Pepsi vs. Coca Cola - Case Study Example

Pepsi vs. Coca Cola Introduction: The food and beverage industry is a very competitive industry. This paper aims at studying two giant companies of this industry, i.e. Coca Cola and Pepsi. The paper aims at discussing in brief and comparing the strengths and weaknesses of the companies as well as taking a brief view at the financials of the two companies. The paper also aims at identifying which of the two companies is the stronger one. Before moving into the details it is essential to understand a brief background of the two companies. Overview of Companies: The main aim of this section is to provide a brief overview of the two companies. This section will form the foundation of the research and will assist in development of the comparison between the two companies. a) Introduction to Pepsi Pepsi is one of the leading brands of cola drinks across the world. Pepsi was founded in 1898 when a pharmacist experimented with various juices and syrups and invented the famous beverage Pepsi. With the intense efforts by the company and the highly levels of marketing and advertising, the company became renowned across the world. The company has adopted a number of different strategies for marketing as well as sales and has been able to develop strong brand recognition and brand equity across the globe (Pepsi, 2010). Pepsi owns a major part of the overall markets and the company has been able to build a strong brand image globally. b) Introduction to Coca Cola Coca Cola is one of the leading companies throughout the world. Coca Cola has left a major mark on the industry and is recognized for to be the largest and most famous soft drinks company across the world. The company was introduced in 1886 when the company produced a drink with the ‘Coca Cola’ syrup and carbonated water in Atlanta. However over the years the company has grown to become the world’s largest and most well known companies across the world. Coca Cola has also been able to create goodwill and a trademark for itself. which has become invaluable and the goodwill that the company has been able to create for itself is very high. Coca Cola has been able to use its brand image and to develop and recover from the complete physical property loss that the company had been faced with. The company however with the name that it had created had been able to develop and gain back its position in the market (Coca Cola, 2010). Comparison and Contract of Companies: Both the companies being giants in the industry will be compared and contrasted on three main areas, a) Strengths and weaknesses, b) financial perspectives and c) a comparison of the two companies as competitors. Strengths and Weaknesses Particulars Pepsi Coca Cola Strengths Brand Name Excellent Market and technology knowledge Customer – oriented and relationship selling Strong history and loyal customer data base Unique taste and competitive pricing Brand Name Wide spread market Strong Brand image Excellent Goodwill and Trademarks Wide Product range and large range Weaknesses Declining Franchise System Lack of finances from franchisees Lacking interest of customers in the soft drink sector Lack of strong operations like Pepsi Lack of strong management and strategic planning Lacking interest of customers in the soft drink sector Financial Perspective: Pepsi: Pepsi Co. has seen a high performance over the past few years, however due to the reduced interest of the customers in soft drinks, the company has seen a relative decrease as compared to previous years. The table below provides a clear view of the total revenues of the company over the past four years and also provides a clear view of the overall gross profits. 2005 2006 2007 2008 2009 Total Revenue 32.6B 35.1B 39.5B 43.3B 43.2B Cost of Revenue 13.0B 14.5B 16.7B 18.9B 18.5B Gross Profit 19.5B 20.6B 22.8B 24.4B 24.7B (Source: Wiki Invest, 2010) Considering the financial results as expressed by MSN: Financial Highlights Sales 52.98 Bil Income 6.38 Bil Net Profit Margin 12.11% Return on Equity 36.03% Debt/Equity Ratio 1.21 Revenue/Share 32.9 Earnings/Share 3.97 Book Value/Share 12.6 Dividend Rate 1.92 Payout Ratio 47.00% (MSN Financials, 2010) Coca Cola: The financials of Coca Cola can be found as follows: Sales and Income:   2004 2005 2006 2007 2008 2009 Net sales $21,742 $23,104 $24,088 $28,857 $31,944 $30,990 Net income (profits) $4,847 $4,872 $5,080 $5,981 $5,807 $6,824 Units sold, in billions 19.8 20.6 21.4 22.7 23.7 24.4 (Source: WikiInvest, 2010) Considering the financial highlights of the company, i.e. the financial ratios, it can be found to be as follows: Financial Highlights Sales 32.14 Bil Income 7.58 Bil Net Profit Margin 23.82% Return on Equity 29.24% Debt/Equity Ratio 0.48 Revenue/Share 13.78 Earnings/Share 3.25 Book Value/Share 12.05 Dividend Rate 1.76 Payout Ratio 0.56 (MSN Financial, 2010) It is evident that Coca Cola has comparatively higher net profit margin (23.82 %). Its operations are optimized to a great extent and hence the operating costs are relatively lower. The book value per share and the earnings per share of both the companies do not vary significantly. The debt to equity ratio of Coca Cola is relatively lower than that of the competitor. Hence the company has proportionally lower interest obligations and the income is readily available to the shareholders. Though the revenue per share of Pepsi is significantly higher, the ratio of higher importance, namely the dividend per share is similar to that of Coca Cola. Moreover the pay out ratio is also significantly higher (56 %) indicating that the shareholders are paid higher percentage of profits. This attracts more potential investors which in turn pushes the prices of the stock gradually. Hence the financial performance of Coca Cola can be considered better than Pepsi. Competitor’s Analysis Both Pepsi and Coca Cola have seen equal levels of growth and development in the markets. It is however essential to note that Coca Cola has been able to grow and develop the markets to a great extent and has been able to use its strong marketing strategies to gain a higher competitive advantage. Both the companies have been able to create newer advantages for themselves by cutting out the distribution lines and by reducing the distribution channels. On the whole, both companies are faced with similar competition which includes both local as well as international companies. The two companies although the biggest competitors to each other are still faced with intense competition from other areas as well. Considering the Porter’s five force analysis the companies face high threats from buyers, and substitute products. The companies face low levels of threat from the suppliers and substitute products. Compared to Coca Cola it is to be noted that Pepsi is a relatively more responsible for the large proportion of revenues and also the grocery store channels. Conclusions: Over the past few years the soft drink companies have seen a decline in the overall revenues and sales. With the increased attention to the health and healthier lifestyle, there has been major decline in these companies. Both Coke as well as Pepsi have launched non carbonated drinks however both companies have found a decline in their performance. It is essential to note that Coca Cola has been able to achieve a higher position in the markets compared to Pepsi. In a number of places, although Pepsi has had a first mover advantage, Coca Cola has been able to make much higher business. Pepsi however has been able to make a positive impact by effectively streamlining the route – to – market than Coca Cola. Hence it can safely be said that Coca Cola is a relatively a more successful company and has a higher brand recognition across the globe. References Coca Cola. (2010). Home. Retrieved October 24, 2010, from http://www.coca-cola.com/index.jsp MSN Financial. (2010). Coca Cola. Retrieved October 28, 2010, from http://moneycentral.msn.com/investor/invsub/results/hilite.asp?Symbol=US%3ako MSN Financials. (2010). Pepsico Inc: Highlights . Retrieved October 28, 2010, from http://moneycentral.msn.com/investor/invsub/results/hilite.asp?Symbol=PEP Pepsi. (2010). Legacy Book. Retrieved Octobere 24, 2010, from http://www.pepsi.com/PepsiLegacy_Book.pdf Wiki Invest. (2010). Pepsico (PEP). Retrieved October 23, 2010, from http://www.wikinvest.com/stock/Pepsico_%28PEP%29/Data/Key_Metrics#Income_Statement WikiInvest. (2010). Coca-Cola Company. Retrieved October 21, 2010, from http://www.wikinvest.com/stock/Coca-Cola_Company_%28KO%29 Read More