COLA WAR CONTINUES

AND

IN 2006

- GROUP 1
21P061 Abhinav Goyal
21P062 Abhishek Paitya
21P081 Gurrehmat Singh Oberoi
21P082 Indrasom Sinha
21P101 Rashi Kabra
21P102 Swechha Ravaloori
 THE U.S. CARBONATED SOFT DRINKS (CSD) INDUSTRY
Consumption grew In 2004, the average Increase in Introduction of Non-
The Americans
3% per year in the American drank over availability and Cola CSDs diversified
consumed 23 gallons
next 3 decades 52 gallons of CSDs flavoured and diet the segments
of CSDs annually in
per year varieties fuelled the
1970
growth of CSDs

The production and distribution of CSDs U.S. Soft Drinks Market Share (By Volume)
involved four major participants: 50
45

Case Volume(Percentage)
40
35
30
25
20
CONCENTRATE RETAIL
BOTTLERS SUPPLIERS 15
PRODUCERS CHANNELS 10
5
0
1966 1970 1975 1980 1985 1990 1995 2000 2004E

Coca-Cola Company PepsiCo.

Cadbury Schweppes Others
 CONCENTRATE PRODUCERS

The concentrate producer The concentrate A typical concentrate

blended raw material manufacturing process manufacturing plant cost
ingredients, packaged the involved little capital about $25 million to $50
mixture in plastic canisters, investment in machinery, million to build, and one
and shipped those overhead, or labor. plant could serve the entire
containers to the bottler. United States.

While concentrate producers

implemented and financed
marketing programs jointly
with bottlers, they usually
took the lead in developing
those programs, particularly
when it came to product
development, market
research, and advertising.
Among national concentrate
producers, Coca-Cola and
Pepsi-Cola (the soft drink
unit of PepsiCo) 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, and delivered it to
customer accounts
The bottling process was Bottling and canning lines
capital-intensive and cost from $4 million to $10
involved high-speed million each, depending on
production lines that were volume and package type.
interchangeable only for
products of similar type and
packages of similar size.

The number of U.S. soft Coke was the first

drink bottlers had fallen concentrate producer to
steadily, from more than build a nationwide
2,000 in 1970 to fewer than franchised bottling network,
300 in 2004. and Pepsi and Cadbury
Schweppes followed suit.
 RETAIL CHANNELS

In 2004, the distribution of

CSDs in the U.S. took place Costs and profitability in The main distribution
through supermarkets each channel varied by channel for soft drinks was
(32.9%), fountain outlets delivery method and the supermarket, where
(23.4%), vending machines frequency, drop size, annual CSD sales reached
(14.5%), mass merchandisers advertising, and marketing $12.4 billion in 2004.
(11.8%), convenience stores
and gas stations (7.9%), and
other outlets (9.5%)

Vigorous competition b/w

Historically, Pepsi had
focused on sales through
retail outlets, while Coke had
dominated fountain sales.
Pepsi & Coke ensued as both
entered fast food restaurant
business (KFC, Pizza hut, Taco
Bell for Pepsi, Coke had deals
with Burger King &
McDonald’s). Coke snatched
Subway from Pepsi, the latter
grabbed Quiznos
 SUPPLIERS TO CONCENTRATE PRODUCERS AND BOTTLERS

Supply inputs to concentrate

producers (caramel The majority of U.S. CSDs Coke and Pepsi negotiated
colouring, phosphoric or were packaged in metal cans on behalf of their bottling
citric acid, natural flavours & (56%), with plastic bottles networks, and were among
caffeine) and bottlers (cans, (42%) and glass bottles (2%) the metal can industry’s
plastic/glass, glass bottles & largest customers.
sweeteners)

Cans were an attractive

packaging material because In the 1960s and 1970s, both
they were easily handled companies Coca Cola and
and displayed, weighed Pepsi took control of a
little, and were durable and portion of their own can
recyclable. Plastic packaging, production, but by 1990 they
introduced in 1978, allowed had largely exited that
for larger and more varied business.
bottle sizes.
 EVOLUTION OF THE U.S. SOFT DRINKS INDUSTRY

⮚ Coca-Cola was formulated in 1886 by John Pemberton, a ⮚ Pepsi-Cola was invented in 1893 in New Bern, North Carolina, by
pharmacist in Atlanta, Georgia pharmacist Caleb Bradham

⮚ Sold it at a drug store soda fountains as a “potion for mental and ⮚ Pepsi adopted a franchise bottling system, and by 1910 it had
physical disorders” built a network of 270 bottlers

⮚ In 1891, Asa Candler acquired the formula, established a sales

⮚ Pepsi declared bankrupt in 1923 and again in 1932
force, and began brand advertising of Coca-Cola

