Business overview of Coca-Cola and Pepsi

Business Overview of Coke and Pepsi

PepsiCo is on an upswing, Coca-Cola is headed in the opposite direction. For 2004, Pepsis' net income rose to $457 million, or $1.73 a share, from the previous year's $416 million, $1.50 a share (Pepsi Bottling Group 4Q profit increases). For 2005, Pepsi expects earnings of $1.78 to $1.87 per share. Coca-Cola has not yet released full year 2004 results. However, for the first nine months of the year, its net income declined to $514 million, or $1.09 a share, from the prior year's $545 million, or $1.19 a share (Coca-Cola Enterprises' profit falls). For the full year 2004, Coca-Cola expects earning of $1.21 to $1.25 a share and has recently cut long-term growth targets for operating income to a range of six percent to eight percent from ten percent. Shares of PepsiCo have outperformed those of Coca-Cola for two decades (Twitchell, 2004). In the past five years, Pepsi's stock has returned sixty-nine percent, while Coke investors have lost more than twenty percent of their money.

One might immediately attribute the differences in Coca-Cola's and PepsiCo's financial performance to a change in the cola business, but to do so would be wrong (Twitchell, 2004). On this front, Coca-Cola has been the clear winter, with a nineteen percent market share vs. Pepsi-Co's twelve percent. The problem is that the North American soft drink market is saturated and both companies have had to turn their eye to other areas to grow their businesses (Costello, 2003). For its part, Coke is targeting international growth while PepsiCo is trying to grow it's already highly successful snack business.

Interestingly, ethics has impacted the success of both companies. This isn't to imply that one company is more ethical than the other, but that certain business dynamics have caused one company to be more adversely effected. In fact, both companies have extensive written rules of business conduct and a mission statement that incorporates ethics. PepsiCo's mission statement reads as follows (PepsiCo worldwide code of conduct):

Our mission is to be the world's premier consumer products company focused on convenient foods and beverages. We seek to produce healthy financial rewards to investors as we provide opportunities for growth and enrichment to our employees, our business partners and the communities in which we operate. And in everything we do, we strive to act with honesty, fairness and integrity."

In comparison, Coca-Cola's mission reads (Coca-Cola 2003 annual report):

Our Company articulates its mission as a promise: Our Company exists to benefit and refresh everyone it touches. More specifically, through our actions we strive every day to provide quality in the marketplace, enrich the workplace, preserve the environment and strengthen our communities."

Coca-Cola's code of business conduct also states. "Because our success is so closely related to our reputation, it's up to all of us to keep it strong - to act in every instance with honesty, integrity, accountability and respect." (The Coca-Cola Company: the code of business conduct).

Coca-Cola's reliance on the beverage market forced it to raise the bar for marketing to children, more so than PepsiCo. Coca-Cola president Jeffrey Dunn admitted that his company had went too far in its efforts to reach the youth market, stating, "Companies that have considered schools as a marketing opportunity need to reconsider. The pendulum has swung too far." (Coke announces plan to alter school vending program in bid to curb the commercialization of schools) Coca-Cola had signed distribution deals that often contained exclusive marketing contracts with schools in exchange for provided them with badly needed funds. As obesity became a hot top, outcry from parents, educators and government institutions began to criticize these arrangements. Coca-Cola has also been rebuked for its Harry Potter promotional advertising campaign, the costliest movie tie-in ever, that promotes children's literacy while simultaneously pushing Coke sales (Baue, 2002).

In 2003, the Centre for Science and Environment (CSE) said soft drinks sold by Coca-Cola and PepsiCo in India contained high levels of pesticides such as DDT and malathion (Coke, Pepsi India deny pesticides in soft drinks).

The independent environmental group said it had found no pesticides in tests of Coke and Pepsi soft drink brands sold in the United States and attributed India's high pesticide residues to the soft drink and bottled water industry's use of an enormous amount of ground water as the basic raw material. For their part, Coca-Cola and PepsiCo denied the reports and resisted efforts government efforts to display on bottles a break down of pesticides and their respective quantities. Here is a case where both companies are exhibiting questionable ethics, but it is a breach that may impact Coca-Cola far more than PepsiCo because of the former's emphasis on international markets and its market leadership in India.