Coca-Cola is poised to outperform PepsiCo in the fourth quarter, benefiting from a strategy of fewer price hikes which attracted more price-conscious consumers. The dominance shared by Coca-Cola and PepsiCo in the carbonated drinks sector allowed them to implement price increases to counteract higher input costs during the pandemic and maintain profit margins. However, recent data suggests that PepsiCo’s more frequent price adjustments have led to decreased sales volumes, while Coca-Cola has experienced growth.
In November, PepsiCo’s beverage business in the United States saw an 8% decline in units sold, with similar decreases in October and December. In contrast, Coca-Cola experienced a 3% increase in December, compared to 1% in October, according to YipitData. Analysts suggest that PepsiCo may need to reconsider its pricing strategy to avoid further negative volume growth.
Both companies have faced minimal resistance from consumers regarding price increases, but prolonged inflationary pressures have compelled consumers to prioritize spending. During the fourth quarter, PepsiCo implemented an average price increase of 6.2% in the U.S., while Coca-Cola’s increase was 4.5%, as reported by YipitData. In the carbonated soft drinks category, Coca-Cola achieved sales growth of 3.8% in the United States, while PepsiCo experienced a 0.2% decline for the 12 weeks ending December 30, according to NielsenIQ data.
Fundamentally, PepsiCo reported flat organic volumes for fiscal 2022 with an average pricing increase of 14%, while Coca-Cola witnessed volume growth of 5% and an average price mix increase of 11%. Both companies are set to release their fourth-quarter earnings, with Coca-Cola expected to report a 4.7% increase in net revenue to $10.68 billion and an 8.5% rise in adjusted profit to 49 cents per share, while PepsiCo is anticipated to announce a 1.4% rise in net revenue to $28.40 billion and a 2.9% increase in adjusted profit to $1.72 per share.
Wall Street sentiment favours both companies, with a majority of analysts rating their stocks as “buy”. In 2023, Coca-Cola’s shares fell 7.4% and PepsiCo experienced a 6% decline.