⮚ The formula for Coca-Cola syrup, known as “Merchandise 7X,” ⮚ During the Great Depression, Pepsi lowered the price of its 12-oz
remained a well-protected secret that the company kept under bottle to a nickel—the same price that Coke charged for a 6.5-oz
guard in an Atlanta bank vault bottle

⮚ Candler sold the company to a group of investors in 1919, and it ⮚ Pepsi built a marketing strategy around the theme of its famous
went public that year. Four years later, Robert Woodruff began radio jingle: “Twice as much for a nickel, too
his long tenure as leader of the company.
 COLA WAR TIMELINE
1950 - Alfred Steele, a former Coke marketing executive, became CEO of Pepsi. Steele made “Beat Coke” his motto and encouraged
bottlers to focus on take-home sales through supermarkets
1950 - Coca-Cola began to use advertising messages that implicitly recognized the existence of competitors: “American’s Preferred Taste”
(1955), “No Wonder Coke Refreshes Best” (1960)

1960 - 1965 - Coke launched Fanta, Sprite, & the low-calorie cola Tab, and purchased Minute Maid, Duncan Foods, & Belmont Springs
Water. Pepsi countered with Teem, Mountain Dew, & Diet Peps, and merged with Frito-Lay to form PepsiCo

1963 - Under the leadership of CEO Donald Kendall, Pepsi launched its “Pepsi Generation” marketing campaign, which targeted the young
and “young at heart.” The campaign helped Pepsi narrow Coke’s lead to a 2-to-1 margin
1970 - Pepsi increased its concentrate prices to equal those of Coke. To overcome bottler opposition, Pepsi promised to spend this extra
income on advertising and promotion.

1974 - Pepsi launched the “Pepsi Challenge” in Dallas, Texas. Coke was the dominant brand in that city, Nonetheless, the Pepsi Challenge
successfully eroded Coke’s market share

1979 - Pepsi passed Coke in food store sales for the first time, opening up a 1.4 share-point lead. In a sign of the times, Coca-Cola president
Brian Dyson inadvertently uttered the name Pepsi at a 1979 bottlers’ conference
1980 - Roberto Goizueta was named CEO of Coca-Cola, and Don Keough became its president, Coke switched from using sugar to using
high-fructose corn syrup, a lower-priced alternative

1981 – 1984 - Coke also intensified its marketing effort, more than doubling its advertising spending , In response, Pepsi doubled its
advertising expenditures
 COLA WAR TIMELINE
1982 - Diet Coke was the first extension of the “Coke” brand name. Praised as the “most successful consumer product launch of the
Eighties,” it became within a few years nation’s third-largest-selling CSD

1985 - Coke announced that it had changed the 99-year-old Coca-Cola formula, Pepsi declared a holiday for its employees, claiming that
the new Coke mimicked Pepsi in taste.

1985 - Coke brought back the original formula under the name Coca-Cola Classic, while retaining the new formula as its flagship brand
under the name New Coke. Six months later, Coke announced that Coca-Cola Classic (the original formula) as its flagship brand.

Late 1980s - Coke and Pepsi each offered more than 10 major brands and 17 or more container types

Late 1990s - The soft drink industry encountered new challenges, U.S. sales volume grew at a rate of 1% or less in the years 1998 to 2004,
That was in contrast to annual growth rates of 3% to 7% during the 1980s and early 1990s

1997 – 2004 - Coke lost a discrimination suit, underwent financial shocks, laid off 7000 employees, lost to Pepsi in several acquisitions

1996 – 2004 - Coca-Cola logged an average annual growth in net income of 4.2%—a huge drop from the 18% average growth of the years
1990–1997. PepsiCo, by contrast, saw its net income rise by an average of 17.6% per year over the 1996–2004 period

This also marked the period when people started becoming health conscious. Pepsi started shifting aggressively to non-CSD products. Coke
struggled with internal and bottler issues

During this period Pepsi outperformed coke in every area but Coke managed to remain the leader in US and international markets
 QUEST FOR ALTERNATIVES
⮚ 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
⮚ Pepsi was more aggressive than Coke in shifting to non-CSDs
⮚ Both Pepsi (with Aquafina, 1998) and Coke (with Dasani,
1999) had introduced purified-water products that had
surged to become leading beverage brands.
EVOLVING STRUCTURES AND STRATEGIES
System Profitability
Price War (1990s)
Low Cost Strategy by the Bottlers
INTERNATIONALIZING THE COLA WARS
⮚ Next largest market: Mexico, Brazil, Germany, China and the
United Kingdom, Asia and Eastern Europe
⮚ Coke’s dominance : Western Europe, much of Latin America,
while Pepsi: Middle East and Southeast Asia
⮚ 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%
Incidence Pricing
Retailers resist price increases, like, Walmart
Coke’s difficult relationship with bottlers like CCE was
termed as “Dysfunctional”
 SWOT ANALYSIS OF COCA COLA

