Cola Wars

Bus 497a
Spring 2008
TEAM JUPITER
Background
 Coke: First formulated in 1886

 Pepsi: Invented in 1893

 “Cola War” began when Alfred Steele (of

Pepsi) became Coke CEO

 1980’s Bottler Consolidation began

Key Terms
 CSD – Carbonated Soft Drink
 CP – Concentrate Producers
 Blended raw materials and shipped to Bottlers
 Bottlers
 Manufacturing of beverages
 Distribution
 Retail Channels
 Supermarkets, Fountain Outlets, Vending Machines, Mass
Merchandisers, CV, Gas Stations
Industry Pipeline
Formulation Houses
Concentration Suppliers
Bottlers
Distributors
End Consumer

****Vertical Integration****
Corporate Level Strategies of
the Past
 Coke and Pepsi
 Single Business
 Economies of Scope
 Market Power
 Multipoint Competition
 Vertical Integration
 Profitability

****Expansion and Development****

CL Strategies Con’t.
 Deployment Strategy
 Vertical Integration
 Internationalization
 Internal Growth
Business Level Strategies
 Differentiation, Initially (Uniqueness and
Broad Target)

 Cost Leadership, Later On (Cost and Broad

Target)
What are the key issues?
 Decline in overall sales of cola industry

 Emergence of New Age Beverages

 Coke vs. Pepsi

 Companies focused on rivalry rather than on the
industry itself
Industry Issues
 Major bottlers have been consolidated which puts smaller bottlers at the mercy
of Pepsi and Coca-Cola's distribution systems

 Bottlers' profitability is in danger with slim margins and declining growth

 CSDs made up a substantial share of US Liquid Consumption, but this doesn’t

make them immune to risk (limited portfolio, non diversified)

 International markets are an important source of revenue and improvements in

world economies are forecasted

 Growing health concerns for caffeine and sugar consumption threatens industry
performance
Decline In CSD Consumption
 Consumption declines as consumers find
healthier alternatives
Continued Growth
 Don’t be fooled; CSD industry continues to
grow
Recommended Strategies to
Follow (Corporate)
 Deployment Strategy
 Acquisition of Smaller Beverage Companies
 New Relations (contracts) w/ bottlers
 Directional Strategy = DEVELOPMENT
 Portfolio Strategy = DIVERSIFICATION
 Diversification Marketing Product
 Old Market, New Product
Recommended Strategies
Business Level
 Integrated Cost Leadership Differentiation
 New Unique Products
 Marketed towards niche and board markets
 Most cost efficient as possible
Industry Recommendations
 Industry should be proactive about growing health
concerns in US Market

 Companies need to refocus energies on advertising

to rejuvenate industry and to fuel product demand
both domestically and abroad

 Cola industry leaders, Coca-Cola and Pepsi, should

take steps to better understand their competitive
market environment
2008 Update (Recent Strategic Movies)

 Pepsi
 Acquisition of Naked Juice
 Acquisition of Fuze
 Expansion of existing product lines

 Coke
 $4.1 Billion acquisition of Glacaeu (Vitamin Water)
 Multiple New Age beverages

****PORTFOLIO DIVERSIFICATION****
2008 Update Con’t. Industry
 Strong Performance of New Products
2008 Update Con’t.
Thank You