Editor’s note: Food fight, a new Food Dive series, evaluates competing food and beverage companies based on earnings, marketing, transparency, and other relevant factors.
The rivalry between PepsiCo and Coca-Cola is inherent in their signature soda brands, though both are suffering from a growing distaste for soft drinks and facing stiff competition from bottled water and soda alternatives.
CEO Muhtar Kent, Coca-Cola CEO, has cut $3 billion in annual expenses and redirected some of the savings towards marketing and developing new products. Coca-Cola has also started to sell at a higher cost per ounce, reported Bloomberg.
PepsiCo CEO Indra Nooyi employs a strategy built around research and development. It's a significant strategy for Nooyi, who doubled the company's R&D efforts in the nine years she's held the top spot. Plus, the company saved more than $375 million from sustainability initiatives since 2010.
Fortune put PepsiCo at No. 44 and Coca-Cola at 63 on its recent list, and on the heels of recently released earnings reports, Food Dive asks who's winning the war of the soft drinks — and where else are they looking for opportunity?
- Beat Wall Street expectations in its last quarter despite revenue falling to $16.33 billion. Organic revenue rose 7.4%.
- Increased yearly earnings outlook to a 9% bump, from 8% in July (and from 7% before). Its North America snack volume and drinks business enjoyed an uptick thanks to increased pricing, a strategy that's working (though hasn't for all companies, i.e. Smucker).
Noncarbonated beverages are a key category for growth for Coke, made clear by its latest earnings report. The bottled water market is poised to overtake soda, so this uptick in volume marks strength for the company. Coke said foreign currency fluctuations would — more than anticipated — impact year results.
- Sports drinks and tea grew 5% in volume, and packaged water had an 11% increase.
- Overall, Coke posted a 4.6% drop in revenue, though organic revenue grew 2%.
- Diet Coke volume fell 8%, consistent with trends in past quarters.
"[CEO Muhtar Kent] has been working to counter the currency headwinds and declining consumption of soda by trimming $3 billion in annual expenses and plowing some of the savings back into increased marketing and developing new products," reported Bloomberg. "Coca-Cola also is weathering the storm by selling smaller containers of its beverages at higher prices per ounce and revamping its bottling system to improve profitability."
The nostalgia factor is prominent in its "Back to the Future" promotion, and the products quickly sold out but are coming back for (another) limited time. Calling out Coca-Cola in ads, specifically its polar bear and Share-A-Coke campaigns is a show of strength.
As for a show of innovation listen to PepsiCo's Global Beverage Group president Bradley Jakeman who recently said the advertising agency model "is going to break."
"Agencies will continue to see more and more projects leaving them," he added. "They will get a smaller and smaller share of the pie."
Coca-Cola is also taking advantage of the nostalgia trend, re-introducing Surge, following a large social media campaign to bring back the '90s brand.
On an earnings call, Nooyi said, "I think focusing on just (carbonated soft drinks) is a thing of the past." Nooyi has come to the right conclusion: U.S. consumption of soda declined for the tenth consecutive year.
That doesn't mean a shift entirely from soda. The company took aspartame out of Diet Pepsi to appease consumers, but early signs point to the plan backfiring.
"All of PepsiCo's diet soda sales fell 6.6% in the U.S. in the four weeks ended Sept. 19, as the new Diet Pepsi was rolling out nationwide, worse than the 5.7% decline over the previous 52 weeks, reported The Wall Street Journal.
A Coke-funded study from the Global Energy Balance Network said that junk food doesn't cause obesity, and that it can be fought with exercise. This fueled heavy media attention, and CEO Muhtar Kent released a lengthy statement on improving transparency efforts. Large corporations "coming clean" actually altering consumer perceptions is unlikely, especially for a company as prominent as Coke.
Coke is tweaking labels on Vitaminwater to settle a six-year lawsuit, adding "with sweeteners." Alleged mislabeling lawsuits won't go away, though clarifying to consumers what is really in a product is important.
The company has Pepsi beat on water conservation, per Fortune.
The company's experimentation with R&D includes product development of a Deep Ridged chip, a potato chip first made on a 3-D printer, plus a Gatorade pod, a Naked Juice Kale Blazer, and a low-calorie Mountain Dew, according to Fortune.
Keeping an R&D focus is what maintains marketplace relevance.
The newly launched Keurig Kold — of which Coke is a partner — is featuring Coke products, and could reinvigorate soda sales. A turnoff for the new product is its hefty price tag of $299 to $369, though Kent has high hopes.
A key investment opportunity for the company is Chobani. Reuters reported PepsiCo and Coca-Cola were competing for a minority stake, though Coca-Cola has since backed out. PepsiCo with a foothold in the yogurt category puts it in a unique position to leverage Quaker Oats with it.
The company is also expanding its SodaStream partnership, though not a minority stake in the company a la Coke and Keurig. SodaStream will sell Pepsi and Sierra Mist caps on its website and at about 50 U.S. Bed Bath & Beyond locations.
PepsiCo prepped for the growing e-commerce trend by hiring from Wal-Mart former head of mobile and digital. Per eMarketer, food and beverage are 2.4% of the e-commerce retail market this year, though it's growing by about 15% yearly.
The company is ending its Academy of Nutrition and Dietetics sponsorship. Coke, in its transparency push, disclosed that in the U.S., it spent $120 million of funding of scientific research and health and fitness programs since 2010.
The company took a minority stake in Suja, $90 million for 30% of the company. As with rival PepsiCo, diversifying its product category is integral to maintaining its marketplace share.
PepsiCo is the overall winner here. Its diversity of brands in today's market shows it is poised for more growth potential across the food and beverage industry.
Both companies are implementing different strategies to stay relevant to today's consumer. Each company is shifting its product focus and retooling brands, though it's noticeable Pepsi’s snack category gives it an edge in terms of product positioning. The companies remain iconic for now, though the next few years will be a real test as consumer demands threaten traditional soda consumption and culture.