American University of Sharjah

School of Business and Management

MKT 401 Marketing Strategy

Environmental Scan for Pepsi (2008 2011)
Term Paper 1
Rasha Semaan Lama Ahmad Rana Ahmad Ahmed Khudeiri Faysal Quraishi
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Table of Contents

Page

Report Environmental Trends and Impact (2008 ± 2011)««««««.3

Bibliography««««««««««««««««««««.7

Appendix Appendix 1: History on Pepsi«««««««««««...........10 Appendix 2: Product Market Structure««««««««««.11 Appendix 3: Macro Environmental Trends Economic Analysis«««««««««««13 Social Analysis««««««««««««..13

Appendix 4: Micro Environmental Trends Stakeholder Analysis««««««««««.14 Porter¶s Five Forces Analysis«««««««17

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Report
Environmental Trends and Impacts (2008-2011) In 1989, Caleb Bradham, a pharmacist in North Carolina, was the first to invent the Brad¶s Drink known today as Pepsi Cola. In 1902, Pepsi Co. was launched in the U.S. Pepsi¶s mission or the reason of being is to be the world's premier consumer products Company focused on convenient foods and beverages. (See Appendix 1 for more information on Pepsi¶s history background). The relevant market for Pepsi in the UAE, as the product market structure reveals, is defined at the brand supply level, specific to the caffeinated soft drinks, thus dealing with middle management perspective. This is due to the fact that the degree of substitutability is very high at the brand supply level since regular caffeinated soft drinks (Pepsi and Coca Cola being the two main market leaders) compete aggressively on taste, prices, and promotion. This report will present an environmental scan of Pepsi in the UAE for the years (2008-2011). For the purpose of executing such a scan, a thorough analysis of the major trends related to Pepsi and their subsequent implications should be done. Trends would be classified into either micro trends or macro trends. Micro trends are related to trends in buyer¶s behaviors and competitors for Pepsi. Macro trends are related to trends in natural, political, and cultural-social issues for Pepsi. (See Appendix 2 for more information on product market structure of Pepsi). This report will discuss the different trends for Pepsi in the UAE in both the macro environment (see appendix 4 for more information about the macro environment of Pepsi) and the micro environment (see appendix 3 for more information about the micro environment of Pepsi) in order of their level of importance, significance, and likelihood of happening. Health awareness is becoming more of an important issue in the UAE. The move towards a healthier environment has started a couple of years ago in the UAE, but it is expected to move more rapidly and more effectively in the next 3 years. This fact is revealed in the many numbers of studies that the UAE have been conducting in this matter. A study carried out by the Ministry of Health in the UAE shows that students in schools in the UAE suffer from high levels of cholesterol due to their consumption of fast food and soft drinks (Rashid, 2008). Another study reveals that ³the UAE has the second highest rate of diabetes in the world ³(Lewis, 2008). The director of student activities at the Ministry of Education, Mr. Ahmed Abdul Rahman, states that the high rates of diabetic cases and obesity cases among students in the UAE is drawn around the consumption of fast food and soft drinks (Lewis, 2008). The results of all these studies have made government officials and even individuals more aware of the danger of sustaining such eating and drinking habits, especially among students. Therefore, many schools have taken steps to stop selling soft drinks (Pepsi and coke) to the students, and replace them with other kinds of beverages, like juices and water. (Lewis, 2008). Several schools have already taken this step couple of years ago, but it is expected that more

