Americans consumed 23 gallons of CSDs annually in 1970

Consumption grew by 3% per year over the next 3 decades

Increasing availability of CSDs and introduction of diet and
flavored varieties
Non-cola CSDs were introduced

Economics of the US Carbonated Soft Drink
(CSD) Industry
Production & Distribution of CSD
1. Concentrate producers
2. Bottlers
3. Retail channels
4. Suppliers
1. Concentrate Producer
Blended raw material ingredients, packaged the mixture, shipped
those container to the bottler
Key production investment areas like machinery, overhead and
labor
A typical manufacturing plant cost - $25 million to $50 million
Customer Development Agreements (CDA) with retailers like
Wal-Mart
Significant costs were spent for advertising, promotion, market
research
Coca-Cola and Pepsi-Cola claimed a combined 74.8% of the U.S.
CSD market in sales volume in 2004

2. Bottlers
Purchased concentrate
Added carbonated water and
high-fructose corn syrup
Bottled or canned the
resulting CSD product
Delivered it to customer
account
2. Bottlers
Bottling process is capital intensive.
Packaging accounted for 40% to 45% of cost of sales and same
for concentrate and sweeteners for 5% to 10%.
Coke and Pepsi bottlers offered direct store door delivery.
Under Cooperative merchandizing agreements retailers agreed
to promotional activities for sales of soft drinks

3. Retail Channels
In 2004, distribution of CSDs in U.S. was through:
Super Markets (32.9%)
Fountain outlets(23.4%)
Vending Machines(14.5%)
Mass Merchandisers(11.8%)
Convenience Stores &Gas Stations(7.9%)
Other outlets(9.5%)

4. Suppliers
Coke and Pepsi were among the Metal Can industrys largest
customers.
Major Can producers- Ball, Rexam, Crown Cork & Seal

Evolution of Coke
Formulated in 1886 by John Pemberton, a pharmacist in Atlanta,
Georgia
Sold it at a drug store soda fountains as a potion for mental and
physical disorders
In 1891, Asa Candler acquired the formula, established a sales
force and began brand advertising
The formula for Coca-Cola syrup known as Merchandise 7X
remained a secret
The rest is history
Evolution of Pepsi
Invented in 1893 in New Bern, North Carolina by pharmacist
Caleb Bradham
By 1910 built a network of 270 bottlers
Declared bankruptcy in 1923 and again in 1932
Business began to grow during the Great Depression
Pepsi lowered price of its 12 oz bottle to a Nickel the same
price Coke charged for its 6.5-oz bottle
The Cola War Begins
Marketing Campaign
Beat Coke Americans preferred taste
Pepsi Generation No wonder Coke refreshes best
Young At Heart
Year 1960s the Armageddon
CSD
Mountain Dew (1964) Sprite (1961)
Non CSD
Duncan foods (coffee, tea, hot
chocolate)
The Pepsi Challenge
Blind taste test Rebates
Rolled out blind taste campaign
nation wide
Advertisements that questions
tests validity
Leadership
2001: Steve Reinemund
Grow the core add some more
1980 Roberto Goizueta
Acquisition of Quaker Oats Use of lower priced corn syrup against
sugar
ROI capital 29.3 (2003) from 9.5 (1996) Sold non-CSD business
Expansions
Acquired Pizza hut (1978), Toco Bell
(1986), KFC (1986)
Exclusive deals with Burger king,
McDonalds
Pepsi purchased Quaker Oats
(Gatorade) in 2000
Acquired Planet Java coffee drink
brand (2001)
1996-2004: Reversal of Fortune
Pepsi flourished Coke struggled
3% growth in 2004 Annual growth in net income falls to
4.2% from 18%(1990-96)
ROI 29.3% from 9.5%(1996)
Quest for Alternatives
U.S. Market share for Pepsi and Coke
Diet soda-24.6%(1997) to 29.1%(2004)
Non-carbs 12.6%(2000) to 13.7%(2004)
No longer designing of marketing course
established as total beverage company
Reluctant to diversify

