Does PepsiCo Have the Edge in Functional Beverage Boom?

PepsiCo, Inc. PEP appears well-positioned to capture a leading share in the rapidly expanding functional beverage market, driven by its strategic focus on health-conscious innovations, brand strength and distribution reach. The company has been investing in no-sugar colas, sports hydration through Gatorade, and fast-growing functional hydration platforms such as Propel. PepsiCo plans to make a strong push into the liquid protein space in late 2025 and early 2026, targeting the surging demand for high-protein, clean-label drinks with superior taste and no artificial ingredients. This strategy builds on its track record of leveraging big brands to “democratize” health trends, bringing them to mass markets at scale.

PepsiCo’s competitive edge also lies in its ability to integrate functionality into existing, trusted beverage lines rather than relying solely on niche startups. Its multi-pronged approach, combining owned brands, joint ventures like Starbucks and partnerships such as CELSIUS, allows it to address various consumer needs, from energy to recovery and hydration. The company’s distribution muscle, particularly in away-from-home channels, creates more occasions for functional beverage consumption while delivering margin-accretive growth. This omnichannel availability ensures new functional offerings are not just innovative but also highly visible and accessible to consumers.

PEP’s focus on cleaner labels, affordability and broader portfolio transformation further strengthens its positioning. By combining innovation in protein, energy and hydration with its vast brand equity and global scale, the company is setting itself up not only to participate in the functional beverage boom but also to shape its future trajectory.

PEP’s Competitors: KO & KDP’s Smart Moves

The functional beverage market is heating up, and PepsiCo’s biggest rivals, The Coca-Cola Company KO and Keurig Dr Pepper KDP, are making bold, strategic moves to secure their share of the growth.

Coca-Cola has been making calculated moves to strengthen its functional beverage portfolio, targeting high-growth categories like energy, hydration and wellness. KO’s acquisition of BodyArmor expanded its reach in sports drinks beyond Powerade, while the Costa Coffee platform continues to support functional “energy plus” occasions through ready-to-drink coffee innovations. Coca-Cola has also been pushing no-sugar and low-calorie variants across its beverage lines, aligning with health-conscious trends. With smart partnerships, such as its collaboration with Monster Beverage, and its ability to globalize niche functional brands quickly through its vast distribution system, KO remains a formidable player in the functional beverage race.

Keurig Dr Pepper has been expanding beyond traditional soft drinks into enhanced hydration, energy and wellness categories, with offerings like Bai antioxidant-infused beverages and CORE Hydration. KDP also benefits from its strategic partnerships, including its stake in Nutrabolt, the maker of C4 Energy, to capture growth in the fast-rising energy drink market. By combining innovation in functional products with its omnichannel capabilities, KDP is steadily increasing its relevance among health- and performance-focused consumers.

PEP’s Price Performance, Valuation & Estimates

Shares of PepsiCo have lost around 4.5% year to date against the industry’s growth of 6%.

From a valuation standpoint, PEP trades at a forward price-to-earnings ratio of 17.57X, slightly below the industry’s average of 18.03X.

The Zacks Consensus Estimate for PEP’s 2025 earnings implies a year-over-year decline of 1.8%, whereas its 2026 earnings estimate suggests year-over-year growth of 5.2%. The company’s EPS estimates for 2025 and 2026 have moved northward in the past 30 days.

PEP stock currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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This article originally published on Zacks Investment Research (zacks.com).

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