Sun, Jan 01, 2006 - Page 11 News List

PepsiCo ousts Coca-Cola from top spot

BRAND SUPREMACY PepsiCo has finally overtaken its nemesis, Coca-Cola, in terms of market capitalization by keeping in touch with consumers and embracing change

THE GUARDIAN , NEW YORK

A three-wheeled tuk-tuk rides past a Pepsi delivery truck in downtown Vientiane, Laos, yesterday. While rival Coca-Cola relies on its fizzy drinks for 85 percent of its worldwide profits, PepsiCo earns only 23 percent of its profits from the near-stagnant sector.

PHOTO: AFP

The fizzy drink of choice at PepsiCo on Dec. 12 was more likely to have been champagne than cola. By the end of trading on Wall Street that day, the company's market capitalization reached US$98.4 billion -- and the market valued rival Coca-Cola at US$97.9 billion. For the first time in the history of the two companies, PepsiCo was valued more highly than its old arch enemy.

It was chiefly a symbolic shift, but what a symbol -- and one that has persisted over ensuing days. The "real thing" is suddenly second best.

The tussle for supremacy between Coca-Cola and PepsiCo is one of the great rivalries in business. The two firms remain the No. 1 case study for marketing students on how to create a brand mythos around something as humble as brown carbonated water laced with caffeine and vegetable extracts.

They have more recently become case studies for another reason: PepsiCo for its ability to spot consumer trends and adapt its business to a changing climate; Coca-Cola for failing to do the same, perhaps numbed into complacency by its long history as the No. 1 best-selling drink in the world.

In early 2000, Coca-Cola's market capitalization was about US$128 billion, almost three times that of PepsiCo, which was valued at US$44 billion.

Fizzy drinks sales at both firms are flat in developed markets.

The crucial factor in the differing fortunes of the two has been PepsiCo's diversification away from sugary carbonated drinks and the early realization that consumers were worrying more and more about obesity and health.

In 1998 the company acquired the fruit juice business Tropicana. Three years later it won an auction for Quaker Oats, paying US$14 billion and adding the energy drink Gatorade to its portfolio.

Coca-Cola pulled out of the bidding after its independent directors -- including the billionaire investor Warren Buffett -- expressed concerns about the lofty price. That proved to be a poor decision.

Today, PepsiCo has about 81 percent of the fast-growing sports drink market in the US. It has the No. 1 fruit juice brand in Tropicana and the leading bottled water brand in the US, Aquafina.

In the most recent quarter, sales of PepsiCo's non-carbonated drinks grew by 24 percent.

PepsiCo generates about 23 percent of its worldwide profits from the near stagnant carbonated-drinks sector, while Coca-Cola relies on its fizzy drinks for 85 percent of profits.

PepsiCo owns snack foods including Walkers Crisps and Doritos and its diverse range of products, analysts have said, is helping it to gain better leverage with supermarket chains.

Coca-Cola is playing catch-up. In June, it launched its Minute Maid pure juice range in the UK. It has also introduced the Dasani bottled water brand and the Powerade energy drink. Powerade is about one-fifth as big as Gatorade in the US.

When Coca-Cola did eventually launch its bottled water brand in the UK, it met first with derision when the press realized it was distilled tap water and then horror as it was pulled from shelves in a health scare.

PepsiCo shares have risen 14 percent last year while Coca-Cola's fell 1.2 percent.

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