When Titans Collide: Coke vs. Pepsi

Coke vs. Pepsi--the age-old debate. While this debate usually revolves around the flavors of these two beverage makers, I am going to take a look at the companies' growth prospects going into 2014. Coca-Cola (NYSE: KO  ) shares are only up a modest 10% year-to-date, while PepsiCo (NYSE: PEP  )  has had a much better year with its shares up almost 20%. So which of these soda titans will have a better 2014 ?

Sales
While on the surface Pepsi and Coca-Cola look like very similar companies, that simply isn't the case. Coca-Cola collects 75% of its revenue from the sale of its carbonated beverages, while Pepsi only makes 25% of its revenue from the sale of carbonated drinks. The bulk of Pepsi's revenue comes from its food division that owns popular brands such as Frito-Lay.

Sales of carbonated beverages in the United States may be affected by anti-sugary drink legislation. Right off the bat it's clear that one company, Coca-Cola, will be more affected by legislation aimed at banning sugary drinks, such as New York's sugary-drink ban. Due to Coca-Cola's lack of diversity in the products it manufactures, which are heavily beverage-related, the company will struggle to bolster sales with American soda demand slowly declining.

Growth 
Pepsi CEO Indra Nooyi announced that soft drink sales have been declining at a 3% annual rate as consumers demand healthier and more natural-seeming options. However, Pepsi's loss in sales of carbonated drinks was covered by the recent surge in its sales of snack products.

Volume in the American, Latin American, European, and Asian food businesses gained about 3%, led by double-digit growth in China, Pakistan, and Turkey. These encouraging pieces of data bolstered Pepsi's sales numbers in the third quarter but really didn't do much for Coca-Cola.

Emerging markets
China is one of the fastest growing snack-food markets in the world. Forbes reported that China will also quickly become the world's largest beverage market, and it may become the largest snacks market in five to 10 years. 

To take advantage of this growth both Coca-Cola and Pepsi have increased their presences in the region. Coca-Cola opened a bottling plant in Myanmar on June 4th. Forbes reported that the company also plans to invest $200 million in Myanmar over the next five years.

Pepsi is getting its foothold in the region through other means. Pepsi's CEO said the company plans to open a manufacturing plant in Myanmar, but until then Pepsi plans to work with local distributors to sell their products and work with local farmers to create a supply of potatoes for chips.

While Coca-Cola seems to have a bit of a head start in Myanmar, its facilities will only help the company gain a share of the region's fast-growing beverage market. Pepsi's approach will create a base from which Pepsi is able to capture market share in both the beverage and snack-food markets. 

Foolish takeaway 
Both Coca-Cola and Pepsi's drink divisions will suffer over the next few years due to declining demand for soda in the domestic market. However, Pepsi will have the upper hand thanks to the diversity of the products it manufactures. Pepsi's popular line of "healthy" drinks, like Tropicana, will also fare well as American consumers demand healthier alternatives to soft drinks.

Because Pepsi will probably be able to offset its weak soft drink sales with increased revenue from snack products, it seems it is in better shape to tackle the food and beverage business in 2014 and beat Coca-Cola in the market again next year. 

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