coca-cola-vs-pepsi-business-model

Coca-Cola Vs. Pepsi: Who Has The Best Business Model?

Both companies have massive scale. With Coca-Cola over $35 billion revenue, compared to PepsiCo over $63 billion. Where Coca-Cola has a large chunk of revenues in Europe, Middle East, and Africa. PepsiCo has its primary operations in the US. Coca-Cola is the largest beverage company in the world. PepsiCo got diversified between beverages and food, where food represented 53% of its revenues in 2017. Both companies have massive distribution strategies and nonetheless the size, they have a relatively quick decision-making process. That is critical as both companies top into consumer habits, therefore need to be fast in adapting to them. Both companies also spend massive resources on demand generation via marketing activities.

Why Coke and Pepsi have a different business model

At first sight, Coca-Cola and Pepsi might seem to have a business model which not only are similar but in a way compete with each other. While this is true, it is also true that those companies have two different business model and a portfolio of products that in many cases doesn’t overall. Indeed, we’ll see why, and in which respect Coca-Cola Company and PepsiCo business model are similar and where they differ.

Product: where Coca-Cola is about beverages, PepsiCo is quite diversified 

One aspect in which Coca-Cola and PepsiCo differ quite a lot is in their product offering. Where Coca-Cola is primarily about beverages, PepsiCo is about both food and drink.

coca-cola-system

Coca-Cola Portfolio: from Coca-Cola Annual Report

pepsico-portfolio

PepsiCo Portfolio: from PepsiCo Annual Report

Thus, while Coca-Cola is the largest beverage company in the world, PepsiCo has a vast array of products ranging from food and beverage.

pepsico-financial-metrics

If you look at the mix of revenues of PepsiCo, food represented 53%, while beverage represented 47%.

Therefore, where in the minds of consumer Coke and Pepsi might be perceived as direct competitors, if we look at their business model those look entirely different regarding product offering and mix. Where Coca-Cola is a beverage company, PepsiCo draws its strength from offering snacks, complimentary to soft drinks. This in a way allows PepsiCo to compete to Coca-Cola at a better level. Imagine the scenario of a consumer buying a Coke and a packet of Lay’s potatoes.

Organizational structure: both are large yet efficient

When companies get too big, the risk is that they also get to slow in making a decision. However, for companies, like Coca-Cola and PepsiCo which focus on the consumer markets, it is critical to have a lean decision-making process, where layers of management need to be avoided.

Indeed, where the two companies too slow to adapt to consumer changing habits this would kill the business model in the long run. For instance, both Coca-Cola and PepsiCo, as more consumers perceive their products as unhealthy, they are focusing on diversifying their product portfolio to have more “healthy” choices.

pepsico-change-in-products

 PepsiCo change in portfolio composition 

Distribution strategy: both Coca-Cola and PepsiCo distribution systems are their key advantage

One of Coca-Cola key ingredient is its distribution system made of branded beverages available to consumers in more than 200 countries through a network of company-owned or controlled bottling and distribution operations, independent bottling partners, distributors, wholesalers, and retailers. Coca-Cola has the world’s largest beverage distribution system. Also, PepsiCo has a massive distribution system based on both manufacturing and licensing agreements with several brands.

Both companies know how to tap into consumer habits 

Demand creation is a crucial ingredient for any company that wants to access consumer desires. However, that requires massive marketing resources and campaign to “enhance consumer awareness” which in simple words means generating demands for their product portfolio. Coca-Cola spent over six billion dollars in 2017 for promotional and marketing programs. PepsiCo marketing activities amounted to over four billion dollars. 

This process requires a rigorous brand positioning, developed around consumer insights.

Coca-Cola franchise leadership

Coca-Cola bottling partners is a crucial ingredient in its success. Coca-Cola also designs business models in specific markets to be able to have maximum penetration.

PepsiCo digital strategy

PepsiCo is putting a massive effort in digital strategy to grow their brands. Some of those initiatives include, as reported in PepsiCo financial statements:

  • Frito-Lay North America is using Big Data to help make sure consumers can help find their favorite snacks in local stores
  • In India, PepsiCo set up a Digital Command Center to analyze links between consumer behavior and business results
  • In China, we leveraged social media to launch the latest “Bring Happiness Home” Chinese New Year campaign, including a 20-minute video that generated more than 1 billion views

Those are some of the examples of how PepsiCo is doubling down on those initiatives.

Who has the best business model?

In my opinion, and that is an aspect I like the most about any business model, I like the fact that PepsiCo has a well-diversified portfolio between beverage and food. This allows the company to tap into larger consumer pieces of the market, while it also manages to compete with Coca-Cola at a larger scale. Where a consumer might prefer Coca-Cola beverages over PepsiCo, the company can still leverage on its large snack portfolio to tap into the same segments of the market. PepsiCo is swiftly moving toward “more healthy” choices and digitalization, by leveraging on organic business growth.

References for the article: Coca-Cola Annual Report 2017, PepsiCo Annual Report 2017.

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Gennaro Cuofano

Creator of FourWeekMBA.com | Head of Business Development at WordLift.io | International MBA

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