1. Coke & Pepsi in 2006

2.  Abhishek Rahman
 Md. Estanul Kabir
 C. M. Sadat Ullah
 Abdullah Al Jubayer
 Amitabh Roy

3. • 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 1891, Asa Candler acquired the
formula, established a sales force and
began brand advertising of Coca-Cola.
• In 1919, went public under control of
Robert Woodruff expanded and
developed in national and international
markets
• Successful during WWII with the high
CSD consumption from the U.S soldiers

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

5.  So called cold wars were fought over $66 billion in
*CSD industry in the USA
 Both achieved average annual growth of 10%
within1975 ~ Mid 90’s
◦ Continues growth in the USA and worldwide
 However, the war started more then a centaury ago
 At the late 90’s
◦ US per capita went down slightly
◦ Their relationship began fray
◦ Avg consumption of 52 gallons by the US people
*CSD: Carbonated Soft Drinks

6.  At the late 90’s
◦ Both experienced ups and downs on
 Coke started facing operational difficulties
 Pepsi became more aggressive and launched new
alternatives
◦ & both started working on
 Developing Brand Strategies
 Pricing &
 Bottling

7.  Consumption grew by an avg. of 3% annually
 In 1970, avg. consumption was 23 gallons
 Went up because of
◦ Availability of CSD
◦ Introduction of diet &
◦ Flavored items
 Alternatives & status of CSD
◦ Beer, Milk, Coffee, Bottled water, juices, tea, powdered
drinks, wine, sports drinks, distilled spirits & tap water
◦ Yet, Americans drank soda than any other beverage
◦ Cola maintained its dominance although its market share
◦ Dropped from 71% in 1990 to 60% in 2004

8.  Involved 4 major participants
◦ Concentrate Producers
◦ Bottlers
◦ Retail Channels
◦ Suppliers

9.  Concentrate Producers
◦ Blend raw material ingredients
◦ Packaged the mixture in plastic canisters &
◦ Shipped the containers to the bottlers
 Concentrate makers often added artificial
sweetener with regular CSDs
 Bottlers added sugar or high fructose corn syrup
themselves

10.  Concentrate manufacturing
◦ Involves capital investment in Machinery & overhead
◦ Cost about $ 25 million to $50 million
 Good enough to serve the entire United States
 Most significant cost involves
◦ Advertising, Promotion, Market Research and bottler support
◦ Innovative & sophisticated campaigns
◦ Spend on joint marketing programs with bottlers
 Also look after
◦ Customer development agreement
◦ Supporting the bottlers in Sales efforts, setting standards &
suggesting operational improvements
◦ Negotiate with the bottlers’ supplier for reliable supply, fast
delivery and lower price
 Sweetener & packaging makers

11.  Coca cola and Pepsi Cola combined 74.8% of
the US CSD market sales volume in 2004
followed by Cadbury and Cott Corporation

12.  Bottlers
◦ Purchased concentrate, add Carbonated water and
high fructose corn syrup ( in bottled or canned)
◦ Deliver to the customer accounts
◦ Responsible for
 Direct Store Door
 Secure shelf space
 Staking CSD products
 Positioning the brands trademark label
 Setting POS & ensure in store displays

13.  Bottlers process was capital intensive
◦ High speed production line
◦ Cost $4 million to $10 million each
 Invest in trucks and distribution network
◦ Cost allocation
 Packaging involved 40% cost
 Cost of sales 45%
 Sweeteners 5 to 10%
 Concentrate 5%
◦ Gross profit routinely exceeded 40%
◦ Operating margin within 7% to 9%

14.  Retail Channel
◦ Pepsi had focused on sales through retail outlets
◦ Coke had dominated fountain sales
 Restaurants, Cafeterias and other outlets using
fountain type dispensers
◦ At the 80’s
 Pepsi entered into the restaurants by acquiring Pizza
Hut, Taco Bell, KFC
 Coca Cola took the same route targeting the
competitors - Burger King, Wendy’s &
Burger, McDonadls, Subway

15.  Sales through Retail Channel
32.90%
23.40%
14.50%
11.80%
7.90%
9.50%
Supermarkets
Fountain Outlets
Vending Machines
Mass Merchandisers
Convenience stores
and Gas Stations
Other Outlets

16.  Suppliers to Concentrate producers & Bottlers
56%
42%
2%
Metal Cans
Plastic bottle
Glass bottle

17. Growth of Pepsi at starting of 1950
and onwards
 “Beat Coke” motto of Pepsi
 Pepsi improves distribution channel
and sales through supermarket
 Convenient SKUs size of Pepsi picks
up consumption
 Marketing Campaign named “Pepsi
Generation” for young and teenagers

18.  Pepsi sells concentrate to its bottlers @ 20%
lower cost of Coke
 Pepsi take initiatives to modernize the
Bottlers plant and store delivery service
 Coke remain unchanged with 800
independent bottlers
 After modernizing the bottlers of
Pepsi, increase the rate of concentrate equal
to coke rate by promising to take part in
advertising and marketing campaign

19.  Coke experiment with new cola and non cola
flavors, that includes
Coke
- Fanta in 1960
- Sprite in (1961)
- Tab in 1963, low calorie cola
Pepsi
- Teem in 1960
- Mountain Dew in 1964
- Diet Pepsi in 1964
 Both introduced nonrefundable bottle and
convenient bottle size

