Despite flattening demand for carbonated beverages such as Coke and Pepsi, the increased popularity of noncarbonated beverages, greater demand from emerging markets, and Coke and Pepsi's absolute and comparative advantages over competition, each continues to produce profits that meet and exceed industry expectations. In 2012, Coke and Pepsi posted profits margins of 18.78% and 9.42% (Cho, 2013), respectively, clearly utilizing their advantages over other players in the sector .

Coca-Cola and Pepsi have developed a wide range of products that can be used to penetrate emerging markets. They each sell the classic brands as well as geographically specific beverages. Populations from around the world continue to have more disposable income and are spending that income on luxury items such as Coke and Pepsi products. “Emerging markets are extremely important for Coke and Pepsi. Overseas sales account for roughly half of Pepsi's revenue, and more than 60% of Coke's.” (DuBois, 2013). In attached Exhibits 1 and 2, it is clear that the push into these markets is ensuring continued profitability for Coke and Pepsi.

Contributing to continued profitability is the emergence of the product lines for Coke and Pepsi of noncarbonated and healthier alternatives to sugary drinks, and acquisition of complementary products; e.g., Quaker and Lays. This has translated into continued growth in market share and revenues. In the fourth quarter of 2012, Coca Cola’s “profit rose 13 percent as sales of non-carbonated drinks in North America countered lower demand in Europe.” (Stanford, 2013) In Coke’s annual report to shareholders, management acknowledged that “sparkling beverage growth” was up three percent but “still beverage growth” was up ten percent, “led by sports drinks (+6 percent), waters (+12 percent) and energy drinks (+20 percent).” (Coca-Cola Company, 2013).

One of the