Cola Wars!!

Stage 1 1950 - 1970

Brief History (coke)

Formulated at the Eagle Drug and
Chemical Company
Initially sold as a patent medicine for
5 cents (1886)
A cure for head ache and impotence
By 1935 coke had achieved status of
a national icon

History (Pepsi)
1931: Bought sole right of Pepsi for $10,500
Charles Guth
Grew with the growth of super markets (1945-62)
Young at heart campaign
A buy out by coke refused
Strategy to target the African Americans (feature
noble prize winners) :ads targeted specifically at
them
Starting to get termed as a Niger drink and
thus fall back on that strategy.

New products through 195070

Coke:

New products through 195070

Pepsi

Relative strategies
implemented..
Coke started to focus on the over seas
markets (1960)
Coke assumed American consumption
was reaching saturation point
Pepsi doubled its consumers in the US
in the same period ( more bottlers and
reduced price of concentrate)
Thus Pepsi decided to attack Coke on
the home turf

What Coke could have done ..back

then
Realize importance of the highly
westernized US market accounting
for high consumption.
Retain its market share
Flank Pepsi by competing in the
other businesses as well diverting
their attention from Cola drinks
Threaten Pepsi with a buy out , so
that Pepsi does not get the leverage
to think freely

Stage 2 1970 - 1990

Major Events
CSD market share 71% in beverages
Pepsi diversified in food industry
Pizza Hut, KFC,Taco Bell

Pepsi had more bottlers than coke

Coke had fragmented bottlers, >800
franchised
Pepsi challenge
1974 blind test in Dallas, Texas
Publically demonstrated

US Soft Drink Market Share By Case

Volume (%)
Market share
45
40
34.7
35

35.3

27.8

30
25
19.8
Percentage 20

35.9

39.5
30.3

41.1
32.4
Coca Cola
PepesiCo

21.1

15
10
5
0
1970

1975

1980

1985

1990

Strategies Followed
Coca cola
Product Development
and line extension
Introduction of 11 new
products

Divestiture
Non CSD businesses
were sold of

Forward integration
CCE, independent
bottling subsidiary of
Coke

Pepsi
Product development
and line extension
Introduction of 11 new
products

Forward Integration
PBG established

Concentric
Diversification
Acquired Pizza Hut, KFC,
Taco Bell

Competitors
Shelf space decreased
Shuffle of smaller brands from one
owner to another
Dr.Pepper was sold several times,
canada dry twice
Philip Morris acquired 7up 1978,
losses,1980s left business
Cadbury Schweppes emerged as third
largest competitor

 In short both were capable to imitate each other

in every dimension
Lifestyle based advertisement and brand name
Perceived diferences created through
advertisements
1971 Id like to buy
1970 Join the
the world of coke
pepsi people
1979 Have a Coke
1980 Catch the
and a Smile
pepsi spirit
1989 Cant beat
1990 Pepsi The
the feeling
choice of new
Generation

Stage 3 ( 1990 2006)

Challenges Faced
1. US sales volume grew at a rate less than 1% during 1998 - 2004
Worldwide demand for CSDs remained flat
Decline in annual per capital consumption from 125 to 119
servings
2. Association of CSDs to obesity
New federal nutrition guideline
Ban of CSD in Schools
Morgan Stanley Survey
3. Concentrate providers gain at the cost of Bottlers profitability
Huge debts from consolidation and infrastructure investment
Change in the product portfolio resulted in additional costs for
the bottlers
Rapid growth of mass merchandiser channel like Wal-Mart and
various other club stores posed a new threat to the
profitability

Challenges specific to Coke

Performance and Execution
Key strategic relationship with CCE
Providing alternative beverages

Legal Issues
Contamination scare in Belgium
A law suit filed by Burger King worth $
21 Mil
Channel Stuffing charges

Currency Crisis in Russia and Asia

Challenges specific to Pepsi

Venezuela Crisis (1996) - Reduced
the market share of Pepsi from 45%
to 5 %
Challenges of internationalization

