Cola Wars Continue

Case Study Analysis

Presented by-
Dhirendra Singh
Erwin Saurabh Tigga
Debabrata Swain
Dilip Kumar
Ganesan.M
War over $66bn industry

lasted between 1950-1990s

 New Challenges
• Cola wars continued into the 21st century with
new challenges
– Was their era of sustained growth and profitability
coming to a close?

– Could they boost flagging domestic CSD sales?

– Would newly popular beverages provide them with

new (and profitable) revenue streams?
Production & distribution of CSD
• concentrate producers
• Bottlers
• Retail channels
• suppliers
 Concentrate Producer
• Blended raw material ingredients,packaged
the mixture, shipped those container to the
bottler.
• Key production investment areas
- machinery, overhead and labor.
A typical manufacturing plant
cost - $25 million to
$50 million
 Concentrate Producer
• Significant costs were
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
Bottlers
• Bottlers purchased
concentrate
• Added carbonated
water and high-fructose
corn syrup
• Bottled or canned the
resulting CSD product
• Delivered it to customer
account
 Bottlers
• Bottling process is capital intensive.
• Packaging accounted for 40% to 45% of sales,
same for concentrate and sweeteners for 5%
to 10%.
• Coke and Pepsi bottlers offered “direct store
door delivery”.
• Cooperative merchandizing agreements is a
key ingredient of soft drink sales.
 Profitability

• Concentrate producer
earn more profit than
bottler.

• Cost of sale is more in

bottler.
 Retail channel

• Super markets
• Vending machines
• Convenience
stores
• Gas stations
 Suppliers to Bottlers
• Coke and Pepsi were
among the metal can
industry’s largest
customers.
• Major can
producers- Ball,
Rexam, Crown Cork
& Seal
 Cola War begins
• “Beat Coke”
• “American’s preferred
taste”
• “Pepsi Generation”
• “No wonder Coke
• “young at heart.” refreshes best”
• Concentrate Price 20%
lower
• 1970 – larger bottlers
 Year 1960s – the Armageddon
• Teem (1960) • Fanta (1960)
• Mountain Dew (1964) • Sprite (1961)
• Diet Pepsi (1964) • Low calorie cola Tab (1963)

Non-CSD (Purchased)
Non-CSD (Merged)
• Minute Maid (fruit juice)
•Frito Lays
• Duncan foods (coffee, tea,
hot chocolate)
• Belmont Springs water
 Pepsi’s Challenge
• Blind taste test • Rebates
• Eroded Coke’s Market share • Retail price cuts
• Part of Pepsi’s promotional • Advertisements that
strategy not a part of questions tests validity
marketing research. • 1978 – Re-negotiation of
contract with franchisee
bottlers
 Leadership
• 2001: Steve Reinemund
“Grow the core add some
more”
• Launched new CSD products
(Sierra Mist, Mountain Dew
code red)
• Acquisition of Quaker Oats
• Net income raised by 17.6%
per year
• ROI capital 29.3 (2003) from
9.5 (1996)
• 1980 – Roberto Goizueta
•Share price rose by 3500%
•Most valuable Brand
• Use of lower priced corn
syrup against sugar
• Double spending on ads
1981-84
• Sold non-CSD business
• Diet Coke (1982)
 Product Launch
• Teem (1960) • Fanta (1960)
• Mountain Dew (1964) • Sprite (1961)
• Diet Pepsi (1964)
• Low calorie cola Tab (1963)
• Lemon Lime Slice (1984)
• Caffeine free Pepsi Cola • Diet Coke (1982)
(1987) •Caffeine free coke (1983)
• Sierra Mist (2000) •Coca-Cola Classic (1985)
• Mountain Dew Code Red
(2001) • New Coke (1985)
• Pepsi One (2005) • Cherry Coke (1985)
• Diet Coke with Splenda • Sierra Mist Free (2004)
(2005)
• Coca-Cola Zero (2005)
 Expansions
• Acquired – Pizza hut • Exclusive deals with Burger
(1978), Toco Bell (1986), king, McDonalds
KFC (1986) • Purchased Minute Maid,
• Merged with Frito Lay to Duncan Foods, Belmont
form PepsiCo Springs water
• Pepsi purchased Quaker • Acquired – Planet Java
Oats coffee drink brand
• Acquired - Mad River juices
and tea
 Marketing Campaigns
• Pepsi generation • Americans Preferred
• Young at heart Taste
• Pepsi challenge • No wonder Coke
• Smart Spot – good for refreshes best
you
 Challenges
•Flat demand during 1998 to 2004.
•Contamination scare at India
•Obesity Issue
•Challenges of Internationalization
 Challenges to Coca-Cola
• Performance & execution:
on providing alternative beverages
on adjusting key strategic relationships,
on cultivating international markets
• Currency crisis in Asia and Russia
• Recall in Belgium – (public relations disaster)
• Series of legal problems
 1996-2004:reversal of fortune
• Pepsi flourished • Coke struggled
• Acquisition of • Flat growth
Quaker oats
• Annual growth in
• 3% growth 2004
net income falls to
• Net income rose by 4.2% from
17.6% per year 18%(1990-96)
• ROI 29.3% from
9.5%(1996) • Shareholders return
• Shareholders return -26%
46%
 Quest for alternatives
• Market share:
• CSD- 80%(2000) to 73.1%(2004)
• Diet soda- 24.6%(1997) to 29.1%(2004)
• Bottled water 6.6%(2000) to 13.2%(2004)
• Non-carbs 12.6%(2000) to 13.7%(2004)
• Non-carbs & bottled water contribution to volume
growth – coke 100% & Pepsi 75%
 Quest for alternatives
• No longer designing of
marketing course • Reluctant to
• Diet Pepsi, Pepsi One, diversify
Diet Coke with slpenda
• Diet Pepsi as flagship
brand
• Non-CSD: total beverage
company
Evolving stuctures and stratgies
• System profitability
• Price war
• low -cost strategy by the bottlers
• Incidence pricing
• Retailers resist price increases(Wal-Mart)

