The competition between Coca-Cola and Pepsi has never ceased. In the global cola market, apart from Coca-Cola and Pepsi, almost no third brand is well-known to consumers. For this reason, the moves of these two cola giants are enough to attract market attention. On March 11, PepsiCo (hereinafter referred to as Pepsi) made another major acquisition, announcing the purchase of functional beverage manufacturer Rockstar Energy Beverages (hereinafter referred to as Rockstar) for $3.85 billion (approximately RMB 26.98 billion). Just half a month earlier, Pepsi completed the acquisition of Baicaowei for RMB 5 billion. The acquisition of Rockstar is Pepsi's largest deal since 2018. Pepsi expects this transaction to help expand its share in the energy drink market. In fact, in recent years, Pepsi has never stopped its acquisition spree, targeting multiple sectors. In this regard, it is completely opposite to Coca-Cola's approach. -01- Pepsi Makes Another Move in the Functional Beverage Market Rockstar is a functional beverage company founded in 2001, whose rise is somewhat similar to Pepsi's. At the time, Rockstar's founder, Weiner, discovered that Red Bull was entering many bars in the United States and becoming the preferred choice for mixed cocktails. Weiner saw a business opportunity and decided to create his own functional beverage brand. However, Red Bull already held a significant market share, making it difficult for a new product to enter the market. After careful consideration, Weiner decided that Rockstar would use larger cans than Red Bull while maintaining the same price. This is somewhat like Pepsi's strategy of offering more quantity at the same price. With this move, Rockstar grew rapidly in its first six years. As a cheaper alternative with more flavors than Red Bull, Rockstar's revenue grew at an average annual rate of 103% during its first six years. However, after rapid growth, Weiner's luck seemed to run out between 2007 and 2013, with Rockstar's annual revenue growth gradually slowing to 8%. During this period, another American functional sports brand, Monster, surpassed Rockstar in sales and became the largest functional beverage company in the United States. According to a research report by Market Research Reports, Rockstar held the third-largest market share in the functional beverage category in the U.S. in 2018. According to market research firm Mintel, from 2013 to 2018, total sales of energy drinks and energy shots in the U.S. increased by 29.8%, reaching $13.5 billion in 2019. Euromonitor Consulting data shows that the global functional beverage market has reached RMB 60 billion, with a compound annual growth rate of 15% over the past five years, making it one of the fastest-growing subcategories in the soft drink market. Research data from Allied Market Research predicts that the global functional beverage market will reach $86 billion by 2026. In contrast to the rapid growth of the functional beverage market, the consumption of carbonated beverages has declined, a trend that has already caught the attention of the two carbonated beverage giants. In April 2019, Coca-Cola launched Coca-Cola Energy, marking its first foray into this field with its own brand after acquiring a 19% stake in Monster Beverage. Pepsi was not far behind. In fact, as early as 2009, Pepsi had signed a distribution agreement with Rockstar North America. The acquisition of Rockstar can be seen as Pepsi further advancing its layout in this field. In this regard, PepsiCo Chairman and CEO Ramon Laguarta stated that as Pepsi becomes more consumer-centric and demand in the energy drink sector grows, this acquisition will more fully leverage Pepsi's strengths to promote Rockstar's growth and unlock Pepsi's potential in this category. Pepsi expects to gain an ideal market share in this rapidly growing, high-profit sector and establish new partnerships in the energy drink field. It is reported that in addition to Rockstar, Pepsi's energy drinks will also include Mountain Dew, as well as its Kickstart, GameFuel, and AMP brands. -02- Continuous Acquisitions: Pepsi Expands Its Territory For a company like Pepsi, acquiring functional beverages is timely—after all, it does not conflict with its status as the world's second-largest carbonated beverage producer. In recent years, Pepsi's continuous acquisitions have not been limited to the beverage industry. In 2010, Pepsi acquired 66% of Russian dairy giant Wimm-Bill-Dann for $3.8 billion (approximately RMB 26.63 billion). This acquisition was seen by the industry as a preview of the large-scale acquisitions Pepsi was about to launch. In 2017, Pepsi announced that by 2025, it would increase sales of its high-nutrition products faster than other similar products. Subsequently, Pepsi initiated a series of acquisitions. In May 2018, Pepsi announced the acquisition of vegan snack manufacturer Bare Foods. Although Pepsi did not disclose the specific details of the transaction, CNBC cited sources saying the deal was worth around $200 million (approximately RMB 1.4 billion). It is reported that Bare Foods, founded in 2001, is popular among health-conscious snack consumers. Pepsi was attracted by its products that do not contain artificial flavors, colors, preservatives, or artificial seasonings. In August of the same year, Pepsi acquired SodaStream, the world's largest Israeli soda water maker, for $3.2 billion (approximately RMB 22.44 billion) —a company that produces devices allowing consumers to make sparkling water at home. This acquisition meant Pepsi expanded from bottled beverages and packaged foods to home appliances. In October, Pepsi acquired Health Warrior, a health food company that produces energy bars and other nutritious foods from plant ingredients such as chia seeds and pumpkin seeds. In November, Pepsi acquired British potato chip brand Pipers Crisps. In February 2019, Pepsi acquired Hormel