PepsiCo Owns Dozens of Hit Beverage Franchises. But Most of Its Sales and Profit Come From Somewhere You Might Not Expect.

The Pepsi franchise is its biggest single brand, so it’s no surprise that PepsiCo (PEP -0.43%) would be named for that blockbuster product. Coca-Cola (NYSE: KO) took the same path, after all, even though soda fans in the U.S. are more likely to order a Coke when they’re thirsty.

That’s about where the easy comparisons end between these two consumer-staples giants. PepsiCo sells dozens of beverage franchises besides Pepsi, including Gatorade, 7 Up, Mountain Dew, and Aquafina. Yet unlike Coke, it doesn’t get all its revenue from drink sales. Pepsi doesn’t even count most of its sales or earnings from its beverage segment. Foods and snacks are the real profit driver for this business.

Small bites, big earnings

Pepsi booked over $86 billion of revenue in fiscal 2022, up from $80 billion a year earlier. Just 42% of that sales figure was powered by drink sales, though, with the rest coming from its sprawling food business. That segment is split into two main categories: snacks and convenient food.

Snacks: Pepsi has a huge presence in the snack-foods aisle through its Frito-Lay division that sells various chips, dips, and spreads. Big brands here include Doritos, Cheetos, Lay’s, Ruffles, and Tostitos. This segment is large, profitable, and tilted toward the U.S. market. Pepsi counted just 27% of revenue this past year from snacks in the U.S., but 44% of its earnings came from that segment .

Convenience foods: Pepsi gets a much smaller contribution from its Quaker Foods division that’s home to many cereal, rice, and pasta brands. The most popular include Cap’n Crunch and Life cereals, Quaker oatmeal, and Rice-A-Roni side dishes. Its U.S. segment accounted for just 4% of all of Pepsi’s sales last year and roughly the same proportion of annual earnings.

Food is growing in importance to the business, beyond its status as a huge profit generator today. Beverages were worth 40% of sales in 2022, down from 45% a year earlier. That shift was partly driven by Pepsi’s recent sale of a few juice brands, including Tropicana and Naked.

Watch for changes

Pepsi is planning to use innovation to support this profit-generating food business over the next few years. Consumers are asking for more nutritious snacking options, and they’re increasingly looking for chip ingredients that go beyond just potato and tortilla bases. Brands such as PopCorners and SunChips are satisfying those tastes by including more plant-based proteins, seeds, and vegetables. Look for more launches in these areas in 2024 and beyond.

Meanwhile, investors could see unusually strong earnings from Pepsi’s food segments in the next several quarters. Soaring raw-material costs on things like grains spurred similarly large price increases for most of the last year. This cost inflation is slowing, though, meaning Pepsi could see higher demand as it reduces its pace of price increases.

The company also stands to recover some of its losses from the past few quarters as its price increases continue to pay dividends while costs come down. As a result, Pepsi could become even more dependent on its snack food business over its beverage segment in the next few years.