Stock of the Week: Pepsi

More money in snacks than soda.

Andrew Willis 20 June, 2022 | 4:58AM
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Andrew Willis: When you see the Pepsi (PEP) name or logo, you probably think of the fizzy competitor to Coca-Cola (KO). But while the company is still a soda giant, more than half of sales and over 65% of profits, by our estimate, now come from Frito-Lay and Quaker products.

While competitor Coke is focused on beverage-specific efficiencies, Pepsi’s strategy is to diversify their junk food business.

By mixing snacks with soda, Pepsi can gain a competitive advantage in a highly consolidated product category, says sector director Erin Lash. Soda and chips are still great friends, which works well for marketing. And the breadth of the portfolio unlocks synergies in distribution that support a cost advantage, especially considering Pepsi owns a large portion of these channels. 

The ability to run your own distribution also means that uneven sales in one among a wide product line can be addressed by changing the product mix going out in trucks, and it makes it easier to onboard acquired brands such as Rockstar energy.

Even if you prefer Coke over Pepsi as a consumer, perhaps you like Frito-Lays or Quaker – and as an investor, you’ll certainly appreciate the company’s market share in snacks that’s now more than 10 times that of the closest competitor.

For Morningstar, I’m Andrew Willis.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar Rating
Coca-Cola Co64.38 USD2.34Rating
PepsiCo Inc169.39 USD1.64Rating

About Author

Andrew Willis

Andrew Willis  is Senior Editor at Morningstar.ca. Follow him on Twitter @AndrewWillisCDN.

 

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