COLA WARS

Introduction
The world witnessed in the last 20th Century Cold war between USA and the erstwhile
Soviet Union for gaining more space in the global political, economical, military power to
attain supremacy. The cold war extended from Medals tally in Olympics into the Space
research, from Cuba to Vietnam, with the world almost divided between NATO and
WARSAW. With the disintegration of Soviet Union into many countries, the cold war came
to an end. But there is endless cola war that is stretching to the 21st Century.

Coca-Cola and Pepsi-Cola were formulated in 1886 and 1893, in the fag end of the 19th
Century and thrived with the network of bottlers and the growing consumption of
carbonated soft drink (CSD) of the Americans in the first half of the 20th Century. The
Cola war began in 1950, which is going more intensely till date. Surprisingly the War did
well to both the giants as they continue to grow in terms of sales, revenue and profits. At
the height of the cola war between 1975 and 1995, both the leaders of the CSD Industry
registered average annual revenue growth of 10%. Roger Enrico, former CEO of Pepsi in
his own words, acknowledged this:

“The warfare must be perceived as a continuing battle without blood. Without Coke,
Pepsi would have a tough time being an original and lively competitor. The more
successful they are, the sharper we have to be. If the Coca-Cola Company didn’t exist,
we’d pray for someone to invent them. And on the other side of the fence, I’m sure the
folks at Coke would say that nothing contributes as much to the present-day success of
the Coca-Cola company than……Pepsi”

This theory of growth even amidst the war sounds correct from the perspective of the
dollars spent on their campaigns and the steady increase of the revenue. But the
important aspect of their success was the fact that the war was taking place when the
Industry was witnessing steady growth in the demand (consumption) and both the rivals
were successfully matching the demand with increase in their supply, widening of bottlers
network and strengthening of retail channels.

Seeds of the War

The war though started in the 1950’s the seeds of the war were sown much earlier:

 During the great depression, in late 1930’s, Pepsi lowered the price of its 12-
oz bottle to a nickel – the same price that Coke charged for a 6.5-oz bottle,
 prompting Pepsi to the theme of its famous radio jingle: “Twice as much for a
nickel, too” signaling a direct attack on Coke.
 This marketing campaign helped Pepsi to grow from the brink of the
bankruptcy.
 Coke filing a suit against Pepsi, claiming that their brand was an infringement
on the Coca-Cola trademark in the year 1938.
 The Court ruling in favor of Pepsi in the year 1941.
 Pepsi expanded the bottling network during 1938-41 helping them to garner
10% of the market share by 1950 as against 47% of Coke and yet emerging
as the second largest selling brand.
 The process of fragmented business with several hundred players to massive
organizations with limited players began during the period.
 Alfred Steele, a former Coke marketing executive was appointed as CEO of
Pepsi in the year 1950 and he made “Beat Coke” his motto.

The early stage of the War

 Pepsi targeting family consumption introduced 26-oz bottle and devising a

strategy to focus on take-home sales through supermarkets.

 In 1963, Pepsi launched its “Pepsi Generation” targeted the young and
“young at heart” which practically covers all the age groups of the Country
and helped Pepsi to narrow down the Coke’s lead to a great extent.

 Coke and Pepsi launched new cola and non-cola flavors in the 1960s. Coke
launched Fanta, Sprite and the low-calorie Cola Tab. Pepsi launched Teem,
Mountain Dew and Diet Pepsi.

 Both the giants forayed into non-CSD industries as Coke bought Minute Maid
(fruit juice), Duncan Foods (Coffee, tea and hot chocolate) and Belmont
Springs Water. During the same time, Pepsi merged with snack-food giant
Frito-Lay to form PepsiCo, achieving synergies on customer targets, delivery
systems and marketing network.

 The advertisement used by Coca-Cola that implicitly recognized the existence

of Competitors, yet projected its supremacy. The messages read as
“American’s preferred taste” and “No wonder Coke Refreshes Best”
  In 1960’s Coke adopted the strategy of overseas markets with the assumption
that the domestic market nearing a saturation. Pepsi utilized the opportunity
by doubling the domestic share, US market during this time.

Peak of the War

 The war reached its height in the 1970s with Pepsi increasing its allocation for
advertising and promotion.

 In Dallas, State of Texas, Coke was the dominant brand followed by Dr.
Pepper. Pepsi was the distant third. Pepsi launched the “Pepsi Challenge”
and through blind taste tests tried to demonstrate that consumers preferred
Pepsi to Coke and their sales shot up in Dallas. Encouraged by the results,
the campaign was rolled out throughout USA.

 Coke was trying to question the test’s validity through a series of advertisements and countering
the initiatives of Pepsi with rebates, retail price cuts, discounts in markets; yet Pepsi was riding
high, eroding the market share of Coke.

