The Coca-Cola Company (KO), PepsiCo, Inc. (PEP): Chill Out With These Cola Stocks

In 2010, Coca-Cola bought up the majority of its U.S. bottling operations. PepsiCo also purchased two of its largest independent bottlers in the same year. Coca-Cola and PepsiCo had previously sold its higher margin concentrated syrup to bottlers, which in turn sold the finished product to retail locations. Taking over the bottlers meant absorbing lower margins and higher initial costs due to fixed operations, but also meant that they  could assert direct control over the supply of the drinks and cut costs whenever and wherever necessary.

While this strategy was necessary in leaner times, it bogged down efforts to expand internationally. Therefore, the catalyst that really caused shares of Coca-Cola to really take off after earnings was its announcement that it was ready to grant distribution rights to five independent bottlers in the U.S., reducing its control of the U.S. bottling business from 80% to 75%.

This meant that it was ready to sell its syrup to bottlers again, and start enjoying beefier margins and higher profits.

It’s unknown if PepsiCo will follow Coca-Cola’s example, but I believe that for now PepsiCo will stick with the status quo and grow its snack business along its beverage business, without changing any other bottling arrangements.

The Foolish bottom line

In my opinion, both The Coca-Cola Company (NYSE:KO) and PepsiCo, Inc. (NYSE:PEP) are reliable long-term investments. Their business models are fairly easy to understand, they pay decent dividends, and they have both bounced back from the depths of the full market meltdown in 2009. As the rest of the stock market frets over gold, oil, banks and Apple Inc. (NASDAQ:AAPL), why not sit back, relax, and simply chill out with an ice cold glass of cola (or two)?

The article Chill Out With These Cola Stocks originally appeared on Fool.com.

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