Coca-Cola vs. Pepsi's Business Models: What's the Difference?

Coca-Cola vs. Pepsi's Business Models: An Overview

Coca-Cola Co. (KO) and PepsiCo, Inc. (PEP) are very similar businesses in terms of industry, ideal consumers, and flagship products. Both Coca-Cola and PepsiCo are global leaders in the beverage industry, offering consumers hundreds of beverage brands. In addition, both companies offer ancillary products such as consumer packaged goods.

On the surface, Coca-Cola and PepsiCo have similar business models. However, there are also key differences between how the two businesses operate. Coca-Cola and PepsiCo are fierce competitors that have slightly different approaches to how they attempt to capture market share.

PepsiCo

PepsiCo has created a diverse product line of complementary goods across the food and beverage industries. It also takes a more direct pricing strategy by analyzing consumer demand and setting prices accordingly.

Product Line

With roots dating back to 1898, PepsiCo has built a highly-diversified product portfolio. In 2020, PepsiCo had 23 different brands with over $1 billion of annual sales. Instead of focusing
specifically on the beverage market, PepsiCo has specifically and intentionally
expanded into other consumable markets:

• Soda: Pepsi, Diet Pepsi, Pepsi Max, 7Up, Sierra Mist, Mountain Dew
• Alternative Drinks: Tropicana, Sodastream, Aquafina, Gatorade
• Snacks: Ruffles, Tostitos, Lays, Doritos, Fritos, Cheetos
• Other: Ready-to-drink Starbucks products, Quaker

Though historically associated as a beverage/soda company, more than 50% of PepsiCo's business revenue is generated through its snack product.

Market Presence

PepsiCo sells beverages, snacks, and food all around the world through its seven global divisions.

1. Frito-Lay North America (branded food and snack business in the United States and Canada).
2. Quaker Foods North America (cereal, rice, pasta in the United States and Canada).
3. PepsiCo Beverages North America (beverages in the United States and Canada).
4. Latina America (all products in Latin America).
5. Europe (all products in Europe).
6. Africa, Middle East, and South Asia (all products in Africa, Middle East, and South Asia).
7. Asia Pacific, Australia, New Zealand, and China (all products in Asia, Australia, New Zealand, and China).

In PepsiCo's fiscal year ending 12/25/2021, 60% of net company revenue was generated by the three North America division lines, and the Frito-Lay North America division was responsible for approximately half of the company's operating profit for the year.

Pricing Strategy

Pepsi is an industry price maker, setting its own product rates in accordance with customer demand. Pepsi offers various sizes of bottled at various rates priced according to the number of drinks supplied and consumed for a given area. For example, though Doritos and Tostitos are comparable products, Doritos is a more globally-recognizable brand that may be priced differently based on its popularity. Similar to Coca-Cola, PepsiCo prices are also based on targeted customer demographics. Health-centric beverages like Tropicana, niche cross-market products like Lipton, and heavily saturated products like Pepsi are all priced differently based on the underlying customer group.

Coca-Cola

The Coca-Cola Company is a total beverage company, boasting over 200 different brands of drinks. It has a similar international reach as PepsiCo, though it operates with different market segment groupings. It also approaches pricing its good differently.

Product Line

Over 1.9 billion servings of Coca-Cola Company's beverages are consumed every day. Instead of diversifying across the food, snack, and beverage industries, Coca-Cola has concentrated on building out an empire of drinks. Their product lines include:

• Soda: Coca-Cola, Barqs Root Beer, Sprite
• Water: Dasani, Glaceau SmartWater, and Vitaminwater
• Tea: FUZE, Gold Peak Tea, Honest Tea
• Juices: Minute Maid, Hubert's Lemonade
• Other: Body Armor, Monster Energy, Dunkin' Donuts

Coca-Cola measures operations by dividing its products between sparking beverages (carbonated beverages) and still beverages (non-carbonated products). In Coca-Cola's fiscal year ending in 2020, sparkling beverages represented almost 63% of the company's total bottle/can sales, and 70.6% of bottles/cans sold by volume were sparkling beverages.

Market Presence

Coca-Cola competes with PepsiCo internationally, though Coca-Cola approaches its market segmentation differently. Coca-Cola's operational structure divides operational markets into the four following divisions:

1. North America
2. Europe, the Middle East, and Africa
3. Latina America
4. Asia Pacific

Coca-Cola also created a Global Ventures segment to help new brands scale and identify ways to maximize the scale of select products around the world. This segment contrasts with Pepsi's more segmented approach of geographical divisions.

In addition, Coca-Cola also created the Bottling Investment Group segment to strategically assess how products are bottled, shipped, and stored. While PepsiCo has bottling divisions as well, Coca-Cola's organizational structure varies from PepsiCo by including the bottling division as a top-level segment group.

Pricing Strategy

Coca-Cola has referred to their pricing strategy as "meet-the-competition pricing". The company analyzes the pricing strategies of its competitors, sees where comparable products have been priced, and strives to set their own prices around the same level as their competitors. Pricing to the competition strategies often relies heavier on production excellence, better service, or other marketing elements that attract customers to their products (since pricing will be comparable to the competition).

Special Considerations

Both Coca-Cola and PepsiCo continue to see tremendous market demand. Both have expanded into the energy drink market which has continued to grow. As Americans become more concerned with sugar, chemicals, and the sustainability of packaging, the operations, product lines, and pricing of both companies will be impacted.

Regarding marketing, Coca-Cola was ranked as the #6 ranked brand on Forbes World's Most Value Brands in 2020, while Pepsi was ranked #36. Both companies engage customers by expanding existing product lines with new flavors or health consideration alternatives for their products.

With impacts to restaurants, dining out, consumer preferences, and distribution capabilities, both companies are also emerging from the COVID-19 pandemic. The operating profit of PepsiCo Beverages North America increased 26% from 2020 to 2021, reflecting the resurgence of the post-pandemic environment.