Evolving Structures and Strategies
System profitability
Price war (1990s)
Low-cost strategy by the bottlers
Incidence pricing
Retailers resist price increases (Wal-Mart)
Cokes difficult relationship with bottlers like CCE was termed as
Dysfunctional
Internationalizing the Cola Wars
Next largest market: Mexico, Brazil, Germany, China and the
United Kingdom, Asia and Eastern Europe
American: Chinese - 837 eight ounce cans: 21 eight ounce cans
Cokes dominance : Western Europe, much of Latin America,
while Pepsi: Middle East and Southeast Asia
Coca-Cola became synonymous with American culture
About 70% of Cokes sales and about 80% of its profits came from
outside the United States; only about one-third of Pepsis
beverage sales took place overseas
Arab and Soviet exclusion of Coke
Worlds Market Share: Coke 51.4% and Pepsi 21.8%
SWOT Analysis: Pepsi
Enjoys a High-Profile Global Presence
Owns the Worlds 2
nd
Best-Selling Soft Drinks
Brand
Constant Product Innovation
Aggressive Marketing Strategies
A Broad Portfolio of Products
Strength Weakness
Opportunity Threat
Carbonates Market is in Decline
Pepsi is Strongest in North America
They Only Target Young People
Increased Consumer Concerns in comparison
to bottled water
Growth in Healthier Beverages
Growth in Tea and Asian Beverages
Growth in the Functional Drinks Industry
Obesity and Health Concerns
Increased Marketing and Innovation
Spending by Coke
Restriction to only North America as target
market
SWOT Analysis: Coke
Enjoys a High-Profile Global Presence
Fourth amongst the top five leading brands
Broad-based bottling strategy
47% of global volume sales in carbonates
Strength Weakness
Opportunity Threat
Carbonates Market is in Decline
Over-complexity of relationship with bottlers
in North America
Inefficient execution of business
Soft drinks volumes in the Asia-Pacific region
forecast to increase by over 45%
Brands like Minute Maid Light and Minute
Maid Premium Heart Wise are positioned
well with the Health-concerned market
Use distribution strengths in Eastern Europe
and Latin America
Growing "health-conscience" society
PepsiCos Gatorade, Tropicana and Aquafina
are stronger brands
Boycott in the Middle East
Protest against Coke in India
Negative publicity in Western Europe
According to this case Coke and Pepsi both cumulative
spending on advertising.
Coke and Pepsi established brand identity over a long period
of time. Now these brand become culture of almost every
countries and in the case of Coke become part of World
Culture
So this is very strong point of the these brand for establish
their identity and their consumer attachment

Brand Equity
Coke and Pepsi both establish almost for more than a century
and consumers have emotional attachment with these two
brands.
Consumers identify these two brands for distance, these all
things are the brand strategies.
Advertisement create cozy relationship with their consumers
they feel relax to use these brands.

Brand Attachment
In these both companies they invests heavy amount
which other competitor do not invest in their
company.

Competitive Advantage
Coke and Pepsi have focus on customer
segmentation, for each segment they can easily
serve.
They can easily search new segment for their
products.
Franchise system is the best way to search new
segmentation, which have very strong segment.
And how can they serve in those segments.
Segmentation proved very easily approach for their
targeted customers.

Segment
Could they boost flagging domestic CSD sales?
Through Product innovation
Aggressive marketing and promotion
Packaging innovations
By diversification.
Innovation : e.g diet coke
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
Because of Contamination issue, Obesity issue
Was the fundamental nature of cola war changing ?
Due to the obesity issue and introduction of non carbonated drinks nature
change up-to some extent but still they have to focus on csd .

Key questions
Initially through the early 1960s Coke was the
winner.
But passage of the time Pepsi creates strong
hold on the market.
Coke was focused on overseas markets, while
Pepsi focused on the US grocery channel.
Coke and Pepsi hold almost 75% the whole
market and 25% have other local CSDs or non
CSDs brands.
Conclusion
Thank You