 Both the Companies forging bottling contracts with a view to obtain greater flexibility in pricing
concentrate and syrups and after this both of them announced significant price increase of the
concentrate.

 Subsequently, in the 1980s, Coke switched from using sugar to using high-fructose corn syrup, a
lower-priced alternative and Pepsi followed suit three years later. The increase in the revenue on
the one hands on their concentrates and the reduction in the cost, helped both the companies to
double the spending on advertisements that heated up the on-going war.

 Coke announced that it had changed the 99 year old Coca-Cola formula with a view to come out
of the declining and shrinking segment of the market and introduced reformulation. On that day
of announcement, Pepsi declared a holiday for its employees claiming that the new Coke
mimicked Pepsi in taste. The reformulation was not getting boost with the bottlers and most loyal
customers and led to an outcry. Coke was forced to bring back the old formula and as well retain
the new one under the name New Coke. This was a retrograde step, yet Coke managed to retain
both the formulations in the market with the brands Coca-Cola Classic and New Coke and trying
to push the overall sales and revenue. This shows the adjustment potential of Coke to the needs of
the marketing conditions.

 In the 1980s, Coke introduced 11 new products and Pepsi introduced 13 new products. The
packaging type, size kept changing for improvement and so also the prices with discounts for
 more customers. During this period both the Companies continue to register an average increase
of 10% in their sales, revenue and profit.

 The market share of the Coke continue to offer them the leader status, they had 33.4% share in the
year 1966, continue to increase their share and reached 41.1% in 1990 and by the end of 2004,
had a share of 43.1%.

 Similarly Pepsi had 20.4% market share in the year 1966, continue to increase their respective
market share and reached 32.4% in 1990 and by the end of 2004, had a share of 31.7%. The above
indicates that both the Companies continue to boost their respective market share with the war
going on and together had 74.8% by 2004 as compared to the combined share of 53.8% in 1966.
One major fall out is that in their quest and fight for supremacy, they had wiped out most of the
small and marginal players. In war, both prospered unlike the Countries indulging in war, both
the winning and losing nation suffers heavily in terms of economic prosperity.

Now let us recollect the words of Roger Enrico, former CEO of Pepsi stated in the
introduction that properly acknowledging the existence of Coke helping Pepsi and Pepsi
helping Coke.

 Coke though continues to be the leader of the Industry had its own share of embarrassments.
After the death of its CEO, Robert Goizueta in 1997 who was in the helm of affairs for 16 years,
Douglas Ivester became CEO and had a brief stint from 1997 to 1999. Coke had the
embarrassments of losing high profile race discrimination suit, underwent financial shocks due to
currency crises in Asia and Russia, contamination scare in Belgium. Troubles continued with the
next CEO Douglas Daft (1999-2004) with layoffs of employees, a contamination scare in India in
2003, investigations on their accounting practices, troubles with bottlers as there were alleged
pressures postured by Coke to buy excess concentrate with a view to increase its own earnings.

 Poor execution of business plans, legal suits, failure of its diversified projects, poor skills
exhibited by its employees – all plagued Coke.

 Pepsi continued its flourishing trend during this period and concentrating on its core strength and
trying to add some more. By this time, Pepsi had developed more diversified portfolio of
products.

 Between the period 1996 and 2004, the average annual growth of net income of Coca cola
slumped from 18% to 4.2% whereas Pepsico achieved 17.6% growth. However, interestingly the
market share of Coke increased from 42.3% in 1995 to 43.1% in 2004 which is 0.8% increase and
Pepsico also registered the same 0.8% increase in their market share, from 30.9% in 1995 to
31.7% in 2004.
  While Coke failed to convert the increase in market share to suitable increase in income, Pepsico
successfully translated the increase in market share into income and revenue.

 Both the giants took the war to the international markets, though encountered problems and
obstacles in their international operations. Waging this war to the global level helped both Coke
and Pepsi to increase their revenue. Also it helped them to widen their bottling network, supply
chain and retail channels.

 In the ever-increasing huge demand markets of China and India, both of them have an edge over
the domestic brands.

 One more advantage they had in these markets, both the giants fully utilized. They could open
more facilities with less cost with the availability of skilled and relatively low cost manpower,
thereby improving the logistics in a more cost effective manner.

The Learning

 The improvement of the logistics coupled with promotional campaigns, spending a major portion
of their increased earning in advertisements with catchy slogans and messages and visual portrays
of the famous personalities in the electronic media, sponsoring the major sporting events and
some notable social events across the countries helped them to improve upon the goodwill as
market leaders.

 Their strategies in tune with the market conditions and ever changing social needs and the
propensity to grow and enter into various markets helped the cause of both the giants to grow and
grow.

 The cola war still continues and is to be seen if both of them continue to prosper under the clouds
of war.

Conclusion

The ongoing war instead of cutting down the bottom line, indeed improved their revenue bottom line and that’s
the bottom-line of the story.