Why Pepsi's Down While Coke Is Up

  • Share
  • Read Later
Mark Lennihan / AP

(2 of 2)

Maybe Pepsi's spiffy new logo will help restore normal service. The No. 2 sodamaker spent more than $1 million developing its latest look and may soon spend as much as $1 billion changing all its vending machines and global signage to the new design. It's the 11th time in Pepsi's 110-year history that the company has revamped its logo, and the first since 1987. Some have likened the look to President-elect Barack Obama's rising-sun-over-the-horizon campaign iconography. Although there's no evidence that Pepsi modeled its logo on Obama's, the soda giant probably wouldn't mind riding the President-elect's wave of success, particularly his popularity among global youth. (See the Top 10 Super Bowl ads.)

One of the keys to Coke's current strength is its sales growth overseas, particularly in Latin America and emerging markets. Its operating income in Latin America rose 30% in the third quarter, and sales are up 17% in China and 18% in India. Sales fell 2% in North America, while Pepsi's took a 4% drop. Sales of Coke's noncarbonated drinks flattened out last quarter, but Pepsi's sank 5%. (See pictures of the global financial crisis.)

For Pepsi, the good news is that the commodity cycle eventually turns in your favor, and this time it is happening in a hurry. Corn prices were down more than 50% by November from their summer peak. Aluminum prices were down 20%, which makes can stock cheaper, and oil costs have fallen a third. That will help make international expansion less costly.

The industry titans Coke and Pepsi have marketed against each other for decades, but the bitterest new battleground is China. Coke has grabbed about 54% of China's soda market, according to Euromonitor International, while Pepsi has 31%. And Coke is gunning for more. The giant recently moved to acquire one of China's biggest drinkmakers, the China Huiyuan Juice Co., for about $2.3 billion. The deal still requires government approval, but if completed, it would give Coke control of a rising star that has 46% of China's fresh-juice market.

Nooyi, though, is hardly done investing in developing markets. Pepsi announced in September that it would spend $500 million in India over three years to triple its business there. And a month later, Pepsi unveiled plans to invest $1 billion over the next four years to boost production in China as well. "China represents a lot of thirsty individuals," says Jim Gregory, CEO of branding agency CoreBrand. "The opportunity is especially strong when the locally produced products like milk have such terrible quality-control issues. The Chinese will be flocking to American beverage brands for our quality standards alone." They should feel free to choose either one.

Find out 10 things to do with your money.

See TIME's Pictures of the Week.

  1. 1
  2. 2
  3. Next