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schools will join the trend within the following 3 years, especially with the increasing health awareness being adopted among people in the UAE. Not only schools are engaged in the health awareness issue fighting the consumption of soft drinks, but it is also fast food restaurants. It is not only enough for students to cut their soft drink habits at school, but it is also equally important to reach these students outside the school premises. Some fast food restaurants started replacing Pepsi and Coca Cola with juice and milk in their kids¶ meals. (godubai.com). This trend towards aggressively decreasing soft drink consumptions for children would have great implications on Pepsi in the UAE. Primary demand for Pepsi, specifically customer turnover, will face a change in the UAE. The average age of people consuming Pepsi in the UAE starts from the age of 10 till the age of 35. Now, with the health awareness trend that is being widely spread, and with the effective actions that will be implemented in this direction, people will start consuming Pepsi at the age of 17 till the age of 35. That is due to the fact that school students are not being exposed to Pepsi at schools, neither at fast food restaurants. Therefore, customer turnover for Pepsi in the UAE will shift and thus this would have an effect on the market segmentation of Pepsi in the UAE as well, where it will face instability. Another study, also related to the health awareness against soft drinks in the UAE shows that people usually replace water with Pepsi or Coca Cola, and the danger lies within. According to the Rashid Hospital Trauma Center, around 60 people were treated for heat exhaustions last August and 123 similar cases last July. How is this related to Pepsi? In the usual hot and humid weather in the UAE, especially during summers, people normally get thirsty more often, and so their need for refreshments increases. Some people believe that drinking Pepsi or Coca Cola or any kind of soft drink would replace the benefits of water. However, what they don¶t know is that the caffeine found in these soft drinks actually increases the body¶s heat production, increasing with it the possibility of suffering from heat exhaustions, and in some cases, heat strokes (Muslim, 2008). The implication of this overall trend would also be on Pepsi¶s relevant market in the UAE. People will now be more willing to shift to some kinds of beverages other than soft drinks. However, the relevant market will shift from the brand supply level to the product form level. Substitution will be more aggressive between juices, water, milk and other non-carbonated beverages, instead of having the substitution between Pepsi and Coca Cola at the brand supply level. Environmental awareness is another significant issue that the UAE is becoming increasingly interested in. this is mainly due to the fact that the UAE is being faced with multiple serious environmental problems. UAE is considered having one of the highest water consumption rates in the world. Dr.Muhammed Al Kindi, the UAE¶s Minister of Environment, states that water conservation in the UAE has been a priority agenda, and that something should be done in this concern to alleviate this problem. (UAE one of highest water consumption rates in world, 2007). Pepsi has shown great concern for environmental issues, specifically for water consumptions, that is why it has taken actions to help solve this problem by means of reducing and re-using water in their manufacturing process. (pepsirecycling.com) Another main environmental problem faced by the UAE is that it has one of the highest per capita rates of greenhouse gas emissions. 4

(menafn.com, 2007). To add up to the problem of excessive energy consumption, ³Recent studies show that the GCC countries will invest $100 billion to generate 100,000 MW of additional power over the next 10 years to meet demand,´ said Edmund O¶Sullivan, conference chairman and editorial director of MEED´. (UAE one of highest water consumption rates in world, 2007) Therefore, the UAE is in desperate need to find solutions to this problem. Pepsi has also come up with manufacturing strategies in order to ameliorate the problem of energy consumption through reducing their energy uses in their manufacturing process. (pepsirecycling.com) Moreover, Pepsi has implemented Reverse Vending Machine (RVM) in the UAE as an effort to reduce littering problems in the UAE, and to reveal itself as an environmentally friendly company, knowing the need for such actions in the UAE for a better environment. The RVM¶s purpose is to collect used cans and bottles in order to recycle them, thus rewarding the people who contribute with their cans and bottles with coupons that can be further redeemed for Pepsi products.(ameinfo.com, 2004) Pepsi¶s move towards healing the environmental problems, along with the great need for the UAE to this healing process, Pepsi is expected to have increased popularity in the UAE, thus having an implication on selective demand for Pepsi in the UAE. This environmental concern that Pepsi is raising will add an additional attribute to it, which can be classified as an optional attribute for Pepsi in the UAE. This trend will also increase willingness to buy Pepsi in the UAE, since people started to value environmental friendly products more than ever. Political trends could also have an implication on Pepsi in the UAE. However, in order to be more accurate, describing them as political scenarios would be more credible and realistic. The Middle East is a politically boiling area, where stability is so fragile that any little incident could have great implications on more than one country in the Middle East. On top of the news, is the cold war between the US and Iran revolving around the nuclear issue. It is hoped that this conflict could be solved through negotiations without the resort to any kind of force, however officials in Washington, were pointing to a failed meeting between Nicolas Burns, the Undersecretary of State, and the Iranians, almost saying, "We tried everything with Iran, with little luck. The only option left is military force." (Moubayed, 2008). Another report also indicates that ³a military strike is a feasible option and must remain a last resort to retard Iran's nuclear development," (AP, 2008) Some would be wondering how this political scenario could possibly have an implication on Pepsi in the UAE. History shows that similar political scenarios, where the U.S has previously had conflicts with countries in the Middle East, had similar social consequences on the people. Boycott has often been the first action people would take in response to their disagreement with the US actions. Boycott in the Middle East is not just confined against the US, but to any prospective threat. In 2006, and as a response to the caricature posted on a Danish Newspaper about Prophet Mohammad, Muslims all around the world protested and took strict boycotting actions against Danish products The Sharjah Municipal Council was the very first official organization to support the boycott of Danish products by major retailers in the UAE. (Saberi, 2006) This is only to prove that the UAE serves as a gatekeeper when it comes to Boycotting issues. 5

