In the competitive beverage market, the fortunes of Coca-Cola and Pepsi-Cola differ greatly amid the tariff impact. In the longstanding “Cola Wars,” Pepsi-Cola has been unable to compete with Coca-Cola, and its situation regarding tariffs has not seen improvement.
According to The Wall Street Journal, everything hinges on where Pepsi-Cola and Coca-Cola produce the essence of carbonated beverages – the secret concentrate. The concentrate is a crucial intermediary in the production of carbonated drinks, manufactured in specialized equipment and then transported to bottling plants. There, the concentrate is mixed with water, carbonation, and sweeteners to create carbonated beverages.
Over 50 years ago, Pepsi-Cola began producing concentrate in Ireland due to the country’s lower corporate tax rate. Today, Pepsi-Cola’s tax-saving measures have backfired: almost all concentrate for Pepsi-Cola and Mountain Dew sold in the U.S. must pay a 10% tariff.
For decades, Coca-Cola has also produced concentrate in Ireland and shipped it to markets worldwide. However, most concentrate for Coca-Cola’s domestic carbonated drinks is produced in Atlanta and Puerto Rico, meaning Coca-Cola beverages like Sprite are less affected by tariffs.
Public data shows that Coca-Cola and Pepsi-Cola hold around 20% of the global soft drink market, and for nearly a century, no third company has been able to challenge their dominance.
HSBC Bank analyst Carlos Laboy told The Wall Street Journal, “Ireland has enjoyed tax advantages for a long time until the tariffs struck.” He noted that no one anticipated the tariffs, and it is unclear how long they will last, but Pepsi-Cola is currently at a disadvantage.
Additionally, in March, the U.S. imposed a 25% tariff on aluminum imports, which could impact both Coca-Cola and Pepsi-Cola. Coca-Cola CEO James Quincey stated in February that Coca-Cola imports some aluminum from Canada, and this tax may lead to price increases for soda. He mentioned the company could mitigate the impact by increasing plastic bottle packaging or sourcing aluminum from the U.S.
This tariff battle comes at an inopportune time for Pepsi-Cola. Over the past two decades, Pepsi-Cola’s market share in the U.S. has steadily declined, hitting a new low last year as Dr Pepper surpassed Pepsi-Cola to become the second-largest soda brand in America. PepsiCo has long focused on food and energy drinks and is now striving to revitalize soda sales in the U.S.