Finally, PepsiCo, Inc. (NYSE:PEP) is a company whose pricing power is overshadowed by its biggest competitor — The Coca-Cola Company (NYSE:KO). Coca-Cola may get all of the credit for having a loyal customer base, but Pepsi drinkers are just as loyal to Pepsi as Coke drinkers are to Coke. PepsiCo has similar economics to Coca-Cola, except Coca-Cola does not have a dominant snack food business. Frito-Lay (owned by PepsiCo) is the world’s largest snack food company. Frito-Lay benefits from the same brand loyalty that benefits Philip Morris’s products, which gives it a high degree of pricing power.
Inflation or no inflation, it’s hard to understand why people insist on owning companies that do not have pricing power. These companies are special — they can raise prices without losing customers. That’s like being able to walk into your boss’s office and get a salary raise at will.
These are great businesses that will thrive in all environments, but they are about the only companies that will do well in an environment of high inflation.
Warren Buffett invests in companies that have pricing power. Shouldn’t you?
The article Hedge Inflation With Pricing Power originally appeared on Fool.com and is written by Ted Cooper.
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