Cola Wars Continue:

Coke and Pepsi in 2006

Presented by:
Tigers Team
Spring 2008

Overview

History

Historical Industry Profitability

Concentrate vs. Bottler Profitability

Competition between Coke and Pepsi

Sustaining Profits

History of Pepsi

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-Colas trademark.

History of Coca-Cola
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.

Industry Profitability: Porters

Five Forces

Rivalry

Substitutes

Coke

Alliances

Pepsi

Acquisitions

Cadbury

Product Innovation

Porters Five Forces (Cont.)

Barriers to Entry

Power of Suppliers

Exclusive Territories

Sugar

Substantial Investment

Packaging

Current Market
Presence

Porters Five Forces (Cont.)

Power of Buyers
Vending

Super Markets

Convenience and Gas

Mass Merchandisers

Fast Food

Fountain

Profitability of the
CSD Industry

Concentrate Business vs.

Bottling Business
Concentrate Producers

Blend raw material ingredients

Packaged Mixture in plastic canisters
Shipped to bottlers

Diet CSDs

Added artificial sweeteners

Concentrate Business vs.

Bottling Business
Bottlers

Purchased Concentrate
Added carbonated water and high fructose
corn syrup
Bottled CSD product
Delivered to customers accounts

Diet CSDs

Added sugar or high-fructose corn syrup

Concentrate Business vs.

Bottling Business

Concentrate
Producer

Little Capital
Investment
Cost of $25 million $50 million
One plant to serve US
Significant costadvertising,
promotion, market
research and bottler
support

Bottlers

Capital Intensive
High-speed production
lines
Bottling costs $4
million to $10 million
Capacity of $40
million warehouse
cost $75 million
Coke and Pepsi each
require 100 plants
Pressure from
Coke/Pepsi

Bottler Consolidation
Bottler plants decreased in the US
2000 plants to 300 from 1970-2004
Cokes re franchising bottling operations
Buying Poor managed bottlers
Infusing with capital
Selling to large bottling plants

In 1985, Coke purchased two of the largest bottling

companies
Vertical integration

Affects on Industrys Profits

Coke was the first concentrate producer to build a

nationwide franchise bottling network, that Pepsi and
Cadbury Schweppes followed suit.

Franchise agreements with both Coke and Pepsi allowed

bottlers to handle the non-cola brands of other
concentrate producers.

Bottlers could not carry directly competing brands.

Affects on Industrys Profits

(Cont.)

Throughout the 1980s, the growth of Coke and

Pepsi put a squeeze on smaller concentrate
producers

Shelf space for small brands declined and were

shuffled from one own to another.

Affects on Industrys Profits

(Cont.)

In a five year span, Dr Pepper was sold several

times, Canada Dry twice, Sunkist once, Shasta
one, and A&W once.

Phillip Morris acquired Seven-UP in 1978 for a

big premium, but racked up huge losses in the
early 1980s, and then left the CSD business in
1985.

Affects on Industrys Profits

(Cont.)

In 1990s, through a series of strategic

acquisitions, Cadbury Schweppes became the
third-largest concentrate product.

Coke has a world market share of 51.4%, Pepsi

has 21.8% and Cadbury Schweppes has 6%

Sustaining Profits

Shift to non-carbonated beverages

(keep up with demand of health
conscious society)

Continue on current path and see

where it leads

U.S. Liquid Consumption Trends