PepsiCo Takes Beverage War to Coca-Cola's Home Turf

PepsiCo's Spire challenges Coca-Cola's Freestyle in the soda-fountain market. Here's why the move could be good for both companies.

May 31, 2014 at 11:00AM

Coca-Cola (NYSE:KO) and PepsiCo (NYSE:PEP) have been locked in an epic struggle for soda supremacy for more than 50 years. For most of that time, Coca-Cola has maintained an edge over PepsiCo. Over the last three decades, PepsiCo has fallen from a competitive underdog to a distant No. 2 in the soda wars.

However, industry innovation could shake things up again in the soda industry. After both soda giants announced moves into the at-home carbonation market, investors were left wondering what other moves could reignite consumer interest in soft drinks. Now, investors may have their answer.

Pepsi Spire takes war to Coca-Cola's turf
PepsiCo recently unveiled Pepsi Spire, a new drink dispenser that could make the company competitive in a domain long-dominated by Coca-Cola: the soda fountain. Analysts estimate that Coca-Cola has a 70% share of the soda-fountain market. Spire is PepsiCo's answer to Coca-Cola's Freestyle, a touch-screen soda fountain that delivers more than 100 beverage flavors. PepsiCo's Spire also uses touch-screen technology and allows consumers to create more than 1,000 custom beverages by mixing flavors from its portfolio of carbonated and non-carbonated beverages. For instance, customers can mix Mountain Dew and Sierra Mist while adding an extra shot of lemon flavor. This provides greater freedom of choice and creates a new experience with an old product.

Spire And Freestyle

Spire and Freestyle go head-to-head in the soda fountain market

PepsiCo's newest innovation in the soda-fountain market challenges Coca-Cola's dominant grip on the channel. Soda fountains are the primary distribution channel in restaurants, movie theaters, and other non-grocery channels, making them an important point of interaction with customers. If a large number of foodservice operators exclusively install Spire, or install both Spire and Freestyle machines, PepsiCo may put an end to Coca-Cola's soda-fountain dominance.

Spire Tabletop

The tabletop version of Spire takes up far less floorspace than Freestyle

In addition, there is reason to believe that Spire is more attractive to foodservice operators than Freestyle. There are more than 20,000 Freestyle machines in the U.S., and that number will grow as large restaurant chains evaluate the device and add it to their offering. Spire improves upon Freestyle by using hoses connected to bags of syrup instead of cartridges. The cartridges are more expensive than the hose-and-bag system, so fast-food chains and movie theaters can turn a bigger profit with Spire than with the same amount of soda sold via Freestyle.

Spire also offers models that take up less floor space than Freestyle -- a crucial difference for foodservice operators, which aim to use square footage as efficiently as possible. Therefore, Spire may gain even more traction in the market than Freestyle, giving PepsiCo a rare advantage.

A new reason to drink soda
Even if PepsiCo steals fountain share from Coca-Cola, both companies ultimately benefit from the new machines. Regardless of how the market share plays out, Spire and Freestyle could play an important role in both companies' attempts to reignite consumer interest in soft drinks. The futuristic machines increase consumer engagement with the beverages that the traditional soda dispensers are unable to replicate. The new dispensers give consumers a new reason to drink soda -- something that benefits both companies in the long run.

Foolish takeaway
Coca-Cola and PepsiCo are desperate to find new ways to get consumers excited about drinking soda again. Initiatives in the at-home carbonation space will go a long way toward generating new interest in the companies' products, but reinventing the way traditional channels are perceived is even more important for a soda turnaround.

PepsiCo's Spire is an all-out assault on Coca-Cola's most dominant channel, but it may ultimately benefit both companies. Spire offers better economics for foodservice operators and greater variety for consumers than Freestyle offers, but continued innovation by both companies will surely narrow the gap in the years to come. When consumers go into a restaurant and the idea of buying a soda is at the top of their minds, that's when investors will know that the soda business is back on track.

Will this stock be your next multi-bagger?
Coca-Cola and PepsiCo no longer offer the huge upside that can make you rich. Give me five minutes and I'll show how you could own the best stock for 2014. Every year, The Motley Fool's chief investment officer hand-picks 1 stock with outstanding potential. But it's not just any run-of-the-mill company. It's a stock perfectly positioned to cash in on one of the upcoming year's most lucrative trends. Last year his pick skyrocketed 134%. And previous top picks have gained upwards of 908%, 1,252% and 1,303% over the subsequent years! Believe me, you don't want to miss what could be his biggest winner yet! Just click here to download your free copy of "The Motley Fool's Top Stock for 2014" today.

Ted Cooper owns shares of Coca-Cola. The Motley Fool recommends Coca-Cola and PepsiCo. The Motley Fool owns shares of PepsiCo and has the following options: long January 2016 $37 calls on Coca-Cola and short January 2016 $37 puts on Coca-Cola. 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.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.

Compare Brokers