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Cola Wars Continue: Coke and Pepsi in 2010

Important Facts:

Situational Analysis:

In the $74 bn CSD industry, Coke and Pepsi


have been fighting it through since 1975 to
capture majority market share. Currently Coke
holding 42% and Pepsi 30% of market share in
volume.
As the consumption of CSD in the U.S. grew
at 3% average per year till the 2000s, both the
companies achieved annual revenue growth of
around 10%.
Year 2000 onwards, the consumption of CSD
started falling reaching the lowest of 46
gallons (from 53 gallons) in the year 2009 due
to increase in consumer preference towards
healthier beverages (including bottled water)
compared to CSD.
Hence, there is a need to either bring
innovation in the product range or promote
their existing products even better in order to
achieve sustainable growth with profitability.

In 1940s, Coca-Cola started noticing


Pepsi
In 1960s, 1st time Pepsi Bottlers were
larger than Coca-Cola
In 1974, Coca-Cola tried to change to
sweeter New Coke, but got restricted by
law suits
Soft Drink bottlers fell from 2,000 to
fewer than 300 in 2009
Combine market share: 72%
Packaging accounted for 40% to 45%
of cost of sales and same for
concentrate and sweeteners for 5% to
10%
Coca cola: It has 2800 products in over
200 countries
Per capita CSD consumption declined
from 53 gallons in 2000 to 46 gallons in
2009
For concentrated Producer, operating
profit = $0.30 for $0.98 sale of 192 oz.
For bottler operating profit = $0.36 with
sale @ $ 4.63
Due to high COGS(58%) and Selling
and delivery expense, operating income
is less in case of bottler

Comparative Analysis:

In the CSD and non-CSD beverages industry, currently Coke and Pepsi are the market
leaders with collectively 72% market share in volume. The next major competitor is Dr.
Pepper Snaple Group with 16.4% market share captured and the remaining by the local and
regional beverage producers.
Coke followed the 1987 Master Bottler Contract for pricing its concentrates for bottled and
canned beverages in U.S. which granted Coke right to determine the process and other terms
of sale. Pepsi followed Master Bottling Agreement which required the bottlers to purchase
the raw materials from Pepsi at prices and terms determined by Pepsi and granted perpetual
rights to distribute its CSD products.
Both Coke and Pepsi had around 100 production plants for nationwide distribution of their
products.
While Pepsi focused sales through retail outlets, Coke had the lead through fountain sales.
Pepsi entered the fast food restaurant business by acquiring few food chains. Coke followed
suit since as both these companies implemented almost same strategies as the other so as to

not let the other gain in competitive advantage. It has always been when one take an innovate
step, the other immediately counters with its similar strategy.
Pepsi has been more aggressive in expanding its non-CSD portfolio (product innovation)
than Coke by introducing more non-carbs than Coke between 2004 and 2007. In reaction to
Coke expanded its non-CSD portfolio through acquisitions. By 2009, Pepsi has 43% of noncarbs market share in U.S while Coke has 32%.
Coke performed better in international markets deriving 80% of its sales from there while
Pepsi could get only 50% and relied on U.S. Hence, in early 2000s, Pepsi focused more on
emerging markets like Asia and Africa. However, CSD consumption being lower in abroad,
both pursued non-carb opportunities in international markets.
In marketing strategy, Coke spend $230 mn in advertising for Cola-Cola, it spent on
sponsorships and global marketing such as for World Cup in 2010. Whereas, Pepsi
redesigned its logo in 2008 and spending $1 bn over 3 years to rejuvenate its image and
promoting the companys overall image as a snack and beverage company. This shows how
hard Pepsi is trying to go ahead of Coke which has remained ahead of Pepsi most of the
times.
Pepsis strategy was to beat Coke in every step they take and hence provided beverages at
lower prices than coke. It has been targeting only young people which is one of the reasons it
is lagging behind Coke.

Alternatives:

Maintain the status quo: The market is mature and is giving you stable returns; since the only
threat is the other, both can enjoy the cow nature of the market.
Continue to expand the market in terms of new products; Run marketing campaigns; create
more reasons to buy beverages.

Recommendations:

Expand their operations further into developing markets


Bring innovative products in the market based upon the target consumers and their
requirements
Develop better vending machines and equipment to optimize the space in the retail stores
Start using healthy sweeteners in the product
To expand the current market of CSDs, bring out more innovative products like diet coke