Cola Wars Continue

Case Study Analysis

Presented by-
Dhirendra Singh
Erwin Saurabh Tigga
Debabrata Swain
Dilip Kumar
Ganesan.M
War over $66bn industry

lasted between 1950-1990s

 New Challenges
• Cola wars continued into the 21st
century with new challenges
– Was their era of sustained growth and
profitability coming to a close?

– Could they boost flagging domestic CSD

sales?

– Would newly popular beverages provide

them with new (and profitable) revenue
streams?
Production & distribution
of CSD
• concentrate producers
• Bottlers
• Retail channels
• suppliers
 Concentrate Producer
• Blended raw material
ingredients,packaged the mixture,
shipped those container to the
bottler.
• Key production investment areas
- machinery, overhead and labor.
A typical manufacturing plant
cost - $25 million to
$50 million
 Concentrate Producer
• Significant costs
were for
advertising,
promotion, market
research.

• Coca-Cola and
Pepsi-Cola claimed
a combined 74.8%
of the U.S. CSD
market in sales
Bottlers
• Bottlers purchased
concentrate
• Added carbonated
water and high-
fructose corn syrup
• Bottled or canned
the resulting CSD
product
• Delivered it to
customer account
 Bottlers
• Bottling process is capital intensive.
• Packaging accounted for 40% to
45% of sales, same for concentrate
and sweeteners for 5% to 10%.
• Coke and Pepsi bottlers offered
“direct store door delivery”.
• Cooperative merchandizing
agreements is a key ingredient of
soft drink sales.
 Profitability

• Concentrate
producer earn
more profit than
bottler.

• Cost of sale is
more in bottler.
 Retail channel

• Super markets
• Vending
machines
• Convenience
stores
• Gas stations
 Suppliers to Bottlers
• Coke and Pepsi
were among the
metal can
industry’s
largest
customers.
• Major can
producers- Ball,
Rexam, Crown
 Cola War begins
• “Beat Coke”
• “American’s
preferred taste”
• “Pepsi Generation”
• “young at heart.” • “No wonder Coke
• Concentrate Price refreshes best”
20% lower
• 1970 – larger
bottlers
 Year 1960s – the
Armageddon
• Teem (1960) • Fanta (1960)
• Mountain Dew (1964) • Sprite (1961)
• Diet Pepsi (1964) • Low calorie cola Tab
(1963)

Non-CSD (Merged) Non-CSD (Purchased)

•Frito Lays • Minute Maid (fruit juice)
• Duncan foods (coffee,
tea, hot chocolate)
• Belmont Springs water
 Pepsi’s Challenge
• Blind taste test • Rebates
• Eroded Coke’s Market • Retail price cuts
share • Advertisements that
• Part of Pepsi’s questions tests validity
promotional strategy • 1978 – Re-negotiation
not a part of marketing of contract with
research. franchisee bottlers
 Leadership
• 2001: Steve • 1980 – Roberto
Reinemund “Grow the Goizueta
core add some more”
• Launched new CSD
•Share price rose by
products (Sierra Mist, 3500%
Mountain Dew code red) •Most valuable Brand
• Acquisition of Quaker • Use of lower priced
Oats corn syrup against
• Net income raised by sugar
17.6% per year
• ROI capital 29.3 (2003)
• Double spending on
from 9.5 (1996) ads 1981-84
 Product Launch
• Teem (1960) • Fanta (1960)
• Mountain Dew (1964) • Sprite (1961)
• Diet Pepsi (1964)
• Low calorie cola Tab
• Lemon Lime Slice
(1984) (1963)
• Caffeine free Pepsi Cola • Diet Coke (1982)
(1987) •Caffeine free coke
• Sierra Mist (2000) (1983)
• Mountain Dew Code
Red (2001) •Coca-Cola Classic
• Pepsi One (2005) (1985)
• Diet Coke with Splenda • New Coke (1985)
(2005) • Cherry Coke (1985)
 Expansions
• Acquired – Pizza hut • Exclusive deals with
(1978), Toco Bell Burger king,
(1986), KFC (1986) McDonalds
• Merged with Frito • Purchased Minute
Lay to form PepsiCo Maid, Duncan Foods,
• Pepsi purchased Belmont Springs water
Quaker Oats • Acquired – Planet Java
coffee drink brand
• Acquired - Mad River
juices and tea
 Marketing Campaigns
• Pepsi generation • Americans
• Young at heart Preferred Taste
• Pepsi challenge • No wonder Coke
• Smart Spot – good refreshes best
for you
 Challenges
•Flat demand during 1998 to 2004.
•Contamination scare at India
•Obesity Issue
•Challenges of Internationalization
 Challenges to Coca-
Cola
• Performance & execution:
on providing alternative beverages
on adjusting key strategic
relationships,
on cultivating international markets
• Currency crisis in Asia and Russia
• Recall in Belgium – (public relations
disaster)
• Series of legal problems
1996-2004:reversal of
fortune
• Pepsi flourished • Coke struggled
• Acquisition of • Flat growth
Quaker oats
• Annual growth
• 3% growth
2004 in net income
falls to 4.2%
• Net income
rose by 17.6% from 18%(1990-
per year 96)
• ROI 29.3% • Shareholders
from return -26%
9.5%(1996)
 Quest for alternatives
• Market share:
• CSD- 80%(2000) to 73.1%(2004)
• Diet soda- 24.6%(1997) to 29.1%(2004)
• Bottled water 6.6%(2000) to 13.2%(2004)
• Non-carbs 12.6%(2000) to 13.7%(2004)
• Non-carbs & bottled water contribution to
volume growth – coke 100% & Pepsi 75%
 Quest for alternatives
• No longer designing
of marketing course • Reluctant to
• Diet Pepsi, Pepsi diversify
One, Diet Coke with
slpenda
• Diet Pepsi as
flagship brand
• Non-CSD: total
beverage company
 Evolving stuctures and
stratgies
• System profitability
• Price war
• low -cost strategy by the bottlers
• Incidence pricing
• Retailers resist price increases(Wal-
Mart)

