Should Coca-Cola Be Worried About PepsiCo's Deal With Buffalo Wild Wings?

Recently, restaurant chain Buffalo Wild Wings (NASDAQ: BWLD  ) signed a deal with beverage and snack giant PepsiCo (NYSE: PEP  ) , effectively kicking rival Coca-Cola (NYSE: KO  ) out of the popular restaurant chain and onto the curb. A New York Times article cited a better match between Buffalo Wild Wings and PepsiCo's product portfolio, along with PepsiCo's sports relationships fitting well with the male demographic of the popular restaurant chain as reason for the switch. Should Coca-Cola investors be worried? Maybe -- here's why.

More friction on Coca-Cola's revenue


In order to understand how this deal might impact Coca-Cola, you need a rough estimate of its effect on the top line. According to its SEC filings, Buffalo Wild Wings averages about $55,000 per week in sales. Now you take a typical fast casual restaurant bill of $10 per person with a $1.79 of that total coming from a Coca-Cola product representing 18% of the total. You then factor out 3% for water and alcohol sales and you arrive at Coca-Cola sales representing 15% of Buffalo Wild Wings sales or roughly $8,250 per week, and that Coca-Cola keeps 30% of that based on Buffalo Wild Wings' cost of sales.

With the loss of this contract to Pepsi, all of this translates into a estimated weekly revenue loss of $2.3 million per week or $122 million per year for Coca-Cola. This only represents 0.25% of Coca-Cola's 2012 revenue. The impact probably doesn't rank that high considering some of the loss gets allocated to Coca-Cola's bottling partners. However, when you factor in a 20%-per-year revenue growth rate (author's estimate based on historical trends) for Buffalo Wild Wings over the next 10 years, the hit to Coca-Cola's top line adds up to approximately $3.8 billion during that time frame..

Start of a new trend?
Coca-Cola's shareholders will face the apocalypse if larger chains such as McDonald's were to follow in the footsteps of Buffalo Wild Wings. Imagine the impact if Coca-Cola lost access to McDonald's 34,000 restaurants. Coca-Cola already faces headwinds from the healthy-lifestyles movement. Now it needs to grapple with the possibility of losing clientele to PepsiCo. Perhaps Coca-Cola should diversify its business to include snacks as well.

Buffalo Wild Wings understood that Pepsi had a great deal more to offer than Coca-Cola. The restaurant chain realized it could utilize Pepsi's snack offerings, much like Yum! Brands Taco Bell's used its Doritos for the Doritos Locos Tacos. Moreover, Buffalo Wild Wings can introduce a variety of Mountain Dew drinks in its restaurants, the only carbonated beverage with "rising sales" according to The New York Times.

Foolish takeaway
The Pepsi and Buffalo Wild Wings deal should help both companies. It shows the world that Pepsi can still expand in saturated markets and take business from competitors. Buffalo Wild Wings gets access to a popular product portfolio and sports relationships that will allow it to create an enhanced consumer experience.

It's a win-win-lose scenario, with Coca-Cola investors on the losing end. In my opinion, the Coca-Cola system and its stakeholders need to worry.

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Read/Post Comments (8) | Recommend This Article (7)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On December 21, 2013, at 12:47 PM, mayrasidea wrote:

    Not to worry Buffalo Wild wings suck!! Their wings are the worst I've ever had - went there once - won't be back!

  • Report this Comment On December 21, 2013, at 1:41 PM, scannerman wrote:

    Coca Cola has nothing to worry about....

    It's not that I DON'T like pepsi.

    It's if I do drink pepsi; I GET SICK.

    Where I can drink a Case of Cola Coca and It doesn't bother me. And I Don't eat at any place that DOESN'T HAVE COCA COLA.

  • Report this Comment On December 22, 2013, at 9:14 AM, germond wrote:

    My favorite beverage on a hot day by far is Classic Coke. I also like the KO dividend. Cokes are sold in every country in the world except Cuba and North Korea. If they acquire Mondelez as a snack division they will pulverize Pepsico in the global marketplace.

  • Report this Comment On December 22, 2013, at 5:05 PM, dano323 wrote:

    Buffalo Wild Wings is an insignificant fly on the rear end of an elephant.....They do not matter

  • Report this Comment On December 22, 2013, at 9:48 PM, imDanielle2 wrote:

    Love Buffalo Wild Wings but wish they would have gotten Coke products instead.. I guess I will have to order my wings to go and grab my Coke from McD's ... If McD's ever did switch to the "other cola" like the article said I am sure their business would take a major hit!

  • Report this Comment On December 22, 2013, at 10:28 PM, bc3b wrote:

    Who drinks cola at Buffalo Wild Wings?

  • Report this Comment On December 22, 2013, at 11:20 PM, Jeffkory wrote:

    My family don't like pepsi products- when it is all the restaurant has we drink coffee- tea or water and don't go back to the restaurant again. I never heard of BWW but if they come around central florida- we won't go there- We already have several wing joints that have great wings and coke products- Why take a chance on BWW.

  • Report this Comment On December 23, 2013, at 2:05 AM, dangler1 wrote:

    butt -ho low wild-wings suck no one is worried

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