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An Analysis of Coca Cola and Pepsi

Adv Auditing Theory and Application

January 26, 2020

An Analysis of Coca Cola and Pepsi

The History of Coca Cola

Coca Cola is considered one of the pioneers of the drinks and beverages industry in the US. The formula was first created in 1886 by John Pemberton, a pharmacist by profession. He invented the formula which was unique and with no competition in the whole country. In 1889, the unique formula was bought by Asa Candler, who went ahead and incorporated the company in the early 1890s (About us, 2019). Fast forward to 1916, the incorporated company was now able to manufacture a line of its famous bottle that has remained its signature bottle ever since. Robert Woodruff, the company’s CEO in 1920s, focused on the expansion of the company to the overseas and introduced the brand to the Olympics in 1928. It became known to many people and by 1950, the brand was popular not only in the US, but also other areas and regions such as South America (About us, 2019). Following the growing strength of the brand, the company decided to broaden the product portfolio and introduced new flavors in the 1960s such as Fanta, Fresca, and Sprite. The goal was to reach a bigger market and experience a higher level of customer satisfaction. This move was followed by the acquisition of Minute Maid which was entirely a new line of business.

The 1980s saw major changes at the company. Innovation was rapid and new products such as Diet Coke were introduced which became a popular low-calorie drink. The innovation also led to the establishment of the company in other areas such as Europe and Asia. Today, the company has grown and dominated the drinks and beverages industry and is estimated to sell over 1.5 billion servings every day (About us, 2019). Notably, the company focuses on all segments, especially due to its cost leadership and variety of product. However, its profitability levels are facing stiff competition from new entrants that are providing customers with unique flavors and tastes. Coca Cola still dominates due to the strength of the brand and reputation.

A brief History of Pepsi

Pepsico formula that was initially known as Pepsi Cola was first created in 1893 by a pharmacist, Caled Bradham. He used his store as the place for offering servings and could give it names like Brad’s drink. As it became locally popular, he gave it a name and called it Pepsi-Cola. In 1903, Caleb had patented the product and sold soda syrup across the state of North Carolina (About the Company, 2019). By 1910, there were franchisers who were selling the drink in over 20 states. Prior to 1920s, the company changed tactics and resulted in the use of celebrities such as Barney Oldfield to popularize the brand and compete with Coca Cola.

After World War 1, Caleb had forecasted that the sugar prices could continue rising, but fell, leaving him with a sugar inventory that was highly overpriced. The company became bankrupt in 1931 creating a trend where the company went through the hands of several investors. Charles Guth, an investor, bought the company and provided new initiatives that helped revive the brand. During World War 2, the brand was popular among US troops across the globe helping it revive the brand. By the 1960s, the management focused on the baby boomers, who were later called the Pepsi generation. By 1970s, it became a stiff competitor and was poised to replace Coke as the number of one brand in the US. Throughout the 1980s, Pepsi focused on rigorous advertising and diversifying mainly targeting Generation X (About the Company, 2019). Today, the company has diversified the product, hence customers can find a variety of products which promotes its profitability. However, similar to Coca Cola, it is still facing major competitions from new entrants.

A Comparison of Pepsico and Coca Cola

From the above sections, the two companies, compare and contrast. First, both have focused on campaigns that target specific markets such as generation X. This was done through advertising and product diversification in a bid to appeal to certain markets. The two have invested in rigorous advertising with the goal of reaching a wider market. Also, the two companies have created products that target all market segments through pricing. It is a major move for ensuring that a larger market share is attained to drive dominance and profitability. Further, the two companies have invested in expanding to overseas as a means of reaching a global market and help the companies grow.

The two companies contrast, when it comes to strategy and growth. Pepsi has experienced major challenges, including going bankrupt. This led to ownership by several investors who came with new ideas where some worked while others failed. Coca Cola has been consistent mainly due to the introduction of products that did well in the markets. Also, Pepsi has sought endorsements by various parties such as the American Troops and celebrities to promote the brand while Coca Cola mainly focused on dominating its already acquired markets through conventional advertising.

Purpose of Def 14A

Also known as the Definitive Proxy Statement, the form needs to be filed with the SEC and is usually filed by or on behalf of a registrant prior to making a shareholder vote. It is used together with annual meeting proxy and must offer enough information of the security holders to facilitate informed vote by the holders during a meeting or when authorizing a proxy to vote. A proxy must have information on the corporate governance practices.

Auditors of Pepsi and Coca Cola

Pepsico’s financial statements are audited by KPMG and the audit fee for the year 2015 was $22, 641, 000 which was about 0.04% of the total revenues and 0.03% of the total assets. On the other hand, Coca Cola was audited by PWC and the audit fee for 2015 was $38,460,000 which was about 0.03% of the total revenues and 0.044% total assets. The goal of the disclosure is to ensure that investors can evaluate whether the fees will make them question the independence of the auditor. The move promotes transparency.

Internal Control of Financial Reporting

The process is established to ensure there is substantial certainty of the reliability of financial reporting mainly for external purposes. However, inherent weaknesses such as lack of understanding the processes, managerial override, collusion, and human error make the task unreliable (Tysiac, 2014). To address the material weakness, an external auditor can be asked to provide expert opinion.

Coca Cola’s Code of Business Conduct

The main theme is to call for integrity of all the staff working locally and overseas. They need to uphold the company’s core values when meeting performance goals and duties (Code of Business Conduct, 2019). The code is provided in multiple languages to ensure all the staff members are aware of what is expected from them. Any violations of the code will attract penalties in accordance with the company’s policies. However, the code should have entailed the staff members’ role in corporate social responsibility and impacting the lives of others positively.

References

About the Company. (2019, ,May 14). Retrieved from Pepsico: https://www.pepsico.com/about/about-the-company

About US. (2019, November 22). Retrieved from Coca Cola: https://www.worldofcoca-cola.com/about-us/coca-cola-history/

Code of Business Conduct. (2019, December 08). Retrieved from Coca Cola: https://investors.coca-colacompany.com/corporate-governance/code-of-business-conduct

Tysiac, K. (2014). What do public companies disclose about auditor relationships? Journal of Accountancy, 1-13.