Cola Wars

Bus 497a

Spring 2008

TEAM JUPITER

Background

Coke: First formulated in 1886

Pepsi: Invented in 1893

“Cola War” began when Alfred Steele (of Pepsi) became Coke CEO

1980’s Bottler Consolidation began

Key Terms

CSD – Carbonated Soft Drink CP – Concentrate Producers

Blended raw materials and shipped to Bottlers

Bottlers Manufacturing of beverages Distribution

Retail Channels Supermarkets, Fountain Outlets, Vending Machines, Mass

Merchandisers, CV, Gas Stations

Industry Pipeline

Formulation HousesConcentration Suppliers

BottlersDistributors

End Consumer

****Vertical Integration****

Corporate Level Strategies of the Past

Coke and Pepsi Single Business Economies of Scope Market Power Multipoint Competition Vertical Integration Profitability

****Expansion and Development****

CL Strategies Con’t.

Deployment Strategy Vertical Integration Internationalization Internal Growth

Business Level Strategies

Differentiation, Initially (Uniqueness and Broad Target)

Cost Leadership, Later On (Cost and Broad Target)

What are the key issues?

Decline in overall sales of cola industry

Emergence of New Age Beverages

Coke vs. Pepsi Companies focused on rivalry rather than on the

industry itself

Industry Issues Major bottlers have been consolidated which puts smaller bottlers at the mercy

of Pepsi and Coca-Cola's distribution systems

Bottlers' profitability is in danger with slim margins and declining growth

CSDs made up a substantial share of US Liquid Consumption, but this doesn’t make them immune to risk (limited portfolio, non diversified)

International markets are an important source of revenue and improvements in world economies are forecasted

Growing health concerns for caffeine and sugar consumption threatens industry performance

Decline In CSD Consumption

Consumption declines as consumers find healthier alternatives

Continued Growth

Don’t be fooled; CSD industry continues to grow

Recommended Strategies to Follow (Corporate)

Deployment Strategy Acquisition of Smaller Beverage Companies New Relations (contracts) w/ bottlers

Directional Strategy = DEVELOPMENT Portfolio Strategy = DIVERSIFICATION

Diversification Marketing Product Old Market, New Product

Recommended Strategies Business Level

Integrated Cost Leadership Differentiation New Unique Products Marketed towards niche and board markets Most cost efficient as possible

Industry Recommendations

Industry should be proactive about growing health concerns in US Market

Companies need to refocus energies on advertising to rejuvenate industry and to fuel product demand both domestically and abroad

Cola industry leaders, Coca-Cola and Pepsi, should take steps to better understand their competitive market environment

2008 Update (Recent Strategic Movies)

Pepsi Acquisition of Naked Juice Acquisition of Fuze Expansion of existing product lines

Coke $4.1 Billion acquisition of Glacaeu (Vitamin Water) Multiple New Age beverages

****PORTFOLIO DIVERSIFICATION****

2008 Update Con’t. Industry

Strong Performance of New Products

2008 Update Con’t.

Thank You