PepsiCo recently announced its first-quarter earnings report with higher than expected gains across most of its portfolio. The announcement came as a surprise to many on Wall Street. A week earlier, its chief rival, Coca-Cola, posted a pessimistic revenue report stating that their earnings have drastically decreased as they move into the second quarter.
On the other hand, PepsiCo’s first-quarter growth and performance are expected to last for the foreseeable future due, in part, to its strong snack division. The beverage behemoth boasts iconic snack brands in its portfolio like Lay’s, Cheetos, Doritos, Fritos, Cracker Jack, Rold Gold pretzels, and many others. Breakfast foods, which PepsiCo also has, have also seen an uptick in sales.
According to PepsiCo Vice-chairman and CFO Hugh Johnson, buyer’s spending habits have changed over the course of the COVID-19 pandemic.
“You saw a lot of stocking up on water and Gatorade and things like that. But there’s real consumption changes, in particular in two areas. Number one is breakfast at home. People are eating more pancakes and they’re those products,” Johnson recently told Yahoo Finance.
“Second, people are working from home and they’re tending to graze more during the day. So we have seen real increases in snacking. As a result, that demand is sustaining. The beverage business is more challenging in that regard as the away from home channels have either shutdown and are quite limited,” Johnson said.
The “away from home channels” that Johnson mentions refers to beverages that are sold at events, restaurants, bars, etc. While PepsiCo is only dependent on those channels for a little more than 15% of its total sales, Coca-Cola gets nearly 50% of its revenue from them. Without having any snacks in its portfolio, Coca-Cola is reliant on those sales, and, with the current social restrictions in place, they may not come back anytime soon.
Coca-Cola also acknowledged the shift in buyer shopping patterns since the pandemic began is hurting their revenue.
“In March, as the coronavirus pandemic spread globally, countries meaningfully increased social distancing and shelter-in-place mandates. In markets around the world, the company subsequently saw significant changes in consumer purchase patterns, notably substantial declines in away-from-home channels,” Coca-Cola said in a statement. “In at-home channels, the company witnessed early pantry loading in certain markets, followed by more normalized demand levels, along with a sharp increase in e-commerce.”
Most likely, both companies will come out of the pandemic relatively intact. However, with uncertainty surrounding what will happen next with both the virus and the social guidelines, becoming more diverse in the future might be in the cards for Coca-Cola.
While many businesses around the world have taken extreme hits to their bottom line, some are proving more resilient. Consumer buying patterns are adapting to the new state of the world, and some businesses are benefiting from those changes. This is the second part in a series I’ll be writing this week covering businesses that are performing well during the COVID-19 pandemic.