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TheStreet Open House

For Pepsi and Coke, Taste Test Is Over -- Here's Why

NEW YORK (TheStreet) -- With year-to-date gains of 12.35%, PepsiCo (PEP) shareholders are toasting the good life -- at least they should be.

Pepsi stock closed Friday at $91.85, up 0.07%.

Read More: 10 Stocks Carl Icahn Loves in 2014

On the other side of the isle is rival Coca-Cola (KO), whose shares have gained just 0.49% in 2014. And when looking back at their respective three-year and five-year charts, Pepsi has outperformed Coke by more than 6% in aggregate.

New investors continue to pile into Pepsi while Coke remains flat. The taste test results are in. And at this point, the debate as to which company is better has already been decided.

Coke has run out of innovative ideas. The company has, instead, taken a venture-capital tack to help offset weak sales. And its recent purchase of a 17% stake in Monster Beverage (MNST) is the latest example of how management is scrambling to quench Wall Street's thirst for growth. The way I see it, Coke cares only about dominating the beverage industry.

Pepsi, meanwhile, which has a strong-performing beverage business of its own, has fully embraced snack foods. The company's motto says, "Bet you can't eat just one" -- referring to its Frito-Lay potato chips.

It's the snack business that's become the key to differentiating Pepsi from Coke.

Restaurants like Buffalo Wild Wings (BWLD), a fast-growing restaurant chain, are ditching Coke products in favor of Pepsi. Buffalo Wild Wings gets a majority of its business during the height of sports seasons or events. With Pepsi owning sponsorship rights to the NFL and Major League Baseball, this is a perfect match for a sports-focused environment like Buffalo Wild Wings.

Then there's also Taco Bell, the fast-food restaurant operated by Yum! Brands (YUM). Pepsi's "outside the bun" thinking spawned the popular innovation of Doritos Locos Tacos. This has become one of the fastest-growing new product introductions in the history of fast food. At the time, Greg Creed, CEO of Taco Bell, said this was "the biggest launch in Taco Bell history."

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Since introducing the new tacos in March 2013, Taco Bell has sold more than $1 billion worth of Doritos Locos Tacos. Taco Bell's success was not lost on Buffalo Wild Wings.

Although Coke currently owns roughly 70% of the U.S. fountain beverage business, Pepsi's innovative qualities should spur more market share gains in the coming years.

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