20.  Coke purchased
- Minute Maid : fruit juice
- Duncan Foods: Coffee, Tea, chocolate etc
 Pepsi merged with
- Frito-Lay: snack food to form PepsiCo
 Bothe diversify their business to reach same
target customer, use delivery system and same
marketing orientation
 Coke take initiatives to expand in overseas
market and become aggressive in late 1970

21. 0
5
10
15
20
25
30
35
40
45
Year 1966 1970 1975 1980 1985 1990 1995 2000 2004E
Consumption Comparison
Coke
Pepsi

22.  Coke advertising message
◦ “American’s preferred Taste” in 1955 and
◦ “No Wonder Coke refreshes Best” in 1960
 Pepsi’s Market Survey and demonstration
that Consumer Preferred Pepsi to Coke
 Coke Counter part- discounting on price
 Pepsi passed Coke in food store sales for first
time in 1979

23.  Coke switched from using sugar to high-
fructose corn syrup, lower price
concentration
 Doubling advertising cost in 1981 to 1984 by
Coke and Pepsi.
 in 1982
◦ Coke sold off Non-CSD business and introduced
Diet Coke
◦ became most successful beverage in Eighties

24.  In between 1983 to 1987
◦ Coke again introduced 11 new products and
◦ Pepsi introduced 13
Coke- Caffeine free coke, Cherry Coke etc
Pepsi- Lemon lime slice, caffeine free Pepsi cola
 Both introduced new packaging, bottle size and shape.
Discounting from both parties grew the customer
 Cadbury Schweppes become third largest concentrate
producer and became threat to the two giants

25.  Both Coke and Pepsi is busy to manage Bottlers
 Coke started to buy poorly managed Bottlers and
sell those to better performing bottlers
 Coke bought two big bottlers in 1985 and owned
one third coke’s volume in company owned
operations and created Coca-Cola Enterprise
(CCE)
 Pepsi acquired few bottlers and open subsidiary
by name of Pepsi Bottling Group.

26.  CCE raised $1 billion from capital market
through offering 51% its shares to public
 Improved operational excellence through
◦ Increasing territories size
◦ Organizing purchasing arrangements
◦ Downsizing its works force by 20%
 Coke became as an investment bank
specialized in bottler deals

27.  New challenges faced by the CSD Industry
from 90’s onwards
◦ Core product demand was leveling down
◦ Sales volume grew at a meager rate of 1% or less
between 1998 to 2004 in contrast to 3% to 7%
during the 1980’s and early 1990’s
◦ Global CSD demand remained flat increasing only
0.26 billion during 1999 and 2003

28.  Challenges related to performance and
execution were addressed by
◦ providing alternatives beverages to the health
conscious consumers
◦ Adjusting key strategic relationships
◦ Cultivating international markets

29. Coke
 Unsuccessful
execution of several
initiatives
◦ Failed joint ventures with
P&G and Quaker Oats
(the latter was later
purchased by PEPSI)
 Disagreement among
internal top
management and
radical shifts in
company policies
◦
Pepsi
• “Grow the core and add
some more” – Pepsi CEO
– Diversified portfolio of
Products
– Launch of new CSDs
like Sierra Mist and
Mountain Dew and
expanding into other
beverage categories
like Getorade
– Volume growth by 3% in
2004
• Proactive to consumer
demand
– Pepsi distributed its
focus to DIET PEPSI to
cater the increasing
popularity of
alternative beverages

30.  Share of total CSD volume grew from
24.6% to 29.1% during 1997 to 2004
◦ Primarily due to the gaining popularity of the
diet/alternative beverages
◦ New products such as Coca-Cola Zero, Pepsi
One and Sierra Mist Free became popular among
young fitness conscious individuals especially
men
 In 2004 the US market experienced:
◦ 1% growth in CSD volume
◦ 7.6% growth in Non-Carb volume
◦ 18.8% leap in single-serve bottled-water volume

31. • In 2004, Non-carb/alternative drinks grew at twice the rate of
other food and beverage items
 Pepsi was more aggressive than Coke in adapting
to this shift in trend
◦ Pepsi developed a portfolio of Non-CSD products that
outsold Cokes’s rival product in each category
 Getorade (Pepsi) led PowerAde (Coke) by 80.4% to 18.1%
 Tropicana (Pepsi) lead Minute Maid (Coke) by 26.8% to 14.8%
◦ In the overall non-carb market Pepsi had a market share of
47.3% with Coke’s share of 27%

32.  After losing out on market share in the CSD
category both Coke and Pepsi fared back in
the $11.4 billion bottled water category
 Primarily it was their distribution prowess
that gave them a competitive advantage over
the other companies selling Spring water.
 By 2004:
◦ Aquafina (Pepsico) led the market share with 13.6%
over Dasani (Coke) holding 12.1%
◦ The market leader was however Nestle waters with
42.1% market share

33.  Relationship with the bottlers has been critical to Pepsi’s
success over Coke
 Coke raised its concentrate prices leaving the bottlers a
narrower profit margin in the highly price sensitive industry
 Pepsi’s higher-margin-channels (especially the convenience
and gas channel) gave its bottlers wider profit margins as
these were high consumption venues. The increasingly 20oz
PET bottle yielded margins as high as 35%, compared with the
5% and 7% margins on cans!