STRENGTHS - WEAKNESSES -
⮚ Most valuable brand for 13 years ⮚ Declining market share since 2000
⮚ World’s largest in beverages: $15 billion ⮚ Negative Publicity
⮚ Diversification : 200+ brands in 200+ countries ⮚ CSD Focus; Only 32% non-CSD share
⮚ Extensive global distributive network ⮚ Price pressure from mass retailers (Walmart) – 40% of U.S.
⮚ Leader in fountain accounts packaged sales
⮚ Strong in emerging markets – Eastern Europe, China, Brazil, etc.
Coca-Cola

OPPORTUNITIES - THREATS -
⮚ Expand non-CSD products ⮚ Growing health conscience society
⮚ Expand and mostly CSD line ; Sprite Green (Coke) ⮚ Changing consumers tastes and preferences
⮚ Global Expansion in emerging markets – India, China, Brazil etc. ⮚ PepsiCo’s Gatorade, Tropicana and Aquafina are stronger brands
⮚ Innovative offerings tailored to local taxes ⮚ Boycott in the Middle East
⮚ Protest against Coke in India
 SWOT ANALYSIS OF PEPSICO
STRENGTHS -
⮚ 22 most valuable brand
nd
⮚ 2nd largest F&B in the world : $22 billion
⮚ Leader in non-CSD
⮚ Diversification – “The Power of One”
⮚ Extensive global distributive network
⮚ Successful marketing campaigns and celebrity endorsements
OPPORTUNITIES -
⮚ Expand non-CSD juice sport energy bottled water, Herb Drinks
⮚ Gatorade and Naked Pepsi
⮚ Expand and mostly CSD line ; Pepsi Next, Trop 50 (Pepsi)
⮚ Global Expansion in emerging markets – India, China, Russia etc.
⮚ Innovative offerings tailored to local taxes
⮚ Growing nutritious snacks products markets
WEAKNESSES -
⮚ Declining market share in beverages
⮚ Negative Publicity
⮚ Overdependence on U.S. markets – 50% of total sales
⮚ Price pressure from mass retailers (Walmart) – 12% of revenue
THREATS -
⮚ Growing obesity and health concerns
⮚ Changing consumers tastes and preferences
⮚ Coca Cola increases marketing and innovative spending to $400M
globally
⮚ Relying on North America
⮚ Negative publicity during 2003 World Cup incident of Pepsi Blue
 MARKETING MIX FRAMEWORK
PRODUCT -
⮚ Coke introduced 11 and Pepsi 13 products to meet the rapidly
changing consumer preferences
⮚ Both Coke and Pepsi introduced new cola and non cola flavors
such as Fanta, Sprite, Mountain Dew, etc.
⮚ They also ventured into non-CSD such as fruit juices and mineral
water to capture the health aware consumers
⮚ Coke introduced Diet coke and Coca Cola Zero while Pepsi
launched Diet Pepsi as a low calorie variant of their CSDs. They
launched energy drinks also
⮚ Product packaging varied ranging from small cans meant for
single use to large PET bottles meant for family usage
PLACE -
⮚ Pepsi Focused on sales through retail stores while Coke aced in
fountain sales
⮚ Both the companies expanded their distribution network by
expending in restaurant business. Pepsi acquired Pizza Hut, Taco
Bell and KFC whereas Coke tied up with Burger King and
McDonalds
PRICE -
⮚  Both Coke and Pepsi discounted their retail prices to be in
competition
⮚ Bottlers followed low cost strategy to retain customer relations
⮚ Special discounts to mass merchandisers
⮚ Initially Coke followed a fixed price model but later they
established a maximum price and adjusted price quarterly
according to changes in sweetener pricing
⮚ In 2003 they switched to Incidence Pricing which varied
concentrated prices based on different channels & packages
⮚ Pepsi followed Concentrate pricing based on consumer price
index
PROMOTION -
⮚ The general promotional strategy used by both Pepsi and Coke
were retail price cuts and advertisements
⮚ Pepsi launched two very successful campaign called Pepsi
Generation and Pepsi challenge
⮚ Cokes advertisements indirectly recognized competitors with
taglines such as Americans Preferred taste and No wonder coke
refreshes best
 CONCLUSION

Coke and Pepsi hold

Coke was focused on
Initially through the Over a period of time almost 75% the
overseas markets,
early 1960s Coca-Cola Pepsi creates strong whole market and
while Pepsi focused
was the winner. hold on the market. 25% have other local
on the US grocery
CSDs or non CSDs
channel.
brands.
THANK YOU