Obviously the two companies are different; Coca-Cola (KO +0.56%) is a family of several popular beverage brands, while Walmart (WMT +2.06%) is a consumer goods retailer.
Their fortunes, however, are ultimately tethered to the same market dynamics -- both companies must offer value to value-conscious consumers, and both companies must constantly promote themselves. And, both organizations have typically done a great job on both fronts, similarly rewarding shareholders as a result.
If you've only got room in your portfolio for one of these names right now though, it's Walmart -- probably.
Image source: Getty Images.
Walmart and Coca-Cola, up close and personal
Coca-Cola is the world's biggest and best-known beverage company, while Walmart is the world's biggest and best-known brick-and-mortar retailer. The beverage giant has been around since 1886, and has woven itself into the fabric of our culture. Indeed, it's not unusual to see the Coca-Cola name and familiar red and white logo on home décor, clothing, or Christmas ornaments.
Walmart hasn't been around nearly as long, only opening its first store in 1962, and not becoming prolific until the 1980s. In a way it's also woven itself into the same fabric of our culture, though, operating almost 10,800 stores, nearly half of which are located within the United States. If you live in the United States, there's a 90% chance you live within 10 miles of a Walmart store (when including its Sam's Club warehouses). Roughly 150 million people living in the U.S. buy something from Walmart every week, contributing to its annual revenue on the order of $700 billion.
Both companies continue to improve their top and bottom lines, too, leveraging their reach and established brand names. Notably, Walmart continues to attract higher-income shoppers it didn't prior to the pandemic.
NYSE: WMT
Key Data Points
One of these organizations isn't quite what it seems to be on the surface, however. That's Coca-Cola.
And it matters.
Coca-Cola isn't actually much of a bottler anymore, here or abroad. It instead punts most of its bottling work to third-party partners who handle production as well as distribution. Also bear in mind that while you prominently see its branded sodas on store shelves, that's far from being its only business. Roughly two-thirds of last quarter's $12.5 billion in revenue came from the sale of concentrated flavor syrups to restaurants and similar venues, which mix and serve these beverages in a cup. The Coca-Cola Company is also parent to non-soda brands like Gold Peak tea, Powerade sports drink, Minute Maid juices, Dasani water, and more.
And this is where and why things are starting to get tricky for Coca-Cola, while Walmart just keeps chugging along.
The seemingly little things aren't always little
Coca-Cola isn't built to thrive in the future like it has in the past, for a couple of key reasons.
One of these reasons is changing consumer preference. Although sugary sodas are certainly still marketable, more and more consumers are looking for healthier options. The company is responding to this shift, launching a line of prebiotic sodas -- called Simply Pop -- in February of this year. But Coca-Cola may find it isn't easy to meaningfully break into a new sliver of the market when other, smaller players like Olipop, Zevia, and Poppi have already been around a while and established their own customer bases.
Adding to this challenge is consumers' growing support for smaller brands that offer the authenticity they crave. Although Coca-Cola's marketing approach worked well for decades, well-informed consumers can now recognize a product like Simply (or any of the company's other efforts to remain relevant) are merely corporate-manufactured responses to trends. The Coca-Cola Company's mass-marketing apparatus may not be ready for the next era of marketing, which focuses heavily on social media and word-of-mouth recommendations from real people.
And the other change quietly working against Coca-Cola? Inflation in an environment where consumers as well as bottlers have alternatives.
It's not blatantly obvious, but there are more beverage brands now than there have been in the past. Credit the internet, mostly, which has allowed these small brands to not only connect with consumers, but also sell directly to them, further fragmenting the beverage market. Even restaurants are getting creative, coming up with their own concoctions to compete with the Coca-Cola products they're also serving. It's not clear to what extent -- if any -- these innovations have chipped away at Coca-Cola's dominance. They've certainly not helped.
As for bottlers, when Coke and Pepsi were the only two viable options, partnering with one or the other made sense. These aren't bottlers' only options anymore, however. While they're still two of the best, pressured by ever-rising costs and a Coca-Cola name that doesn't quite have the marketing cache it did in the past, it's conceivable that more and more bottlers could begin pushing back on Coke, questioning the value and cost of these partnerships.
Meanwhile, Walmart continues to sail forward, with no competitors that can match the power of its sheer scale. For perspective, whereas Walmart's same-stores sales in the U.S. last quarter were up 5.3% year over year, rival Target's fell 3.8%, while Coca-Cola's unit volume sales improved a scant 1% for the same three-month stretch.
These seemingly small disparities arguably point to much bigger -- and longer-lived -- underpinnings.
Not a warning -- just a risk/reward-minded choice
Coca-Cola is hardly doomed. And if you need dividend income, this Dividend King is a good one to own, yielding 2.8% based on a dividend that's now been raised for 63 consecutive years. This streak isn't likely to end anytime soon, either.
If you're looking for reliable growth and value-building profits -- and don't need immediate investment income -- Walmart is the better option here and now. Unlike Coca-Cola, consumers as well as its suppliers/partners still have every reason and desire to continue doing business with the retailing behemoth.