Strategies Adopted
1. Flat Demand During 1998 2004
Pepsi
. Concentric Diversification
Acquired Quaker Oats( 2000)
Acquired South Beach Beverage & Co (2001)
. Product Development
Aquafina (1998)
. Market Development
Introduced CSD variants like Sierra Mist (2000) and Mountain Dew
Code Red (2001)
Grow the core and add some more
Coke
. Although Pepsi swept away the new evolving markets, Coke fared better
in the bottled water category after introducing Dasani in 1999.
. Packaging Innovation: Fridge Pack (2001), replaced 2 ltr with 1.5 ltr
which was later imitated by Pepsi

Strategies Adopted
2. Association of CSDs to obesity
Coca Cola
Introduced new or renamed products
Diet Coke with Splenda (2005) and Coca Cola Zero ( 2005)

Pepsi
Sierra Mist Free (2004) and Pepsi One (2005)
Pepsi declared itself as a total beverage company and move
more aggressively than Coke to the non CSDs segment
By 2004, Pepsi had a market share of 47.3 % in the US non
Carb market compare to Cokes share of 27.0 %
Treating Diet Pepsi as its flagship brand

On Stranger Tides
Coke flourished in international market and also
relied upon them far more then Pepsi.
About 70 % of the revenue of Coke came from
non US markets compared to 33 % of Pepsi
Cokes share of global beverages market stood
at 51.4 % followed by Pepsi at 21.8 %
Some of the reasons behind Coca Colas success
in the international markets was due to its ability
to understand and defend its positions really well
(except the exclusion from the ME and Soviet
bloc.)

US Soft Drink Market Share By Case

Volume (%)
50
45
41.1
40

42.3

32.4
35

30.9

44.1

43.1

31.4

31.7

30
25
20
15

15.1

14.7

14.5

1995

2000

2004E

10
53.2
0
1990

Coke
Pepsi
Cadbury Schweppes

Porters Five Force

Analysis
Threat of new entrants:
- Huge Capital requirements
- Strong bottling networks
- Brand loyalty
- Strong distribution links
- Market Saturation

Threat of Substitutes:
- Shift in demand towards non-CSD products in
early 2000s on health-related concerns
- Main substitutes included juices, sports drinks,
energy drinks, tea-based drinks and bottled water
- Pepsi more aggressive in shifting to non CSDs
- Low switching costs for consumers

Suppliers bargaining power:

- Few inputs required for concentrate producers
- Inputs for bottlers-packaging and sweeteners
- Coke and Pepsi-largest customers of metal can
industry

Buyers bargaining power:

Bottlers
- High switching costs
- Tied by contracts
Retail channels
7.9%
- Supermarkets and
Fountain outlets-high 11.8%
bargaining power
14.5
- Low for vending
%
machines and
Convenience stores

Sales
9.5%

Supermarket
s
32.9
Vending
%
machines
Convenience
stores
23.4%

Fountain
outlets
Mass
merchandise
rs
Others

Intensity of competitive rivalry:

- Pepsi and Coca Cola key players contributing to
about 75% of market share
- Plank for achieving competitive advantage:
Product diferentiation
- Combative advertising
- Direct product comparison based on a real
attribute: taste

SWOT Analysis: Pepsi

Weakness

Enjoys a High-Profile Global

Presence
Owns the Worlds 2nd BestSelling Soft Drinks Brand
Constant Product Innovation
Aggressive Marketing
Strategies
A Broad Portfolio of Products
Opportunity

Increased Consumer Concerns

in comparison to bottled water
Growth in Healthier Beverages
Growth in Tea and Asian
Beverages

Carbonates Market is in Decline

Pepsi is Strongest in only North
America
They Only Target Young People

Threat

Obesity and Health Concerns

Increased Marketing and
Innovation Spending by Coke
Restriction to only North
America as target market

SWOT Analysis: Coke

Strength

Enjoys a High-Profile Global

Presence
Fourth amongst the top five
leading brands
Broad-based bottling strategy
47% of global volume sales in
carbonates

Weakness

Opportunity

Soft drinks volumes in the AsiaPacific region forecast to

increase by over 45%
Brands like Minute Maid Light
and Minute Maid Premium Heart
Wise are positioned well with
the Health-concerned market
Use distribution strengths in
Eastern Europe and Latin
America

Carbonates Market is in Decline

Over-complexity of relationship
with bottlers
Inefficient execution of business

Threat

Growing "health-conscience"
society
PepsiCos Gatorade, Tropicana
and Aquafina are stronger
brands
Boycott in the Middle East
Protest against Coke in India