cola wars case presentation

1. Economics of the US Carbonated Soft Drink
(CSD) Industry
• 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

2. Production & Distribution of CSD
1. Concentrate producers
2. Bottlers
3. Retail channels
4. Suppliers

3. 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

4. 2. Bottlers
• Purchased concentrate
• Added carbonated water and
high-fructose corn syrup
• Bottled or canned the
resulting CSD product
• Delivered it to customer
account

5. 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

6. 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%)

7. 4. Suppliers
• Coke and Pepsi were among the Metal Can industry’s largest
customers.
• Major Can producers- Ball, Rexam, Crown Cork & Seal

8. 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

9. 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

10. The Cola War Begins
Marketing Campaign
“Beat Coke” “American’s preferred taste”
“Pepsi Generation” “No wonder Coke refreshes best”
“Young At Heart”

11. Year 1960s – the Armageddon
CSD
Teem (1960) Fanta (1960)
Mountain Dew (1964) Sprite (1961)
Diet Pepsi (1964) Low calorie cola Tab (1963)
Non CSD
Frito Lays Minute Maid (fruit juice)
Duncan foods (coffee, tea, hot
chocolate)
Belmont Springs water

12. The Pepsi Challenge
Blind taste test Rebates
Eroded Coke’s Market share Retail price cuts
Rolled out blind taste campaign Advertisements that questions
nation wide tests’ validity
1978 – Re-negotiation of
contract with franchisee bottlers

13. Leadership
2001: Steve Reinemund 1980 – Roberto Goizueta
“Grow the core add some more”
Launched new CSD products Most valuable Brand
(Sierra Mist, Mountain Dew code red)
Acquisition of Quaker Oats Use of lower priced corn syrup against
sugar
Net income raised by 17.6% per year Double spending on ads 1981-84
ROI capital 29.3 (2003) from 9.5 (1996) Sold non-CSD business
Introduced Diet Coke (1982)

14. Expansions
Acquired – Pizza hut (1978), Toco Bell Exclusive deals with Burger king,
(1986), KFC (1986) McDonalds
Merged with Frito Lay to form PepsiCo Purchased Minute Maid, Duncan
Foods, Belmont Springs water
Pepsi purchased Quaker Oats Acquired – Planet Java coffee drink
(Gatorade) in 2000 brand (2001)
Acquired - Mad River juices and tea

15. 1996-2004: Reversal of Fortune
Pepsi flourished Coke struggled
Acquisition of Quaker oats (2000) Flat growth
3% growth in 2004 Annual growth in net income falls to
4.2% from 18%(1990-96)
Net income rose by 17.6% per year Shareholders return -26%
ROI 29.3% from 9.5%(1996)
Shareholders return 46%

16. Quest for Alternatives
U.S. Market share for Pepsi and Coke
• 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%
No longer designing of marketing course Reluctant to diversify
– established as total beverage company
Diet Pepsi as flagship brand - Diet Pepsi,
Pepsi One, Diet Coke with Splenda

17. Evolving Structures and Strategies
• System profitability
• Price war (1990s)
• Low-cost strategy by the bottlers
• Incidence pricing
• Retailers resist price increases (Wal-Mart)
• Coke’s difficult relationship with bottlers like CCE was termed as
“Dysfunctional”

18. 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
• 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
• World’s Market Share: Coke 51.4% and Pepsi 21.8%

19. SWOT Analysis: Pepsi
• Enjoys a High-Profile Global Presence • Carbonates Market is in Decline
• Owns the World’s 2nd Best-Selling Soft Drinks • Pepsi is Strongest in North America
Brand • They Only Target Young People
• Constant Product Innovation
• Aggressive Marketing Strategies
• A Broad Portfolio of Products
Strength Weakness
Opportunity Threat
• Increased Consumer Concerns in comparison • Obesity and Health Concerns
to bottled water • Increased Marketing and Innovation
• Growth in Healthier Beverages Spending by Coke
• Growth in Tea and Asian Beverages • Restriction to only North America as target
• Growth in the Functional Drinks Industry market

20. SWOT Analysis: Coke
• Enjoys a High-Profile Global Presence • Carbonates Market is in Decline
• Fourth amongst the top five leading brands • Over-complexity of relationship with bottlers
• Broad-based bottling strategy in North America
• 47% of global volume sales in carbonates • Inefficient execution of business
Strength Weakness
Opportunity Threat
• Soft drinks volumes in the Asia-Pacific region • Growing "health-conscience" society
forecast to increase by over 45% • PepsiCo’s Gatorade, Tropicana and Aquafina
• Brands like Minute Maid Light and Minute are stronger brands
Maid Premium Heart Wise are positioned • Boycott in the Middle East
well with the “Health-concerned” market • Protest against Coke in India
• Use distribution strengths in Eastern Europe • Negative publicity in Western Europe
and Latin America

21. Brand Equity
 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

22. Brand Attachment
• 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.

23. Competitive Advantage
• In these both companies they invests heavy amount
which other competitor do not invest in their
company.

24. Segment
 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.

25. Key aspects
Who has been losing ?

Smaller Brands:

Because-Entry Barrier, Duopoly
Who has been wining:

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%

26. Key questions
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 .

27. Conclusion
 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.

28. Thank You