In 2002, as a sign of anger and rage of both the US and Israeli actions in the Middle East, there has been a boycott for Pepsi by Arabs and Muslims, since Pepsi represents the ultimate US product. (ameinfo.com, 2008) All this said and proved, there could be a boycott for Pepsi in the UAE in case the US-Iranian scenario took place in the following 3 years. The implication of this political scenario would be on Pepsi¶s competitors in the UAE. Boycotting Pepsi (and Coca Cola) as American products would not stop people in the UAE from wanting to drink soft drinks. Therefore, there are a couple of sleeping competitors that have been in the market for quite some time, but haven¶t had their chances to emerge as a real substitute to Pepsi and Coca Cola. ZamZam Cola, an Iranian soft drink, and Mecca Cola, a Saudi Arabian soft drink, are the two major competitors that would find their chances as a result of the boycott of Pepsi and Coca Cola. (Murphy, 2003) Mecca Cola has proved to have strong impact on Pepsi¶s and Coca Cola¶s revenues in times of boycott. (Hutton, 2003). Another controversial issue that goes around Pepsi in the Muslim world is the likelihood of Pepsi containing pigs¶ extracts or not. There has been rumors spreading concerning this issue, however, some people assure that it has been tested to be true, and some deny this rumor. The Islamic religion forbids its people from eating pig meat, therefore such a rumor, if tested to be true, could have a great implication on Pepsi¶s primary demand since Muslim¶s willingness to buy and drink Pepsi would decrease because it would contradict with their religious values. (isvara.org, 2006) In conclusion, there happens to be different trends that could have implications on Pepsi in the UAE. Increased Health awareness in the UAE expected in the next 3 years is more likely to have implications on Pepsi¶s relevant market, primary demand, customer turnover and market segmentation of Pepsi in the UAE. Increased Environmental concern in the UAE would also have implications on Pepsi¶s selective demand and primary demand. Political and social scenarios likely to happen in the following 3 years are expected to have implications on Pepsi¶s competitors and primary demand in the UAE.

