COLA WARS CONTINUE :

COKE AND PEPSI IN 2006

Group - 1
Akanksha Arora (14P004)
Anup Kumar (14P009)
Jenson Jonny (14P021)
Priyanshu Saxena (14P035)
Shashank Gupta (14P046)
Srishti Jain (14P050)

Cola Wars
US Soft Drink Market Share by Case Volume (percent)
50
44.1
43.1
45
42.3
41.1
39.5
40
35.9
35.3
34.7
33.4
35
32.4
31.7
31.4
30.9
30.3
27.8
30
25
21.1
20.4
19.8
20
15
10
5
0
1966 1970 1975 1980 1985 1990 1995 2000 2004E
Coca-Cola Company

PepsiCo,Inc.

Overview of CSD Industry

$66 billion CSD industry
Between 1975 and 1990s Pepsi and Coke grew at an average of

10%
In 2004, on an average an American drank a little more than 52
gallons of CSDs per year
Flagging sales since late 1990s

CSD
Supplier

Concentrate
Producer

Bottler

Retail
Channel

The players in the U.S. CSD Industry

Concentrate Producers
Blended ingredients, packaged mixture and shipped to

bottler
One concentrate manufacturing plant cost $25 $50 M
$
One plant could serve entire
U.S.
Most significant costs were for advertising, market
research, bottler support
Negotiated Customer Development Agreements (CDAs)
with retailers wherein Coke/Pepsi exchanged funds for
shelf space
Coca-Cola and Pepsi-Cola claimed 75% of the U.S. CSD
market

The players in the U.S. CSD Industry

Bottlers
Purchased concentrate, added carbonate water and

high-fructose syrup, bottled or canned the product,

delivered to customer
Capital-intensive and involved high-speed production
lines
Large plant with four lines cost up to $75 M
Coke and Pepsi each required close to 100 plants in
U.S.
For bottlers, packaging accounted for 40-45% of the
cost of sales

Evolution of U.S. Soft Drink Industry

1950 Cokes share of US market 47%; Pepsi was 10%
1963 Pepsi launches Pepsi Generation campaign;

period saw launch of new flavors

1974 Pepsi eroded Cokes market share with Pepsi
Challenge
1982 Introduction of Diet Coke
1985 Cokes failed attempt to reformulate
Late 1980s Retail price discounting; Bottler
consolidations

Evolution of U.S. Soft Drink Industry

Late 1990s Demand for CSDs seemed to have leveled

off
Problems for Coke
Opted against buying South Beach Beverage
Allowed Pepsi to purchase Quaker Oats
Contamination scares
Annual growth in income of 4.2% in 1996-2004; as compared to

17.6% for PepsiCo

2005 Change in strategy of Pepsi; promoting Diet Coke

due to a larger change in beverage industry

Pepsi more aggressive in shifting to non-CSDs

SWOT Analysis COKE

STRENGTHS
- Largest market share in carbonated soft drinks
- Enjoys greater international presence
- Brand loyal customers
- Coca-Cola Enterprises (CCE) handled about 80% of Cokes North
American bottle and can volume

WEAKNESSES
- Clumsy execution of several initiatives (loss of Quaker Oats to Pepsi)
- Not in good relationship with bottlers

SWOT Analysis COKE

OPPURTUNITIES
- Bottled water industry is growing continuously
- Healthier beverages like Minute Maid can succeed in market
- Business can be enhanced in international markets

THREATS
- Strong positioning of Pepsi brands like Gatorade, Tropicana, Aquafina
- Obesity and health concerns
- Obstacles in international operations (antitrust regulations, price
controls, political instability)
- Boycott in Middle East and protests in India (such incidents create
negative image)

SWOT Analysis PEPSI

STRENGTHS
- Aggressive marketing strategies (Blind taste tests)
- Owns the worlds 2nd Best-selling soft drinks
- Enjoys a high-profile global presence
- Constant product innovation
- A broad portfolio of products (Quaker Oats, Frito-Lay)

WEAKNESSES
- Weak presence in international markets (only 33% sales contribution
from overseas)

SWOT Analysis PEPSI

OPPURTUNITIES
- Bottled water industry is growing continuously
- Healthier beverages like fruit juices and energy drinks
- Asian, African and Middle-East markets
- High brand loyalty

THREATS
- Obesity and health concerns
- Increased spending by Coke in marketing and innovation
- Obstacles in international operations (antitrust regulations, price
controls, political instability)

Challenge How to sustain profits?

Provide alternative beverages to increasingly health-

conscious consumers

Diet Coke, Diet Pepsi, Coca-Cola Zero

Non-carbs like juice, sports and energy drinks
Bottled water

Adjust Key strategic relationships

Improving relations with Bottlers (CCE or PBG)

Improve system profitability (the arrangement whereby the
concentrate makers and their bottlers created and then divided
overall profits from beverage sales)

Challenge How to sustain profits?

Enticing customers through marketing and innovation
Eye catching advertisement taglines like The Coke Side of Life
Packaging innovation (Example Cokes Fridge Pack)
Cultivating International markets
Markets in Asia Pacific region and Africa / Middle East region can
be explored
Introducing regional flavours