While our estimate for the Coke brand accounts for about 27% of the $56 Trefis price estimate for Coca Cola’s stock, we estimate that the Pepsi brand contributes only about 5% to our estimate for PepsiCo’s stock. Below we discuss the primary reasons for low contribution of Pepsi to PepsiCo’s stock.
Snacks Constitute Majority of Revenues for PepsiCo
Although PepsiCo is widely known for its soft drinks globally, most of its revenues come from packaged snacks. Around 64% of PepsiCo’s revenues in 2009 came from snacks. We estimate that snacks sold under Frito Lay brand alone contribute about 50% to PepsiCo’s stock. In comparison, beverages accounted for only 36% of PepsiCo’s revenues in 2009 with the major contributing brands being Gatorade, Tropicana, Pepsi and Aquafina.
Despite Higher Volumes, Carbonated Soft Drinks Make Up Only 40% of Beverage Revenues
About 65% of PepsiCo’s beverage volumes can be attributed to carbonated soft drinks. However, these beverages tend to be priced at lower rates compared to non-carbonated beverages like fruit juices, energy drinks, ready-to-drink beverages and bottled water. Higher prices for such beverages can be attributed to higher production costs as well as their premium image aided by demand from health conscious consumers.
We estimate that revenue per case for Pepsi in the US was a little more than $1.40 in 2009 compared to $3.20 for Tropicana. Revenue per case refers to the amount that PepsiCo gets for sale of 192 oz of final product.
Pepsi’s US Market Share Has Declined and International Presence is Limited
PepsiCo’s volume market share in the US declined from about 11% in 2005 to about 10% in 2009. This is primarily due to competition from niche brands and increased health awareness among consumers that has favored the diet or low-calorie brands of competing players.
You can modify our forecast below to see how PepsiCo’s stock could be impacted if its market share declines in the US carbonated soft drink market were to continue.
Although Pepsi’s market share within the international carbonated soft drinks market has increased in recent years, it still stands at a paltry 5.8% compared to 22% for Coke as per our estimates. This makes Pepsi more dependent than Coke on the US market which is increasingly becoming health conscious.
Disclosure: No positions