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Bibliography

Ameinfo.com. (2004, December 6). Pepsi backs Emarat in new Reverse Vending Machine project. Retrieved October 2, 2008 from http://www.ameinfo.com/50032.html Ameinfo.com. (2004, April 8). Retrieved September 18, 2008 from http://www.ameinfo.com/37492.html AP. (2008, September 19). Military action last resort to halt Iran nuclear issue Retrieved September 20, 2008 from http://archive.gulfnews.com/articles/08/09/20/10246307.html Bellis, M. (n.d) The History of Pepsi-Cola Caleb Bradham. Retrieved October 4, 2008, from about.com Web site :http://inventors.about.com/library/inventors/blpepsi.htm

From godubai.com website, retrieved September 15, 2008 from http://www.godubai.com/citylife/lm1.asp?article_id=2002/SRH%23167 Godubai.com. No More Soft Drinks. Retrieved September 20, 2008 from http://www.godubai.com/citylife/lm1.asp?article_id=2002/SRH%23167 Hutton, Will. (2003, April 20) Goodbye, Coke. Hello, Mecca Cola. Retrieved September 10, 2008 from http://www.washingtonpost.com/ac2/wp-dyn/A54023-2003Apr18?language=printer Isvara.org. Retrieved October 2, 2008 from http://www.isvara.org/forumen/topic.asp?TOPIC_ID=4868 Kawach, N. (2008). Expat growth widens UAE demographic gap. Retrieved October 4, 2008, from business24-7.ae Web site: http://www.business247.ae/articles/2008/9/pages/09252008_fd2ac698aa4a479592a2d192a1e21602.aspx Lewis, Kathryn (2008, September 12). Healthy school menus to fight child obesity. The National, retrieved September 25, 2008 from http://www.thenational.ae/article/20080911/NATIONAL/936257695/1020 Menafn.com. (26/03/2007). Oil, gas industry main source of air pollution retrieved September 25, 2008 from http://www.menafn.com/qn_news_story_s.asp?storyid=1093147707 Moubayed, Sami. (2008, August 18). Iran and U.S play the game of deceit. Gulf news, Retrieved October 3, 2008 from http://archive.gulfnews.com/articles/08/08/19/10238246.html 7

Murphy, Verity. (2003, January 8). Mecca Cola challenges US rival. BBC News, Retrieved September 20, 2008 from http://news.bbc.co.uk/2/hi/middle_east/2640259.stm Muslim, Nina (2008, September 12). Trauma centre reports more heat exhaustion cases. Gulfnews. Retrieved September 25, 2008 from http://archive.gulfnews.com/articles/08/09/12/10244396.html Nair, M. (2004) Pepsi eyes more growth in UAE. Retrieved October 4, 2008, from gulfnews.com Web site: http://archive.gulfnews.com/articles/04/04/06/117083.html PepsiArabia, (2008). Got Skills to show? Retrieved October 4, 2008, from pepsiarabia.com Web site: http://www.pepsiarabia.com/StreetFootball/Default_en_gb.aspx

Pepsi Arabia, (2008). Pepsi Football. Retrieved October 4, 2008, from pepsiarabia.com Web site: http://www.pepsiarabia.com/Default_en_gb.aspx#/football/default_en_gb.aspx Pepsi Arabia, (2009). Pepsi Music. Retrieved Febraury 27, 2008, from pepsiarabia.com Web site: http://www.pepsiarabia.com/Default_en_gb.aspx#/Music/Default_en_gb.aspx PepsiCo, (n.d). Any Questions?. Retrieved October 4, 2008, from pepsico.com Web site: http://www.pepsico.co.uk/newscentre/anyquestions PepsiCo,(2008). History. Retrieved October 4, 2008, from pepsico.com Web site: http://www.pepsico.com/PEP_Company/History/index.cfm

PepsiCo,(2008). PepsiCo Human Rights Workplace Policy. Retrieved October 4, 2008, from pepsico.com Web site: http://www.pepsico.com/PEP_Investors/CorporateGovernance/Policies/HumanRightsPoli cy/index.cfm PepsiProducFacts, (2008). Pepsi Products Information. Retrieved October 4, 2008, From pepsiproductfacts.com Web site: http://www.pepsiproductfacts.com/?or=pusa.1067

