How Pepsi outgunned Coke

Losing the cola wars was the best thing that ever happened to Pepsi - while Coke was celebrating, PEP took over a much larger market.

Feb 11, 2006 - 09:51
Pepsi beat Coke in December for the first time in their 108-year rivalry, surpassing its nemesis in market capitalization. The great irony of Pepsi's rise is this: It has never sold more soda than Coke, even today.

"Pepsi's been on fire," notes Robert van Brugge, beverage analyst with Sanford Bernstein. Over the past five years its stock has risen more than a third, while Coke's has sunk 30 percent.

Even ten years ago, it was easy to write off PepsiCo as the loser in the cola wars against Coke: the proof was everywhere. The company's profits trailed those of its rival in Atlanta by 47 percent. Its value in the stock market was less than half of Coca-Cola's. Coke's CEO at the time, Roberto Goizueta, was so sure of his company's dominance that he practically dismissed Pepsi, telling FORTUNE, "As they've become less relevant, I don't need to look at them very much anymore."

PepsiCo turned its cola Waterloo into an opportunity to retrench, regroup, and ultimately outflank its old foe. Losing the cola wars, it turns out, was the best thing that ever happened to Pepsi. It prompted Pepsi's leaders to look outside the confines of their battle with Coke.

A decade ago, Coke offered investors a compelling story: a recession-resistant product inexpensive enough that consumers would buy it in good times and bad, but valued enough that they would willingly pay an extra nickel or so above what no-name brands charged.

What Coke investors didn't envision was that an emerging preference for other soft beverages --water, sports drinks -- would fracture demand. Nor did they see that the business strengths that once applied to cola would take hold across a broadened soft drink and snack-food market -- a market that Pepsi, and not Coke, dominated.

External Source - For the complete article click here

Source - CNN