▲ Pepsi Cola
The U.S. carbonated beverage market is expected to be significantly affected by the tariff war ignited by U.S. President Trump.
The Wall Street Journal (WSJ) reported on the 20th (local time) that PepsiCo, which manufactures most of its cola concentrate in Ireland, is at a disadvantage compared to Coca-Cola because it will be subject to a 10% tariff.
Cola is made by mixing concentrate (base) produced in specialized facilities with water, carbon dioxide, and sweeteners.
However, since the production sites for concentrate vary from company to company, the tariff war has resulted in mixed fortunes.
In the case of PepsiCo, the manufacturer of Pepsi Cola, it has been producing concentrate in Ireland for over 50 years.
They chose Ireland because of the low corporate tax rate, but now it will incur a 10% tariff when bringing concentrate into the U.S.
The same applies to Mountain Dew, another product of PepsiCo.
On the other hand, Coca-Cola’s concentrate production sites are diverse.
While they also produce in Ireland, this supply is used in products exported worldwide.
Most of the concentrate entering the U.S. market is produced in Atlanta, USA, and Puerto Rico, a U.S. territory.
Products from the same company, like Sprite, are also considered to have an advantage regarding tariffs.
Carlos Laboy, an analyst at HSBC, stated, “Ireland has enjoyed tax benefits for a long time before the tariffs were imposed,” adding that while no one anticipated this tariff war and it’s uncertain how long it will last, Pepsi is clearly in a disadvantaged position now.
A 25% tariff on aluminum cans could affect both Coca-Cola and PepsiCo.
Coca-Cola imports some aluminum from Canada, and the tariffs imposed on it could raise cola prices, as James Quincey, Coca-Cola’s CEO, revealed last February.
Coca-Cola plans to mitigate the impact by increasing plastic bottle packaging or sourcing aluminum cans domestically.
PepsiCo’s market share in the U.S. has been declining over the past 20 years.
Last year, it dropped to third place, behind Dr. Pepper.
PepsiCo has focused on food and energy drinks in recent years and is aiming for a comeback in carbonated beverages but has now encountered the unexpected hurdle of tariffs.
The WSJ predicted that other products like jeans and toothpaste would also experience mixed outcomes in this tariff war based on their country of origin.