Pepsi vs. Coke — the new cola wars are here

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Get ready for a new round of cola wars! Or shall we say tea, water and organic beverage wars?

Pepsi reported its latest results Thursday. And even though it acknowledged “challenges” in its US soda business, Pepsi posted solid sales growth in North America from Lipton and Pure Leaf, LifeWTR and Kevita kombucha and probiotic cleansing drinks.

The company also posted strong gains in beverage sales from China, India, Brazil and other international markets and an increase in revenue from its Frito-Lay snack business, which owns Doritos, as well as its Quaker brand of oatmeal and cereal.

All that added up to a stellar quarter for Pepsi (PEP), which reported sales and profits that topped Wall Street’s forecasts. The stock rose nearly 1% on the news.

Pepsi’s results come just two days after its top rival Coca-Cola (KO) also reported better-than-expected sales and profit, led by the fist increase in volume from the Diet Coke brand in North America in more than seven years.

Coke recently rolled out four new Diet Coke flavors that it clearly was targeting to Millennials — things like Ginger Lime and Feisty Cherry.

Related: Diet Coke’s new flavors are a big hit

So how will Pepsi respond to Coke’s newfound Diet Coke success? Chief financial officer Hugh Johnston said in an interview with CNNMoney that Pepsi is also working on “some things with flavors” for the core Pepsi brands, which he described as a “work in progress.”

But Johnston said its “innovation strategy” — working to develop more non-soda drinks — is paying off too. He pointed to the launch of the company’s new bubly brand of sparkling water, for example.

The sparkling water category is red hot thanks to the success of the LaCroix brand that’s owned by National Beverage (FIZZ). Coke is trying to gain a foothold in this market too. It recently bought the US rights to Mexico’s Topo Chico band.

Pepsi also recently unveiled Tropicana Coco Blends, pineapple and peach passion fruit drinks that also have coconut water. There’s also a new line of organic Tropicana juices for kids that have no added sweeteners or artificial flavors.

But Johnston added that other core Pepsi beverages are getting a new push as well. He said the company has particularly high hopes for its new Gatorade Zero, a version of the sports hydration drink that has no carbohydrates.

“Gatorade Zero is going to be a big winner,” Johnston said.

Pepsi also just rolled out Mtn Dew Ice, a clear lemon-lime flavor. Pepsi promoted it in a Super Bowl ad with Morgan Freeman and Missy Elliott that paired with a new ad for Doritos Blaze starring Peter Dinklage of “Game of Thrones” and Busta Rhymes.

Related: How fruit juice got boxed out of the health craze

Johnston said Pepsi increased its ad budget in the first quarter, and he noted that Coke did as well. That trend should continue. Pepsi is looking to spend more on marketing for both its soda brands as well as non-carbonated beverages like tea.

And Pepsi is doing so more online as well. Johnston said 30% of the company’s ad spending is now on digital platforms. That percentage has gone up steadily over the past few years and should keep doing so.

So the Coke vs. Pepsi war is definitely back on. But it’s now playing out on Google, YouTube, Facebook and Instagram as well as TV.

CNNMoney (New York) First published April 26, 2018: 11:40 AM ET



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