• Coke’s relationship with bottlers :

• Dysfunctional,
 Internationalisation
• Next largest market: Mexico, Brazil, Germany,
China, and the United Kingdom
• Asia and Eastern Europe
• 837 eight ounce cans: 21 eight ounce cans
• Coke’s dominance : Western Europe, much of
Latin America, while Pepsi :Middle East and
Southeast Asia.
• Coca-Cola became synonymous with
American culture.
• About 70% of Coke’s sales and about 80% of
its profits came from outside the United
States; only about one-third of Pepsi’s
 Venezuela crisis
Before After
 SWOT : Strengths
PepsiCo Brands Enjoy a
• • Coke Brands Enjoy a
High-Profile Global High-Profile Global
Presence
Presence
•Pepsi Owns the World’s • Four of the top five
2nd Best-Selling Soft Drinks leading brands
Brand
•Constant Product • Broad-based bottling
Innovation strategy
• 47% of global volume
•Aggressive Marketing
Strategies Using Famous sales in carbonates
Celebrities
•A Broad Portfolio of
Products
 SWOT : Weaknesses
•Carbonates • Carbonates
Market is in Market is in
Decline Decline
•Pepsi is Strongest • Over-complexity
in North America of relationship
•They Only Target with bottlers in
Young People North America
• Execution ability
 SWOT :: Opportunities
•Increased • Soft drinks volumes
Consumer Concerns in the Asia-Pacific
with Regard to region forecast to
Drinking Water increase by over
45%
•Growth in Healthier • Brands like Minute
Beverages Maid Light and
Minute Maid
•Growth in RTD Tea Premium Heart Wise
and Asian are positioned well
Beverages with the “Health-
concerned” market
•Growth in the • Use distribution
Functional Drinks strengths in Eastern
Industry Europe and Latin
 SWOT : Threats
•Obesity and • Growing "health-
Health Concerns conscience"
society
•Coca-Cola • PepsiCo’s
Increases Gatorade,
Marketing Tropicana and
and Innovation Aquafina are
Spending to stronger brands
$400M Globally • Boycott in the
Middle East
•Relying on North • Protest against
America only Coke in India
is Bad • Negative
Profit Margins of Industry Concentrate
Producers and Bottlers
US Liquid consumption trends (gallons/capita)

Source- US Beverage industry Consumption Statistics

 Promising Segment
US Liquid consumption trends (gallons/capita)

Source- US Beverage industry Consumption Statistics

Market Share by case volume(percent)
Coca cola 1966-04 : 29.04% Gain
PepsiCo 1966-04 : 55.14% Gain
Others 1966-04- 82.55 % loss
 Q:Who has been losing?
• Smaller Brands:
• Because-Entry Barrier, Duopoly
Q: Who has been wining the war?
• 1950: Coke have 47% and Pepsi have 10%
• 1970: Coke have 35% and Pepsi have
29%
• 1990: Coke have 41% and Pepsi have 32%
• 2000:Coke have 44%Pepsi have31.4%
other beverage Cadbury Schweppes
14.7%
• 2006:Coke have 43.1% Pepsi have 31.7%
Cadbury Schweppes 14.5%
 Key questions
Q: Could they boost flagging
domestic CSD sales?

• Through Product innovation

• Aggressive marketing and promotion
• Packaging innovations
• Would newly popular beverages
provide them with new (and
profitable) revenue streams?
• Yes
• Non carb and Bottled water
contribution to
Total volume growth: Coke-100%,
Pepsi-75
• Contamination issue, Obesity issue
Q-Can Coke and Pepsi sustain their profits in the
wake of flattening demand and the growing
popularity of non-CSDs?

• Coke and Pepsi did not just inherit this

business they created it.
• By diversification.
• Innovation : e.g diet coke
Thank
you