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Pepsi-Cola and Its Bottlers: Make Vs Buy Decision

Pepsi began consolidating its bottling operations in the 1970s and 1980s in order to gain more control over distribution and marketing. By 1990, Pepsi's bottling group controlled over 60% of worldwide bottling operations. Pepsi further consolidated in 1999 by spinning off the bottling group but retaining a 40% stake. Finally in 2009, PepsiCo purchased two major Pepsi bottlers to gain full ownership of bottling operations in order to increase coordination of retailing activities across regions and better support sophisticated advertising campaigns.

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Ipshita Ghosh
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32 views7 pages

Pepsi-Cola and Its Bottlers: Make Vs Buy Decision

Pepsi began consolidating its bottling operations in the 1970s and 1980s in order to gain more control over distribution and marketing. By 1990, Pepsi's bottling group controlled over 60% of worldwide bottling operations. Pepsi further consolidated in 1999 by spinning off the bottling group but retaining a 40% stake. Finally in 2009, PepsiCo purchased two major Pepsi bottlers to gain full ownership of bottling operations in order to increase coordination of retailing activities across regions and better support sophisticated advertising campaigns.

Uploaded by

Ipshita Ghosh
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PPT, PDF, TXT or read online on Scribd
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Pepsi-cola and Its Bottlers

Make vs Buy Decision

Ipshita Ghosh (G11021)

The context
Two major players in the cola industry Pepsi Cola and Cola Cola were primarily syrup manufacturers Reliance on independent bottlers to distribute and market their products Benefits of disintegration:
Protection of secrecy of syrup formulae Bottlers knew local consumers better They could better judge need for price discounts /marketing ploys

Pepsi The Move towards Consolidation


In 1970s and 80s Pepsi began to substantially consolidate distribution and marketing

1990 Company owned Pepsi bottling group controlled over 60% of worldwide bottling operations 1999 Pepsi spun off the bottling group but retained 40% ownership stake 2009 - The Pepsi Bottling Group and another major Pepsi bottler, PepsiAmericas, were purchased by PepsiCo

Why consolidation was attractive?


Changes in bottling technology created economies of scale that reduced number of bottling plants Remaining independent bottlers were strongly committed to their own marketing philosophies Need to substantially increase the coordination of retailing activities across different regions

Retailing Activities
Need to be sophisticated and centralized to serve emerging regional and national purchasers e.g. Walmart Increased support of bottlers required for sophisticated advertising and promotions which were being used as competitive weapons

What needs to be considered


Grossman-Hart-Moore theory how to decide on whether to integrate? Is residual control important enough? Need to weigh the chances of hold-up against quality of Relation Specific investment made by bottlers

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