Pepsi Recycling.com. Retrieved October 2, 2008 from http://www.pepsirecycling.com/pepsi_intro.php Pepsi Recycling,(2008). What Pepsi is doing? . Retrieved October 4, 2008, from Pepsirecycling.com Web site: http://www.pepsirecycling.com/pepsi_intro.php Rashid, Mohsen (2008, March 14). High cholesterol level in UAE students: study. khaleej times, retrieved September 28, 2008 from (http://www.khaleejtimes.com/DisplayArticleNew.asp?section=theuae&xfile=data/theuae/2008/ march/theuae_march437.xml 8

Saberi, Mahmood. (2006, January31). Sharjah Municipality backs boycott. Gulfnews, Retrieved October 2, 2008 from http://archive.gulfnews.com/articles/06/01/31/10015403.html Stensgaard, A.(2008). PepsiCo International's employee development recognized by global accountancy body. Retrieved October 4, 2008, from ameinfo.com Web site: http://www.ameinfo.com/146902.html UAEInteract, (2008). UAE¶s nominal GDP to surge 24.5pc in 2008. Retrieved October 3, 2008, from uaeinteract.com Web site: http://www.uaeinteract.com/docs/UAEs_nominal_GDP_to_surge_24.5pc_in_2008/30012 .htm UAE one of highest water consumption rates in world. (2007, march 25). Retrieved September 12, 2008 from http://business.maktoob.com/NewsDetails20070218034557-UAE_one_of_highest_water_consumption_rates_in_world.htm Zawya,(2007). ³Dubai Refreshments Company" debuts on Dubai Financial Market. Retrieved October 4, 2008, from zawya.com Web site: https://www.zawya.com/story.cfm/sidZAWYA20070108145505/%22Dubai%20Refresh ments%20Company%22%20debuts%20on%20Dubai%20Financial%20Market%20

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Appendices Appendix 1: History of Pepsi A pharmacist by profession, Caleb Bradham the founder of Pepsi first created the drink in 1893 as ³Brad¶s Drink´ till it was renamed in 1898. The drink was created in North Carliona, USA and was first offered to Bradham¶s customers in his pharmaceutical firm. The drink was a mixture of carbonated water, vanilla, rare oils, sugar, pepsin and cola nuts. In 1903, the new name was trademarked and the first ever Pepsi logo was designed. As soon as it was taken over by the Loft Candy Company in 1931 the product started to attract a phenomenal amount of attention and had succeeded beyond all expectations due to its publicity gimmicks (Bellis, n.d). Universally, the slogan for Pepsi reads ³dare for more´. The company¶s mission statement is (PepsiCo, 2008): ³To be the world¶s premier consumer products company focused on convenient foods and beverages´ In 1964, PepsiCo started to diversify its product portfolio by introducing Diet Pepsi into the market (Bellis, n.d). As years passed PepsiCo launched more carbonated drinks like 7UP, Mirinda, Teem, Shani and Mountain Dew along with Aquafina, a brand of mineral water. In addition, the company started offering products under the brand names of Frito-Lay, Gatorade, Tropicana and Quaker (PepsiCo, 2008). Over a course of 100 years, PepsiCo launched several variations of Pepsi world-wide such as Pepsi Max, Pepsi One, Diet Pepsi Lime, Pepsi X and Diet Pepsi Wild Cherry along with a brand of mineral water and a number of health and energy drinks (PepsiProductFacts, 2008). Today PepsiCo is a massive conglomerate that manufactures and sells aerated and non-aerated drinks along with salty and sweet foods in over 200 hundred countries and territories (PepsiCo, n.d). World-wide PepsiCo has been using celebrities as brand ambassadors to promote its products (PepsiArabia, 2008). Famous celebrities from the movie, sports and glamour industry have been paid large sums of money to endorse products by PepsiCo. These celebrities are usually native to the country they are being used to promote Pepsi products in. Moreover they have organized various events that are directed towards the general public in various countries. For example the Pepsi Street Challenge that is organized for the talented players who reside in the UAE, Saudi Arabia, Kuwait and Oman (PepsiArabia, 2008).

