Trade War Impact on "Beverage Giants": Coca Cola is Laughing, Pepsi is Crying

While Coca-Cola's market share is declining, PepsiCo is at a disadvantage in the current trade war.

According to The Wall Street Journal, the crux of the issue lies in the differences in the locations where PepsiCo and Coca-Cola produce their secret formula concentrated syrups.

These concentrated syrups are the essence of soda, typically produced in specialized facilities and then shipped to bottling plants, where they are mixed with water, carbon dioxide, and sweeteners to create the final beverage product.

PepsiCo began producing concentrated syrup in Ireland over 50 years ago, choosing the location due to Ireland's low corporate tax rate.

Now, this tax-saving initiative has backfired, as almost all of the PepsiCo concentrated syrup supplied to the U.S. market is subject to a 10% tariff.

Coca-Cola has also been producing concentrated syrup in Ireland for decades and shipping it to markets around the world. However, the key difference is that the concentrated syrup produced for the U.S. market by Coca-Cola primarily comes from Atlanta, Georgia, and the U.S. territory of Puerto Rico. This means that beverages like Coca-Cola and Sprite are less affected by tariffs.

HSBC analyst Carlos Laboy pointed out that no one could foresee the emergence of tariffs, nor is it clear how long they will last, but there is no doubt that PepsiCo is now at a disadvantage.

The report noted that the trade war comes at an especially inopportune time for PepsiCo. Over the past twenty years, PepsiCo's market share in the U.S. has been steadily declining, and last year it fell to a new low, with Dr Pepper overtaking PepsiCo as the second-largest soda brand in the U.S. After years of focusing on food and energy drinks, PepsiCo is now trying to revive its U.S. soda sales. The new tariffs may make this task even more difficult.

Multiple Industries Facing Trade War Challenges

The impact of the trade war extends far beyond the beverage industry.

In the jeans sector, Levi Strauss sources materials from many countries currently affected by the 10% tariff. Meanwhile, the parent company of Wrangler produces 40% of its jeans and other pants in the Western Hemisphere, including seven factories in Mexico.

Products made by Wrangler in Mexico comply with the USMCA (United States-Mexico-Canada Agreement), thus currently exempt from the 25% tariff imposed by Trump earlier this year on imports from Mexico.

The escalating tariff war may also affect toothpaste manufacturers. Most of the Colgate toothpaste consumed in the U.S. is produced domestically, while some of the toothpaste sold in the U.S. by Procter & Gamble is produced in Mexico