Coco-Cola vs. Pepsi: Who Will Win the War Over Hybrid Coffee?

The competition between The Coca-Cola Company KO and PepsiCo, Inc. PEP to grab a bigger share of the U.S. and international cola-coffee market is intensifying.

As the soda market remains glum, these beverage giants could run into new-found popularity in the space of coffee-charged cola drinks, thanks to changing consumer preferences and the ever-growing popularity of coffee.

Can Pepsi Café Beat Coca-Cola’s Cola-Coffee Drink?

PepsiCo’s dive into the cola-coffee market isn’t new. The company may have introduced Pepsi Café, which combines cola with coffee,last month, but this is its third attempt at pushing a coffee drink into the cola world. Pepsi Café will debut in U.S. markets in April 2020.

PepsiCo had introduced Pepsi Kona in 1996 and Pepsiccino in 200, products similar to Pepsi Café. Both failed to gain popularity and were discontinued soon after.

However, Pepsi Café comes with an advantage over its failed predecessors. With Pepsi Café, PepsiCo targets “cola fans, iced coffee drinkers and anyone in need of an extra caffeine boost,” according to Todd Kaplan, PepsiCo’s VP of Marketing.

Changing consumer preferences and demand for more diversification in coffee-infused products are solid factors that could help Pepsi Café build a loyal band of customers with its two upcoming flavors of regular coffee and Vanilla. But it’s doubtful whether the company can bite a share of Coca-Cola’s customer base.

After all, PepsiCo frequently follows its competitors into markets with higher-growth potential, especially Coca-Cola, PepsiCo’s biggest rival. This is evident in the case of the cola-coffee market, after Coca-Cola made a series of highly strategic moves into the segment last year.

Coke Still Has Upper Hand

Coca-Cola first pushed into coffee in 2006 with Coca-Cola Blak, but a disinterested market back then compelled the company to discontinue the brand. However, Coca-Cola Plus Coffee’s successful test-run in Japan convinced the soda maker that the world is finally ready for coffee-blended cola.

Coca-Cola is launching Coca-Cola With Coffee, in three distinct flavors of Vanilla, Caramel and Dark Blend. The ready-to-drink product not only reflects the company’s further move into the global coffee market after the acquisition of Costa Coffee last year for $5.1 billion, but also is a smart move toward integrating coffee within its businesses. The beverage is already available in about 20 countries and is expected to be available in the United States in April 2020.

In fact, Pepsi Café might find it a little difficult to compete against Coca-Cola With Coffee with just two flavors. In addition, given Coca-Cola’s calculated moves in its coffee business, one can speculate that the company has more tricks up its sleeve for its coffee-blended cola drinks.

To further solidify the case, let’s take a look at how the two companies’ shares have performed over the last six months, when both have made significant moves into the cola-coffee market.

Shares of Coca-Cola, which carries a Zacks Rank #3 (Hold), have risen 7.4%, outperforming the Zacks Beverages - Soft drinks industry’s rise of 3.3% over the last six months. Compared to that, shares of PepsiCo have underperformed the aforementioned industry, having risen only 2.3% in the same period. You can see the complete list of today’s Zacks #1 Rank stocks here.

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