to specifically deal with licences and engage in local partnership activities with shops and restaurants. Coca-Cola allows 15%-20% margins to retailers, a reasonably adequate amount that promotes a healthy and operational supply chain environment.

For PepsiCo, the fundamental success drivers are quite distinct.

Sustained product innovation: The company invests heavily and tactically in R&D, to come up with new variations of existing goods. For example, PepsiCo’s fellow R&D program launched in 2021 sees the most accomplished PepsiCo scientists conduct visionary research with the goal of creating new food and beverage products. Examples of their R&D results include reduced fat, low sodium, or low saturated fat in their food and beverage products.

Brand pairing: PepsiCo’s utilises its house of brands to great effect in promotional activities. For example, pairing Mountain Dew and Doritos. In the US, 60% of consumers who buy Doritos also add Mountain Dew to their shopping basket. Both are popular brands within the gaming industry, and PepsiCo has partnered with the famed video game company Call Of Duty, to provide exclusive offers and rewards for gamers who love to devour Doritos and Mountain Dew.

Fact Drop: It might sound like something from the latest Netflix original, but in 2007 a former Coca-Cola employee received an eight-year prison sentence for trying to sell confidential documents and samples of products to PepsiCo.

State Of Play

While each company maintains disparate business strategies, they nevertheless share common ground in the sense that their future looks green, sustainable, and ethical. The corporate leaders of both firms are focused on clean water, clean energy, diversity, and human rights – and, of course, selling more of their products.

For the most recent full financial year, PepsiCo reached a total revenue of $79.5 billion, a 12.9% jump from the year prior. During the same period, Coca-Cola brought in $38.7 billion in revenue with a 17.9% jump from the year before. Let’s dive into the data…

*Data correct as at 22/06/22
Fact Drop: With 20% market share and a workforce (79,000) to fill Old Trafford, one might think Coca-Cola is the monster of the pair. Until you realise PepsiCo’s workforce (309,000) exceeds that of the population of Newcastle.

Both Coca-Cola and PepsiCo have built titanic businesses and brands known the world over. And whilst Coca-Cola may have trademarked ‘Open Happiness’, there is little denying that both are ingrained in our psyche as something to make life that little bit sweeter. Would a burger and fries be as delicious without them? Would a movie with popcorn? Would the world be as happy without their presence? For now at least, it seems we’ll never know.

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When you invest, your capital is at risk.