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Appendix 2: Product Market Structure

Soft drink beverages

Carbonated

Non- carbonated

Colas

Sodas

Water

Juice

Milk

Regular

Diet

Max

Energy drinks

Beers

Masafi

Lacnor

Al- Rawabi

Caffeinated

Non- caffeinated

Red Bull

Barbican

Pepsi Coca Cola The product market structure is used to analyze the soft drink beverages in the UAE to determine Pepsi¶s relevant market. By analyzing the customer need for soft drink beverages in the UAE we can identify two product classes, carbonated drinks and non carbonated drinks. Carbonated drinks are divided into two product forms level, colas and sodas. As we can see in the diagram above, colas can be divided into three sub product form level; regular, diet and max. Regular Pepsi provides both caffeine and non caffeine that falls under the sub- sub product form levels. Brand supply level provides Pepsi. Non carbonated drinks can be divided into four product forms level, water, juices, energy drinks and milk.

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We can identify from the product market structure that the relevant market is in the brand supply level specifically under the regular caffeine Pepsi. This is because the degree of substitutability within the brand suppliers is high between Pepsi and Coca Cola.

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Appendix 3 Macro Environment (i) Economic Analysis

Economic Growth The U.A.E high growth made the U.A.E the second high growing country after Saudi Arabia. In the U.A.E, the real gross domestic product (GDP) increased by 7.4 per cent in 2007 and is estimated to have the same increase this year. (UAEinteract, 2008). "Indications show that the UAE's economy will continue to record high growth rates this year as they are projected to be almost equivalent to the growth rate of 7.4 per cent recorded in 2007," the report said. (UAEinteract, 2008). The report did not state any information on the country¶s GDP but in current prices. The current prices estimation was demonstrated by the UAE Ministry of Economy ³Dh729.3 billion in 2007 compared with Dh624.6 billion in 2006, a nominal growth of 16.8 per cent.´ (UAEinteract, 2008). Inflation Rate Inflation rates is rapidly and constantly increasing in the U.A.E. ³From less than three per cent in 2000, inflation in the UAE jumped above six per cent in 2005, nearly 9.3 per cent in 2006 and 11.1 per cent in 2007. ³(UAEinteract, 2008) "High economic growth in the UAE has been accompanied by a surge in consumer prices," the AMF said. "Official data showed inflation stood at around 11.1 per cent last year and is expected to remain high this year." (UAEinteract, 2008). (ii) Social Analysis

Demographics: The UAE constitutes of seven emirates that are home to over 4.48 million residents as of 2007. The population is expected to increase even further by the end of this year. Abu Dhabi, the capital of the UAE and Dubai are the highest in terms of population density, respectively. 80.7% of the population comprises of expatriates whilst the remaining 19.3% are nationals. Currently there are 1.47 females and 3.28 males residing in the country (Kawach, 2008). With a GDP of US $192.6 billion in 2007, the UAE is one of the most expensive places to live in (UAE Interact, 2008).

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Appendix 4: Micro Environment (i) Stakeholder s Analysis