• Coke’s relationship with bottlers :

• Dysfunctional,
 Internationalisation
• Next largest market: Mexico, Brazil, Germany, China, and
the United Kingdom
• Asia and Eastern Europe
• 837 eight ounce cans: 21 eight ounce cans
• Coke’s dominance : Western Europe, much of Latin
America, while Pepsi :Middle East and Southeast Asia.
• Coca-Cola became synonymous with American culture.
• About 70% of Coke’s sales and about 80% of its profits
came from outside the United States; only about one-
third of Pepsi’s beverage sales took place overseas.
• Arab and Soviet exclusion of Coke
 Venezuela crisis
Before After
 SWOT : Strengths
PepsiCo Brands Enjoy a
• • Coke Brands Enjoy a
High-Profile Global High-Profile Global
Presence
Presence
•Pepsi Owns the World’s • Four of the top five
2nd Best-Selling Soft Drinks leading brands
Brand
•Constant Product • Broad-based bottling
Innovation strategy
• 47% of global volume
•Aggressive Marketing sales in carbonates
Strategies Using Famous
Celebrities

•A Broad Portfolio of
Products
 SWOT : Weaknesses
•Carbonates Market is • Carbonates Market
in Decline is in Decline
•Pepsi is Strongest in • Over-complexity of
North America relationship with
•They Only Target bottlers in North
Young People America
• Execution ability
 SWOT :: Opportunities
•Increased Consumer • Soft drinks volumes in the
Concerns with Regard to Asia-Pacific region
Drinking Water forecast to increase by
over 45%
•Growth in Healthier • Brands like Minute Maid
Beverages Light and Minute Maid
Premium Heart Wise are
•Growth in RTD Tea and positioned well with the
“Health-concerned”
Asian Beverages market
•Growth in the Functional • Use distribution strengths
Drinks in Eastern Europe and
Industry Latin America
 SWOT : Threats
•Obesity and Health • Growing "health-
Concerns conscience" society
• PepsiCo’s Gatorade,
•Coca-Cola Increases Tropicana and
Marketing Aquafina are
and Innovation stronger brands
Spending to • Boycott in the Middle
$400M Globally East
• Protest against Coke
•Relying on North in India
America only • Negative publicity in
is Bad WesternEurope
Profit Margins of Industry Concentrate
Producers and Bottlers
US Liquid consumption trends (gallons/capita)

Source- US Beverage industry Consumption Statistics

 Promising Segment
US Liquid consumption trends (gallons/capita)

Source- US Beverage industry Consumption Statistics

Market Share by case volume(percent)
Coca cola 1966-04 : 29.04% Gain
PepsiCo 1966-04 : 55.14% Gain
Others 1966-04- 82.55 % loss
 Q:Who has been losing?
• Smaller Brands:
• Because-Entry Barrier, Duopoly
Q: Who has been wining the war?
• 1950: Coke have 47% and Pepsi have 10%
• 1970: Coke have 35% and Pepsi have 29%
• 1990: Coke have 41% and Pepsi have 32%
• 2000:Coke have 44%Pepsi have31.4% other
beverage Cadbury Schweppes 14.7%
• 2006:Coke have 43.1% Pepsi have 31.7% Cadbury
Schweppes 14.5%
 Key questions
Q: Could they boost flagging domestic CSD sales?

• Through Product innovation

• Aggressive marketing and promotion
• Packaging innovations
• 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
• Contamination issue, Obesity issue
Q-Can Coke and Pepsi sustain their profits in the
wake of flattening demand and the growing
popularity of non-CSDs?

• Coke and Pepsi did not just inherit this business they
created it.
• By diversification.
• Innovation : e.g diet coke
Thank
you