Editor's Note

Right choice?

Having a smart competitor in Coca-Cola only makes comparisons odious and life tougher for PepsiCo

It was no mean task to beat Coca-Cola to a growth market. Like most smart companies around the world, Pepsi’s strategy was always to hit markets where its arch-rival and nemesis had not strengthened its hold. This way it had a new segment of buyers all to itself. By virtue of its first-mover status, Pepsi had a four-year advantage over Coca-Cola when it entered India in 1989. Pepsi’s then-bandied “choice of the new generation” tagline also resonated well. But over the past decade — actually more — Pepsi’s growth strategy has been a matter of hot debate. And of late, Pepsi head honcho Indra Nooyi has come under immense criticism globally, as the company’s core cola business flounders.

Back home, PepsiCo India’s beverages business is growing but Coca-Cola seems to be scoring better. Pepsi’s syrupy bottom-of-the pyramid strategy is yet to prove itself. The company may be moving from a position of strength in the foods business, but this segment is highly competitive and loaded with challenges. Keep aside branding and marketing, issues such as sourcing, cost management and having to deal with multiple competitors just add to the complexity.

None of this would be questioned if it was certain the move would pay off. Having a smart competitor in Coca-Cola only makes comparisons odious and life tougher for PepsiCo. Granted, the growth rate in the foods business looks more promising than in carbonated drinks, but is that growth as profitable? For corporate captains, especially when your existing business is one that offers high return on equity, the decision to spread yourself into other, less profitable businesses is never easy. For shareholders, though, the choices are fairly straightforward and simpler — it’s the bottomline that’s key. And they are seldom happy with a strategy that is not yielding immediate results