PepsiCo made twice as much money as Coca Cola last year - here’s why they’ve overtaken the iconic soft drink brand

For decades Coca Cola has stood as the king of soft drinks. But the iconic brand has been quietly outflanked by Pepsi after making one crucial mistake.

Do you tend to buy Coke or Pepsi? Me, I tend to buy Coke, although I certainly don’t claim to be able to taste the difference. The power of advertising I guess?

That Coca Cola brand is very strong. So I was very surprised to discover that Pepsi is smashing Coke where it matters: in the stock market. Pepsi is fizzing and Coke is flat.

If you bought $1000 of PepsiCo shares ten years ago you’d have turned that into $2040, whereas if you’d bought $1000 of Coca Cola shares you’d have made only $1540.

Pepsi (blue) and Coke (red) stock prices over the last decade. Picture: Jason Murphy

The secret sauce for Pepsi? Not worrying so much about cola. What I discovered when I went looking is that they turned their weakness into a strength. I respect that quite a lot.

For my whole lifetime Pepsi was getting killed in the cola wars. Instead of only trying to win a game they were losing Pepsi did something different. They got into food. And ran away with the game.

Pepsi own a lot of food brands.

In Australia they are behind Doritos and Lays, Smiths and Red Rock Deli, four big brands in the chip aisle. Australia buys a lot of chippies (I try to eat healthy but when I slip up you can bet there’ll be some sort of cheesy chip involved). It is no surprise that in the Asia-Pacific region Pepsi makes way more money from food than drinks.

And actually it is now true worldwide. Pepsi makes more from crunching than sipping, as the next chart shows, and that is why they make a lot more revenue than Coke.

Pepsi made twice as much as Coke in 2023. Picture: Jason Murphy (Data: PepsiCo and Coke investor sites)

Coke got so giddy about their triumphs in the brown water game they got outflanked.

There’s a lesson here for all of us: if we’re really good at something, we can focus on that and forget to think about everything else. Coca Cola was so good at selling fizzy water that they forgot about all the other ways a business can be a success.

They are branding geniuses, but they chose to limit their branding successes to liquids.

The future of drinks

Sugar water is pretty much declining as a business in the developed world. We’re more aware than ever of the downsides of sugar. But some of the alternatives to sugar have a bad reputation.

For example, aspartame, one of the sweeteners in Coke Zero, is listed as a possible cause of cancer. Aspartame, aka Sweetener 951, tastes 200 times sweeter than sugar but has almost no calories.

It also breaks down into the amino acid phenylalanine, which is very healthy for everyone except the 0.01 per cent of people who have phenylketonuria. For them phenylalanine is poison, which is why if you look on the label of coke zero (or Pepsi max) it has to say: contains phenylalanine.).

As a result of sugar and sweeteners both having a bad reputation, water is big business. In Australia, Coke’s Mount Franklin brand is a big winner, but worldwide, Pepsi does pretty well globally though with its Aquafina brand.

A lot of people hate the idea of bottled water but I think they miss the point. The product is not just water, it’s the convenience of having water without planning or lugging a bottle around all day. Too many people think of a product as just the product. Often the value of a product is the location the business brings it to.

Coca-Cola Co. and Pepsi Co have been soft drink rivals for decades. Picture: Luke Sharrett/Bloomberg

Function over form

But the fight is not really just between sugar and water. Drinks these days need to do something. They call them “functional drinks”.

If your drink doesn’t have ingredients that affect the human body, you’re probably not going to make it. We buy sports drinks, for example, packed with electrolytes. Energy drinks full of caffeine, and calming teas. Even milk drinks are being advertised as “functional”, via their high protein. In the world of functional drinks Pepsi has Gatorade and Rockstar; Coke has Powerade and Mother.

Neither of them own Red Bull, the big boss of functional drinks, but I bet they’d like to. Will one of the big two buy it out? What’s more likely is it gets snapped up by a snack company.

That’s the model Pepsi has shown works: sip and crunch together.