Customers: Pepsi is a soft drink targeted towards everyone regardless of age, race or gender. Since its launch in 1893, Pepsi continues to serve its loyal customers and getting new customers due to its wide global reach. Over these 115 years Pepsi produced many variations to the brand such as Pepsi Max, Pepsi Lite, Diet Pepsi, and Pepsi Vanilla among others but none of them have ever managed to surpass the acceptance the original Pepsi has received. Pepsi is looked at as a drink that can be had anywhere and everywhere be it a party, a meal or a movie. Pepsi¶s pricing doesn¶t seem as if it has a specific target market to cater to, but it is a drink that has been produced for all. In addition Pepsi urges its patrons to recycle, which would eventually play a major role in the company¶s aim of conservation and reduction in landfill waste and pollution (PepsiRecycling, 2008). As of 2004, Pepsi has an astonishing 60% of the market share in the country and has more scope to increase the number (Nair, 2004). Media: Pepsi Arabia has managed to rope in famous Arabic personalities to promote its products throughout the Middle East. Celebrities such as Ahmed El Serif, Haifa Wehbe, Wael Kfoury, Elissa, Amr Diab among others have been brand ambassadors for Pepsi in the recent past. Lately, famous football players like Thierry Henry, David Beckham, Fabregas, Ronaldinho, Lionel Messi and Amr Zeki were signed on for a string of commercials and photo calls to promote the liquid candy brand in the GCC (PepsiArabia, 2008). These commercials are aired heavily on widely watched national channels and posters could be seen on various billboards erected on major roads and highways across the country. Pepsi believes in mass marketing since its market coverage is enormous and it reaches to a wide audience. Employees: Throughout its multinational branches, PepsiCo provides its staff a healthy and safe working environment (PepsiRecycling, 2008). PepsiCo provides its employers facilities that protect them and the physical resources they utilize. It operates as a mature and respective corporate citizen by following all rules and regulations implied by governments worldwide (PepsiCo, 2008). The Dubai Branch of PepsiCo International has been approved by the ACAA Employer professional development program which constantly keeps accountants skills and knowledge updated after qualifying from various continuous professional development activities such as work place learning and attending various courses and seminars (Stensgaard, 2008). At work sites Pepsi promotes conservation and recycling that would in return provide a clean environment for employees to work in (PepsiCo, 2008).

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Shareholders: In January 2007 Dubai Refreshments Company the local bottler for PepsiCo in Dubai became a public joint stock company that would start trading shares on the Dubai Financial Market commonly referred to as DFM. The company started trading in the market under the name of DRC. In collaboration with ESCA (the Emirates Securities and Commodities Authorities), the Dubai Financial Market has approved the shares of DRC that may be traded. As of January 2007, DRC¶s paid up wealth is said to be AED40 million. Globally, Pepsi is the second largest firm in the liquid candy industry. In the UAE, Pepsi still enjoys the top spot when it comes to soft drink providers in the country (Zawya, 2007). COMPETITORS There are mainly three types of competitors, direct, indirect and generic. This paper will focus more on the direct competitor to Pepsi as the direct competitor to Pepsi has a larger market share and is more effective. The main direct competitor to Pepsi is Coca-Cola. The Coca-Cola Company has produced a substitute to each Pepsi product and therefore, we can conclude that the competition between these two companies is very tough as it is very difficult to differentiate because they are very similar, except by inventive marketing communication and showing social, environmental or political interest. Coca-Cola is on the top of the major markets such as the U.S and the U.K, and Pepsi comes second. Although Coca-Cola is on the top of the major markets ,Pepsi outsells Coca-Cola in some markets and it is regarded as the top seller and the number one.Various changes and trends had emerged in the beverages market, which affected both companies market share. In 2006, PepsiCo and Coca-Cola suffered a 0.6% drop in the volume of soft drink. Moreover, PepsiCo¶s market share fell to 31.2% from 31.4% and Coca Cola¶s fell from 43.1% to 42.9% in 2005. (Ed. Levy J., 2007). These trends show us that the indirect and generic competitors are affecting the Cola beverage market.

Competitor Profiles Direct The Coca Cola Company was established in the United States in 1886. The Coca Cola Company applies a franchising model to their production and distribution.The Coca-Cola Company has acquired a trade secret license for their product formula. The Coca-Cola, have almost the same formula as the Pepsi and ingredients but different bottles and logo design. Coca-Cola has also introduced different flavors or cola but in certain parts of the world targeting a selected niche. For example, Coca Cola Raspberry was introduced to New Zealand only in 2005, and Coca cola has launched Coca Cola orange only in U.K in 2007. (wikipedia.com).

