The vast majority of American businesses are locked in fierce competition with one another. However, a handful of companies stand above the fray, shielded from significant competition. That is true of PepsiCo's (NYSE:PEP) Frito-Lay division. Though Kellogg (NYSE:K), Kraft Food (NASDAQ:KRFT), and other competitors may try, no company can unseat Frito-Lay as the snack food king.

Frito-Lay's competitive advantages are especially important as PepsiCo struggles to right its beverage business. In 2013, PepsiCo's North American food operations grew core constant currency operating profit 6%. By comparison, PepsiCo Americas Beverages grew operating profit just 1% on a 3% decline in volume.

Frito-Lay's strength and the beverage unit's weakness have led to calls for PepsiCo to split itself into two companies. However, there are plenty of defenders of the status quo as well.

Shareholders can count on Frito-Lay
Regardless of what happens with the beverage unit, Frito-Lay offers shareholders the promise of predictable cash flow and stable market share. The company has an insurmountable lead over competitors in the snacks business. It owns six of the top eight global snack brands, which have a combined 18% market share. Kellogg and Kraft each have only one brand in the top 10.

Snack Brand

Global Market Share

Lay's (PepsiCo)


Doritos (PepsiCo)


Cheetos (PepsiCo)


Pringles (Kellogg)


Ruffles (PepsiCo)


Tostitos (PepsiCo)


Want Want (Want Want Holdings)


Walkers (PepsiCo)


Planters (Kraft Food)


Jack Link's (Link Snacks)


 Source: Euromonitor International.

Ildiko Szalai, senior analyst at Euromonitor International, told that "in terms of scale, finances, and the marketing machine behind it, PepsiCo is very unique. Anyone coming into the snacks arena to compete with PepsiCo will find it hard."

Frito-Lay's formula for success is threefold: invent as many formats as possible, make as many combination sells as possible, and cater to as many occasions as possible.

Lays Cheddar Sour Cream

Source: Frito-Lay.

In addition, PepsiCo makes combination sells by offering complementary products. For example, it sells Lay's Smooth Ranch Dip and Lay's French Onion Dip to go with Lay's potato chips. Moreover, CEO Indra Nooyi insists that snacks and beverages go together -- making Frito-Lay and Pepsi a value-creating event. In fact, foodservice providers often buy Frito-Lay products because they already purchase PepsiCo's beverages.Frito-Lay accomplishes the first -- invent as many formats as possible -- by introducing new textures and flavors that keep consumers interested. For instance, there are 54 varieties of Lay's potato chips. Lay's come Barbecue flavored, Flamin' Hot, Oven Baked, Kettle Cooked, and in dozens of other varieties.

Finally, PepsiCo caters to as many occasions as possible. People eat snacks all day long, and Frito-Lay is there to feed them. Aside from chips, the company also sells nuts, sunflower seeds, jerky, trail mix, cookies, pretzels, and just about every other kind of snack food there is.

Locking out the competition
Frito-Lay's innovations, combinations, and breadth of products enable it to lock out would-be competitors Kellogg and Kraft.

Kellogg's U.S. snacks business accounts for about one-third of its North American sales. Its portfolio consists of solid brands like Keebler and Cheez-Its. It also acquired the Pringles brand from Procter & Gamble in 2012, giving Kellogg its only top-10 global snacks brand.

Kraft, on the other hand, competes with Frito-Lay primarily in the snack nuts niche. Its Planters nuts brand is a top-10 global brand, even though it is sold primarily in the U.S. Kraft's Enhancers & Snack Nuts segment generates 11.5% of its operating income.

However, with Frito-Lay's strong brands that cater to every snack occasion, Kellogg and Kraft can give up hope of ever becoming a serious threat to the world's salty snacks leader. That is why Kellogg is focused on breakfast cereals and Kraft on beverages, cheese, frozen meals, and other non-snack food items. That's also why PepsiCo shareholders can rest easy knowing that no competitor will knock Frito-Lay out of the top spot.

Long-term investing is easiest when the stocks you own allow you to sleep well at night. Although the beverage unit has had its hiccups, Frito-Lay makes PepsiCo a sleep-well-at-night stock -- one that investors know will still be a market leader 10 and 20 years from now. Sounds like a stock everyone should consider owning.

Did we mention PepsiCo pays a dividend, too?
One of the secrets that few finance professionals will openly admit is the fact that dividend stocks as a group handily outperform their non-dividend paying brethren. The reasons for this are too numerous to list here, but you can rest assured that it's true. However, knowing this is only half the battle. The other half is identifying which dividend stocks in particular are the best. With this in mind, our top analysts put together a free list of nine high-yielding stocks that should be in every income investor's portfolio. Pepsi is one of them. To learn the identity of the other eight stocks instantly and for free, all you have to do is click here now.

Ted Cooper has no position in any stocks mentioned. The Motley Fool recommends PepsiCo and Procter & Gamble. The Motley Fool owns shares of PepsiCo. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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