The Tariff Divide: Why PepsiCo's Pain Outweighs Coca-Cola's in the U.S. Market

The U.S. tariff landscape has become a battleground for the soft drink giants, PepsiCo and Coca-Cola. While both companies face headwinds from rising input costs, a recent wave of tariffs has disproportionately penalized PepsiCo, exposing vulnerabilities in its production strategy that Coca-Cola has skillfully avoided. This analysis explores how geographic dependencies, tax-driven decisions, and adaptive supply chain tactics are reshaping the competitive dynamics—and investment prospects—of these beverage titans.

The Tariff Trap: How PepsiCo’s Tax Strategy Backfires

PepsiCo’s reliance on Irish-produced concentrate for nearly all U.S.-bound soda has become a financial albatross. A 10% tariff on Irish imports, implemented in 2023, adds roughly $189 million annually to PepsiCo’s costs—a direct hit to margins given its €166 million investment in Irish facilities just two years prior. This tariff burden exacerbates Pepsi’s already faltering U.S. market share, which has dipped to historic lows. Dr Pepper now holds the No. 2 position, surpassing Pepsi-Cola, as consumers shift to brands with perceived better value.

Meanwhile, Coca-Cola’s domestic production in Atlanta and Puerto Rico insulates it from this specific tariff. While Coca-Cola also sources concentrate from Ireland for global markets, its U.S. operations depend primarily on locally produced ingredients, sparing it the direct cost spike. This geographic flexibility, rooted in a century of localized supply chains, now pays dividends.

Aluminum’s Double-Edged Sword: A Challenge Both Must Navigate

Both companies face a 25% tariff on aluminum imports, a critical material for cans. For PepsiCo, this compounds its Irish concentrate problem, while Coca-Cola’s partial reliance on Canadian aluminum introduces volatility. Coca-Cola’s response—shifting to plastic packaging, hedging prices, and cautiously raising product prices—reflects a calculated balance between cost control and environmental goals. However, increased plastic use risks backlash from eco-conscious consumers, who now view soda as a “guilty pleasure” rather than a necessity.

PepsiCo’s response remains unclear. The company has not disclosed specific mitigation strategies, leaving bottlers to absorb rising costs. Independent bottlers, already grappling with declining sales volumes, now face a cost squeeze that could further erode their margins. This lack of transparency raises concerns about PepsiCo’s long-term operational agility.

Global Buffers vs. Domestic Vulnerabilities

Coca-Cola’s global footprint mitigates tariff risks. Only 16% of its sales come from the U.S., with major markets like Mexico, China, and India contributing 33% of unit case volume. However, retaliatory tariffs—such as China’s 34% levy on U.S. imports—threaten supply chain stability. For instance, Coca-Cola sources sucralose (a key sweetener) from China, where costs could rise sharply.

PepsiCo, by contrast, is more exposed to U.S. market swings. Its declining domestic sales and tariff-induced cost pressures leave it with fewer levers to offset losses. Analysts like HSBC’s Carlos Laboy note that PepsiCo’s disadvantage is “clear but uncertain in longevity,” depending on tariff policy shifts.

The Bottom Line: A Divided Outlook

The data underscores a stark divide. Coca-Cola’s stock (KO) has outperformed PepsiCo’s (PEP) by 8% over the past year, reflecting investor confidence in its adaptive strategy. Meanwhile, PepsiCo’s market share erosion—down to 26% in 2025 from 32% in 2020—signals a prolonged struggle.

Investors should weigh two critical factors:
1. PepsiCo’s ability to restructure its supply chain—including potential U.S. concentrate production expansions or price hikes—to offset tariffs.
2. Coca-Cola’s capacity to sustain its global dominance amid retaliatory tariffs and shifting consumer preferences.

Conclusion: Navigating the New Trade Reality

The tariff divide is not just about cost; it’s a reflection of strategic foresight. Coca-Cola’s localized production and diversified markets position it to weather trade storms, while PepsiCo’s tax-driven model now feels like a relic. For investors, the choice hinges on whether they bet on PepsiCo’s potential turnaround through operational adjustments or Coca-Cola’s proven resilience.

The numbers tell the story: Coca-Cola’s global sales buffer (84% non-U.S. revenue) and adaptive pricing strategies give it a margin of safety. PepsiCo, however, faces a narrower path—either absorb costs and lose profitability or risk alienating price-sensitive consumers with hikes. With tariffs unlikely to disappear soon, the soda wars will increasingly favor the company that masters both cost control and consumer psychology.

In this battle, the odds are stacked against PepsiCo. Until it rethinks its supply chain DNA, Coca-Cola remains the safer bet.