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With sales and profits declining for three consecutive quarters lately and lingering stock price since mid-April, maybe it's time that Coca-Cola (NYSE:KO) start offering its hungry investors something to nosh on. The current strategies of continued advertising, emerging market pursuits and reducing package sizes seem to be having less effect on business results. Elsewhere, PepsiCo (NYSE:PEP) has been narrowing the gap with Coca-Cola, thanks partly to the company's snack-food business that's feeding the growth of its beverage sales.

Activist investor Nelson Peltz has recently suggested that PepsiCo buy Mondelez International (NASDAQ:MDLZ), the snack-food unit spun off earlier from Kraft, to expand the company's snacks offerings. Given the struggles Coca-Cola is having and the threat of a potential move by PepsiCo, Coca-Cola may want to consider teaming up with Mondelez itself to align its beverages with some food offerings and give a boost to its lagging beverage sales.

Coca-Cola recently was in the news for its marketing agreement with California Pizza Kitchen, which calls for the restaurant to exclusively serve Coca-Cola products in all its U.S. locations. It's no surprise that Coca-Cola would like to make its drinks available on someone's food menu. In this country, customers always first order some drinks when they sit down to eat. The current fast-food culture has also made soda drinks such as coke and Pepsi cola the perfect companion beverages for everything from burgers, sandwiches to pizza. Snacks also have a role in daily food consumption, and few can really enjoy a snack without having a soda drink on the side. The opportunity is definitely here for Coca-Cola to sell more drinks if it can complement its beverage business by offering some snack food of its own.

While Coca-Cola is a more recognizable name, PepsiCo has a larger annual sales revenue, $65 billion vs. Coca-Cola's $48 billion in the latest fiscal year, a result of PepsiCo's having an additional snack-food business. If Coca-Cola merges with Mondelez International to include snack offerings as part of its future business, with Mondelez's revenue of $35 billion last year, the combined sales for Coca-Cola and Mondelez would be $83 billion, which is $18 billion more than that for PepsiCo. Without Mondelez, Coca-Cola was $17 billion behind PepsiCo in annual sales. Since a potential tie-up is expected to boost sales of Coca-Cola drinks, combined revenue could be higher than the sum of the parts, potentially resulting in increased future earnings.

In addition to less sales revenue at Coca-Cola, market valuation for the company is also slightly lower than that for PepsiCo. Coca-Cola stock is now trading at about 5.5 times its equity book value, while the price of PepsiCo stock currently is close to 6 times its equity book value. Buying Mondelez, Coca-Cola might be able to increase the market valuation of the combined company. With Mondelez stock currently valued at only 1.76 times its equity book value, post-merger valuation of the combined stock seems to have some upside room if market revaluation of the combined shares tilts towards the higher price-equity multiple now commanded by Coca-Cola stock. While the deal would increase long-term payoff for Coca-Cola investors from better future business performance, it could initially benefit Mondelez shareholders more through higher, near-term stock revaluation.

After more than one hundred years in the making, Coca-Cola one day has to adapt to changing market dynamics and business realities. With today's countless soft drink flavors and brands on the market, a single secret coke formula is no longer a recipe for success and long-term business survival. Facing the possibility of PepsiCo further strengthening its snack-food business, maybe it's time that Coca-Cola makes a real transformation for the first time in a long time. If customers never demanded such a change, shareholders and investors certainly should now. Redefining a business is a matter of having a vision by the management. Advertising and packaging, however impressive they may be, do not count as corporate strategies, without which companies lose their sense of direction.

The opportunity for Coca-Cola to remake itself is here, but it can be gone quickly if the company fails to act. For interested investors, maybe it's time to hold some Coca-Cola shares, and watch for potential actions between PepsiCo and Mondelez. If PepsiCo decided to buy Mondelez, it would be all over for Coca-Cola at least in the short run. If PepsiCo chose to stay within its current business scope, Coca-Cola would have the time to contemplate about whether to make its move. But investors probably shouldn't give Coca-Cola too much time and wait around forever. If nothing happens, at some point investors would have to move on. If Coca-Cola remains a solely beverage company for the future, there'll be unlikely revolutionary business performance by the company, given the highly competitive beverage marketplace.

Source: Coca-Cola Should Consider Offering Snacks To Increase Beverage Sales