Coca-Cola vs. PepsiCo: What's the Better Long-Term Play?
Key Points
Coca-Cola focuses solely on beverages, while PepsiCo's business also includes snacks and food.
Coca-Cola runs an asset-light business, giving it greater cash flexibility.
PepsiCo's revenue is consistently about twice Coca-Cola's, but its profit is much lower.
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If you walk into your local grocery or convenience store, you're likely to see tons of Coca-Cola (NYSE: KO) and PepsiCo (NASDAQ: PEP) items. They both have some of the most thorough product portfolios that you'll find from any consumer goods company.
However, if you had to choose one to invest in for the long term, Coca-Cola would be my go-to.
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I would go with Coca-Cola long-term because its asset-light business model gives it higher profit margins and greater cash flexibility. Although consumers buy finished Coca-Cola products, its core business isn't selling to consumers. Instead, most of Coca-Cola's revenue comes from selling concentrates and syrups to independent bottling companies, which then handle the actual product-making and distribution logistics.
By relying on its bottling partners to take on the expensive factories, delivery trucks, and logistics, Coca-Cola can focus on marketing, brand building, and portfolio adjustments. PepsiCo, on the other hand, runs most of its distribution chain. That's why PepsiCo's revenue is sometimes nearly double Coca-Cola's revenue, yet Coca-Cola's net income is routinely higher.
Coca-Cola's dominance in the beverage industry positions it well for rough economic times because it has pricing power to lean on. I trust its long-term reliability more than PepsiCo's, though both have passed the longevity test.
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Stefon Walters has positions in Coca-Cola. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
