Cola Wars Continue: Coke and Pepsi in 2006

Presented by: Tigers Team Spring 2008

Overview  History Historical Industry Profitability   Concentrate vs. Bottler Profitability Competition between Coke and Pepsi Sustaining Profits   .

History of Pepsi      Pepsi was created in 1893 in North Carolina by Pharmacist Caleb Bradham. By 1910 Pepsi had built a network of 270 bottlers. In 1938. Coke sued Pepsi-Cola brand for infringement on Coca-Cola’s trademark. Pepsi struggled and declared bankruptcy twice During Great Depression grew in popularity due to price decrease to a nickel. .

Asa Candler acquired the formula.History of Coca-Cola Coca-Cola was formulated in 1886 by pharmacist John Pemperton who sold the product at drug stores as “potion for mental and physical disorders. In 1919.S soldiers. went public under control of Robert Woodruff expanded and developed in national and international markets.” In 1891. established a sales force and began brand advertising of Coca-Cola. Successful during WWII with the high CSD consumption from the U.  .

Industry Profitability: Porter’s Five Forces  Rivalry   Substitutes  Coke Alliances  Pepsi Cadbury  Acquisitions Product Innovation   .

)  Barriers to Entry   Power of Suppliers  Exclusive Territories Sugar  Substantial Investment Current Market Presence  Packaging  .Porter’s Five Forces (Cont.

Porter’s Five Forces (Cont.)  Power of Buyers  Super Markets  Vending  Convenience and Gas Mass Merchandisers Fountain  Fast Food    Profitability of the CSD Industry .

Bottling Business Concentrate Producers    Blend raw material ingredients Packaged Mixture in plastic canisters Shipped to bottlers Diet CSDs  Added artificial sweeteners .Concentrate Business vs.

Concentrate Business vs. Bottling Business Bottlers     Purchased Concentrate Added carbonated water and high fructose corn syrup Bottled CSD product Delivered to customers accounts Diet CSDs  Added sugar or high-fructose corn syrup .

Bottling Business  Concentrate Producer    Bottlers     Little Capital Investment Cost of $25 million .Concentrate Business vs. promotion.$50 million One plant to serve US Significant costadvertising. market research and bottler support     Capital Intensive High-speed production lines Bottling costs $4 million to $10 million Capacity of $40 million warehouse cost $75 million Coke and Pepsi each require 100 plants Pressure from Coke/Pepsi .

Bottler Consolidation Bottler plants decreased in the US 2000 plants to 300 from 1970-2004 Coke’s re franchising bottling operations Buying Poor managed bottlers Infusing with capital Selling to large bottling plants •In 1985. Coke purchased two of the largest bottling companies Vertical integration .

Affects on Industry’s Profits  Coke was the first concentrate producer to build a nationwide franchise bottling network.   Bottlers could not carry directly competing brands. . that Pepsi and Cadbury Schweppes followed suit. Franchise agreements with both Coke and Pepsi allowed bottlers to handle the non-cola brands of other concentrate producers.

the growth of Coke and Pepsi put a squeeze on smaller concentrate producers  Shelf space for small brands declined and were shuffled from one own to another.Affects on Industry’s Profits (Cont. .)  Throughout the 1980s.

Canada Dry twice. Dr Pepper was sold several times. Sunkist once. but racked up huge losses in the early 1980s.Affects on Industry’s Profits (Cont. Shasta one.)  In a five year span.  Phillip Morris acquired Seven-UP in 1978 for a big premium. and then left the CSD business in 1985. . and A&W once.

Affects on Industry’s Profits (Cont.4%. Cadbury Schweppes became the third-largest concentrate product. through a series of strategic acquisitions.  Coke has a world market share of 51.8% and Cadbury Schweppes has 6% . Pepsi has 21.)  In 1990s.

Sustaining Profits  Shift to non-carbonated beverages (keep up with demand of health conscious society) Continue on current path and see where it leads  .

U.S. Liquid Consumption Trends 60 50 40 30 20 10 0 1970 1981 1990 1996 2000 2003 CSD Alcohol Milk NCSD .

30/.110.34907 .014782..98433/:897 8!74198 439 %74:4:990 8 907494140.-7.078 $0185.43.86:0004382.3/8/0.07.3/ !0585:9.90 574/:.3/070 8:110/17424304394.0397.

98433/:897 8!74198 439 3.884/80.3 7!05507.89../.03 &!3147.3. -5702:2 -:97.6:70/$0.3/ 43.0 !54778.785.1.0 $:38943.0 $.07..7 8 . 9208 . 430 .79.00.110.3/90301990$-:830883   .0/:5:048808390 0.

6:89438 .110.8.8 .0397.8 .2090 97/ .05508.05508-0.9 40./-:7$.7089.47/2.43./-:7$. ..90.98433/:897 8!74198 439 3 8 974:.3/..90574/:.7098.8070841897.7041  !058 .

6565.$:89..33!74198 &.

 3.51:9. 65..1/9..3.0.065:06::60.5650995.1: .9/65.: 277 ..516.7.14.

& $ 6:/438:25943%703/8              !& & 30663 32 .

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