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Mecca Coke is a cola product that was inspired by Zamzam Cola. Mecca Coke has some similarity in its taste to Pepsi. A French entrepreneur, Mr. Mathlouthi is the owner of Mecca Cola. Mecca Cola is a new soft drink that was designed to act as a substitute for the American cola products for the people with the anti-American ideology. The goal of Mecca Coke is to be the number one choice for all Muslims. (Murphy V., 2003). Zamzam Cola is an Iranian based company that produces cola products that has the same concept of Pepsi. The product was launched in the UK in 2003. Zamzam Cola is based on values and it is ahas a strong code of ethics and social responsibility. Zamzam¶s profits are ³directed to the Palestinian cause, and to domestic charities.´ (www.spiritus-temporis.com).

Indirect Barbican is the leader in the flavored non-alcoholic beer in the region. Barbican was launched in Saudi Arabia in 1982. The target market of barbican is the youth. It has a large market share in the U.A.E sodas market; therefore, it is considered one of the tough competitors of Pepsi. (www.business.maktoob.com). Red bull is one of the famous energy drinks in US. Red Bull Energy Drink is known as a functional drink and not a thirst quencher. The composition of Red bull and its ingredients are the same all over the world except for some small differences in the vitamin context due to the national regulation. However, Redbull contains 4 major ingredients which are taurine, glucuronolactone, caffeine and B- group vitamins. Taurine is a vital amino acid that occurs in human body. It is involved in vital functions of the human body and is also contained in various foodstuffs. Glucuonolactone is a carbohydrate that is also essential in the human body and functions in various foodstuffs. Also Red Bull Energy Drink is qualified as halal where the source of ingredients was examined by responsible organization. (www.redbullusa.com). Generic Al-Rawabi is the largest dairy farms in UAE, positioned in Dubai. AlRawabi is the foremost producer of milk and milk products in Dubai and No. 1 leading dairy company in the UAE. Al Rawabi Milk comes from its own dairy farm. Its increasing demand for fresh juices made them increase their production to manufacture orange, mango, fruit and berry cocktail juices. The milk & fresh juices are developed and packed in completely automatic plants to reach consumers fresh every day in the UAE, Oman and Qatar. (www.jackys.com). Lacnor has been part of NFPC in 1981; it has dominated milk and fruit juice in UAE for almost 25 years. Its sales are growing rapidly every year and it is one of the best Known brands in UAE. Lacnor a market leadership have a market leader in spite of the growth of the competition and other market dynamics. Lacnor aims to reinforce itself by improving its products constantly. Lacnor has extended its few products in the early eighties to a wide range of products including diverse segments and needs of consumers. (www.lacnoruae.com).

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(ii)

Porter s Five Forces Analysis

The beverages market is a highly competitive market and therefore, we decided to use the Porter¶s Five Forces Analysis tool to help us analyze and have more understanding of the microenvironment. The five forces are threat of substitutes, the threat of new entrants, the intensity of rivalry competition and finally the bargaining power of buyers and suppliers. After analyzing these five forces, we will have enough information to (the question 2 from the slides).

Threat of substitutes The threat of substitutes for the Pepsi cola products is considerably very high, as other options of Coca Cola products and other beverages are widely available.

Threat of new entrants Threat of new entrants is seen to be very low, as the two companies PepsiCo and CocaCola have acquired a very large market share that would make it nearly impossible for any new company to enter the market and compete. The intensity of competitive rivalry The competition is very high between Pepsi and Coca-Cola at the brand supply. Bargaining power of buyers Bargaining power of customers is considered to be very low. The price of the cola products is very similar and therefore, the consumer is considered price sensitive and that is under one condition, which is if the consumer does not have brand loyalty. Therefore, to maintain its customers, Pepsi must keep their price similar or slightly competitive.

Bargaining power of suppliers The bargaining power of suppliers does not exist in the case of PepsiCo as they supply for themselves.

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