Foods' Cyto Sport sports nutrition business, further expanding its health food and beverage operations. On July 19 of the same year, Pepsi acquired South African food packaging company Pioneer Food Group for $1.7 billion (approximately RMB 11.92 billion). Pioneer Food Group owns brands such as Weet-Bix cereal, Liqui Fruit juice, Sasko bread, and Spekko. On July 26, Pepsi purchased 566.506 million ordinary shares from the original major shareholder of Chinese natural health food company Wumai Grain at HKD 1.8 per share. After the transaction, Pepsi became the second-largest shareholder of Wumai Grain. In February 2020, Pepsi announced the acquisition of 100% equity of Baicaowei held by Haoxiangni. Baicaowei, founded in 2003, is one of China's leading online leisure snack companies. Pepsi stated that Baicaowei's rich product categories, asset-light model, and e-commerce-focused approach are highly complementary to Pepsi's existing business in China. Under the leadership of former CEO Indra Nooyi, Pepsi's main business expanded from cola products to other healthy products such as hummus and kombucha. -03- Coca-Cola Stays Focused on Beverages, Never Losing Its Soul In 1767, artificial carbonation was synthesized. In 1783, the first carbonated mineral water was introduced. Over more than a century, carbonated beverages have changed people's lives and developed into a vast soft drink market. During this period, Coca-Cola became the world's largest beverage company, and its competitor Pepsi also rose to prominence. According to data, Coca-Cola was founded in 1886, and Pepsi-Cola in 1898. For a long time, Coca-Cola gradually dominated the world beverage market with its unique quality. In this process, only Pepsi, after half a century of unremitting efforts, caught up with Coca-Cola in U.S. soft drink sales in 1977. Since then, the two companies have become the two "giants" of the soft drink industry. According to data from Euromonitor International, in 2018, the global carbonated soft drink market reached $313 billion (approximately RMB 2.1946 trillion). Among them, Coca-Cola held a 45.8% market share, which was on the rise; Pepsi-Cola ranked second with an 18.9% market share. But the competition between Coca-Cola and Pepsi has never ceased. In recent years, Pepsi has adopted a diversification strategy and has been actively transforming its health business. It advocates "guilt-free products" and lays out non-carbonated products (grains, fruits, vegetables, etc.). In addition to beverages, it also ventures into food and snack businesses. Pepsi's sales in this segment are almost double its beverage sales. From this perspective, it seems to explain why Pepsi's acquisitions are numerous and diverse. As a leading carbonated beverage company, Coca-Cola is more cautious and focused in its acquisition targets. Its acquisitions are basically within the beverage sector. Coca-Cola's global market share is close to 50%, and it initially sold only cola. For a long period thereafter, Coca-Cola sold almost unchanged cola beverages, supplemented by a few other products. However, in recent years, Coca-Cola's nearly halved net profit and declining revenues forced it to start moving toward becoming a total beverage company in 2016. It is reported that before taking office, Coca-Cola CEO James Quincey stated, "Coca-Cola will always be the soul of the company... but the company needs more than just the core brand." In May 2017, Quincey officially implemented the total beverage strategy. In 2017, Coca-Cola, which had "not touched alcohol" for 125 years, announced it would enter Japan's "Chu-Hi" sparkling sake market, marking its transformation into a total beverage company. In 2018, Coca-Cola accelerated its total beverage strategy, continuously upgrading and expanding its product portfolio through a "lift-transform-scale" model, launching about 500 products globally. In China, Coca-Cola introduced a variety of innovative products, such as Chunchashe sugar-free tea, Sprite Fiber+, Coke Fiber+, Pure Leaf Fiber Water, and Yo Tea series, which were well received by Chinese consumers. On August 31, 2018, Coca-Cola acquired Costa Limited for $5.1 billion (approximately RMB 35.76 billion), entering the coffee business. Facing the strong momentum of the functional beverage market, Coca-Cola began to accelerate its layout. In April 2019, Coca-Cola first launched Coca-Cola Energy in Spain and Hungary. It is reported that the product comes in regular and sugar-free versions, containing naturally extracted caffeine, guarana extract, and vitamin B, with 80 mg of caffeine per 250 ml, more than three times that of regular Coca-Cola, targeting young people aged 18-35. However, carbonated beverages remain Coca-Cola's "ballast." Buffett, when explaining his logic for buying Coca-Cola stock, said: "Because Coca-Cola's focus on cola and carbonated beverages allows people to clearly see its business." Therefore, while investing in more beverage categories, Coca-Cola is also finding ways to make people fall in love with carbonated beverages again. Under Coca-Cola's strategy, in 2018, Diet Coke and zero-sugar products achieved great success in the North American market, with retail sales of Coca-Cola's no-calorie soft drinks increasing by 8%. In the second quarter of 2019, classic Coca-Cola carbonated beverage sales grew 4% year-over-year, while Zero Sugar, launched a year earlier, achieved double-digit global sales growth for the seventh consecutive quarter. Perhaps, for these two giants of the carbonated beverage market, their acquisition strategies reflect their different development directions. It is difficult to make a clear judgment in the short term on whether specialization or diversification is better. Only time will ultimately test their respective choices. Source: China Business Journal, Author: Nian Shuangdu Tips: Once published, a reward of 400-2000 RMB will be paid.