Long considered one of Warren Buffett's favorite businesses and top holdings, Coca-Cola (NYSE: KO) quenches the thirst of millions of yearning consumers and shareholders. And despite the fierce competition in the nonalcoholic beverage space, the company's iconic brand, global dominance, and extensive distribution network pack a powerful punch.

A refreshing aspect of Coca-Cola is its simple business model. Frequent purchases at low price points represent the lifeblood of Coca-Cola. In his professed love for Coke, Buffett once stated, "[Coke] is a product that has gotten cheaper and cheaper relative to people's earning power over the years." And it shows: The company sells 1.8 billion servings per day. If Coke can flex its pricing power and raise prices by a penny, the company would generate an additional $18 million in revenue in a single day.

Still, despite Coke's past success, demand for its core product, soda, has been declining steadily in the United States. According to industry trade publication Beverage Digest, total sales volume of soda fell in 2011, continuing its multiyear downward trend. Meanwhile, consumption of noncarbonated, nonalcoholic drinks like juices, waters, and teas has been on the rise.

The key to Coke's future lies in the company's ability to diversify its product offerings while expanding even further into lucrative overseas markets. Let's take a more in-depth look to see if Coke is up to the challenge.

Fool contributor Nicole Seghetti owns shares of Wal-Mart Stores and PepsiCo. Isaac Pino, CPA, owns shares of SodaStream. The Motley Fool recommends Berkshire Hathaway, Coca-Cola, Diageo, PepsiCo, and SodaStream. The Motley Fool owns shares of Berkshire Hathaway, PepsiCo, and SodaStream.