Can Coca-Cola Bridge Its Revenue Gap With PepsiCo?

by Trefis Team
+11.66%
Upside
44.88
Market
50.11
Trefis
KO
Coca Cola
Rate   |   votes   |   Share

PepsiCo (NASDAQ: PEP) and Coca-Cola (NYSE: KO) are the two largest non-alcoholic beverage manufacturers in the world with a range of sparkling soft drinks, juices, energy drinks, etc. Trefis details How Revenues For Coca-Coal and PepsiCo Have Trended Over Recent Years in an interactive dashboard, and highlights how PepsiCo’s large Food & Snacks business allows it to generate more than 2x revenues compared to Coca-Cola. Although we expect Coca-Cola to narrow the revenue gap with PepsiCo over coming years, the latter’s more diversified product offering makes it unlikely that Coca-Cola will generate more revenues than PepsiCo under its current business model.

PepsiCo’s portfolio of brands include Frito-Lay, Gatorade, Pepsi-Cola, Quaker and Tropicana. Through own operations, authorized bottlers, contract manufacturers and other third parties, PepsiCo makes, markets, distributes and sells a wide variety of convenient beverages, foods and snacks, serving catering to consumers in more than 200 countries. Peer Coca-Cola’s brands are grouped into the following category clusters: sparkling soft drinks; water, enhanced water and sports drinks; juice, dairy and plant-based beverages; tea and coffee; and energy drinks. Coca-Cola owns and markets four of the world’s top five non-alcoholic sparkling soft drink brands: Coca-Cola, Diet Coke, Fanta and Sprite.

PepsiCo and Coca-Cola Current Revenue

PepsiCo reported $64.7 billion in revenues for fiscal 2018, while Coca-Cola’s revenues were less than half of that at $31.9 billion

Revenues (and % contribution) of individual divisions to the top line of these companies were:

  • Beverages & Concentrates: $30.7 billion (48%) vs $31.9 billion (100%)
  • Food & Snacks: $33.9 billion (52%) vs $0.0 billion (0%)

PepsiCo v/s Coca-Cola: Recent Revenue Trend

  • Between 2016 and 2018, PepsiCo’s revenue has grown from $62.8 billion to $64.7 billion, a growth of 3%.
  • In comparison, Coca-Cola’s revenue has decreased from $41.9 billion to $31.9 billion, a decline of 24%.
  • The vast difference in growth rates is due to Coca-Cola refranchising (converting company owned units into franchisees) its bottling plants, which has led to a steady decline in revenues, which was exacerbated by decreasing demand for carbonated drinks.
  • On the contrary, PepsiCo benefited from growth in its food & snacks portfolio and its acquisition of SodaStream.
  • PepsiCo’s revenue is expected to increase from $64.7 billion in 2018 to $68.6 billion in 2020 – a growth of 6%.
  • With most of its refranchising already done, Coca-Cola’s revenue is expected to increase from $31.9 billion in 2018 to $38.9 billion in 2020 – a growth of 22%.
  • Thus, unlike historical trend, going forward Coca-Cola’s revenue growth rate is likely to be much higher than PepsiCo’s

Below we take a look at the segment-wise comparison for the two companies

PepsiCo v/s Coca-Cola: Beverage & Concentrates Revenue

  • For 2016 to 2018, both companies have seen significantly different growth in the Beverages’ segment.
  • PepsiCo saw its Beverage revenues grow by 1.3% during this period, from $30.3 to $30.7 billion.
  • At the same time, Coca-Cola’s Beverage revenues declined 24% due to sharp drop in bottling revenues, despite revenue seeing a rise in all other operating divisions.
  • Going forward, PepsiCo’s segment revenue is likely to grow by about 12% due to acquisitions, whereas Coca-Cola could see its Beverage revenues grow by 22% till 2020, led by strong performance in the juice and energy drinks category, with bottling revenue also seeing an uptick

PepsiCo v/s Coca-Cola: Food & Snacks Revenue

  • PepsiCo’s Food & Snacks division’s revenue grew from $32.5 billion in 2016 to $33.9 billion in 2018, a growth of 4.5%, which was higher than its Beverage segment.
  • On the other hand, Coca-Cola has still not diversified its offerings in the food segment, with the company solely focusing on beverages.
  • Going forward, food revenue growth for PepsiCo is expected to fall behind beverages (which will see faster growth due to recent acquisitions). On an absolute basis, Food & Snacks Revenue will be at par with that for its Beverages segment, at $34.3 billion by 2020.

Conclusion

  • Though PepsiCo is much larger compared to Coca-Cola in terms of revenue, it has registered decent revenue growth of 3% (2016 to 2018), whereas Coca-Cola saw its revenue base shrink by 24% – making the company less than half the size of PepsiCo in terms of revenues.
  • Despite consumers reducing the intake of carbonated drinks, PepsiCo’s impressive performance can be attributed to its product diversification, with the Frito-Lay brand proving to be its most important segment.
  • On the contrary, with its focus on reducing cost, Coca-Cola’s strategy of refranchising low-margin bottling business took a toll on its revenue base.
  • Going forward, PepsiCo’s revenues are primarily to be driven by beverages whereas food division will grow at a slower pace.
  • However, Coca-Cola, with its strong portfolio of juices and energy drinks, along with tea and coffee business, is expected to narrow its gap with PepsiCo by 2020

 

What’s behind Trefis? See How it’s Powering New Collaboration and What-Ifs

For CFOs and Finance Teams | Product, R&D, and Marketing Teams

More Trefis Data

Like our charts? Explore example interactive dashboards and create your own.

Rate   |   votes   |   Share

Comments

Name (Required)
Email (Required, but never displayed)
Be the first to comment!