Pepsi Stock Tops Coke in Market Value




A moment in the history of effervescence this week. For the first time ever, the value of Pepsico's stock was higher than Coca-Cola's. There's more at stake here than winning a taste test. To guide us through these high stakes in the cola business, our friend from the world of business, Joe Nocera, columnist for The New York Times, joins us from the studios of WFCR in Amherst.

Joe, thanks for being with us.

JOE NOCERA (The New York Times): Thanks for having me, Scott.

SIMON: Now I guess this doesn't mean that Pepsi Cola outsells Coca-Cola so much as the whole flock of beverages Pepsico makes outsells Coca-Cola's products.

NOCERA: Well, that's right, and not only that, even though it's called Pepsi Cola, the company, it's actually--65 percent of it is snack foods, so what's really outselling Coca-Cola is Frito-Lay and potato chips.

SIMON: Where did Coca-Cola fall short?

NOCERA: They viewed their core brand Coca-Cola as, you know, the pre-eminent drink in the world, and they often used to talk about competing with tap water. You know, why would people drink tap water when they could have a Coke? And secondly, they used some financial gimmickry and tricks in the 1990s to make their numbers under the late Roberto Goizueta, who was, you know, widely heralded as one of the great CEOs of all time. They're paying the price now for both the hubris and the financial gimmickry.

SIMON: How, Joe, exactly?

NOCERA: Two things. Because Pepsi is not so wedded to the carbonated drink, they've been much more ruthless about shedding assets that aren't working, gaining assets that are working--just running a smart business. Coke was late to the game in non-carbonated beverages; they're late to the game in water. And one of the ways they made their numbers in the '90s, Scott, was even though they spun out their bottlers, they still controlled the bottlers, and they basically made their numbers, they made their quarterly earnings by jacking up the price of the concentrate and loading the concentrate onto the bottlers. So the bottlers were struggling while Coke was happily saying, `See, we're great. See, we're great.' So today the bottlers and Coke still have a very difficult relationship, so hence, they struggle.

SIMON: Now Coca-Cola seems to me built its empire years ago on the basis of what many people thought was really a superior tasting beverage, and there was only one beverage. Now, as you point out, how many different beverages do Pepsico and Coca-Cola market?

NOCERA: So Coca-Cola has bottled water, Dasani.

SIMON: Yeah.

NOCERA: It has Minute-Maid. Pepsi Cola has Aquafina, it has Tropicana, it has Gatorade. And so, you know, carbonation is still important to these people, but non-carbonation is more important. And what Pepsi understood before Coke understood was that as we become a country of people who worry more about our health and worry about sugar, carbonated soda has been in decline. In fact, this year I believe for the first time in a very, very long time Coca-Cola will sell less Coke this year than they did last year, and that's almost unheard of. Coke's problem was they spent too many years thinking that people would always love Coke and always want Coke and they can move Coke into any market anywhere and gain market share. And ultimately they've been proven wrong.

SIMON: 'Course, it took 150 years or something. I mean, they still have...

NOCERA: No, no, that's right.

SIMON: Yeah.

NOCERA: But even overseas, which is where the big growth markets are, Pepsi is now outgrowing, as we say in the business, Coke in places like China and India and so on where the growth markets are.

SIMON: The Economist has an interesting editorial this week where they said that maybe Coca-Cola should be satisfied with being second best, at least for the moment because, they say, then they're not such a target.

NOCERA: I don't know how far I'd take that, but Coca-Cola is, you know--what has carried Coke this far? The answer is not so much the taste of the product but the fact that they've been able to turn this into one of the great brands in the world.

SIMON: How much do stock prices affect the overall health of the company, because people aren't going to start having tag days for Coca-Cola, are they?

NOCERA: (Laughs) No, they're going to be fine, and you know what? I actually think that this happens in corporations. The stock is sluggish, it's actually declined quite a bit over the last two or three, four years. But you know, is this the way it's going to be forever? I suspect the answer is no, just as is Pepsi going to be in upswing forever? I suspect the answer is no. I mean, one way to think about this is we're just in one of these cycles where a dominant company is down, a rival is up, and this is the way of the world.

SIMON: Joe Nocera, friend from the world of business, who's a columnist for The New York Times, coming to us through the courtesy of the studios of WFCR in Amherst.

Joe, you're the real thing. Thanks very much.

NOCERA: Thank you, Scott.




