P r e s e n t

Cola Wars continue

MM6016 Branding and Marketing Communication

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Coke &Pepsi in the Twenty-First Century

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Pepsi would not exist without Coca Cola,

Coca Cola would probably not be as important without Pepsi

“throat share”

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Concentrate Producers,

bottlers,

retail channels,

suppliers

Soft Drink

flavored

Carbonated water

sweetened

Soft Drink

Produce concentrate

from raw material

Produce soft drinks

Distribute soft drinks to

retailers & end users

concentr

ate

s

Production & distribution:

CP Bottlers

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Business Process Purchased concentrate Added carbonated water

and high fructose corn syrup

Bottled or canned the CSD Delivered it to customer

accounts

Supplier Packaging $3.4 billion in cans $1.3 billion in plastic bottles $0.6 billion in glass

Sweeteners $1.1 billion in sugar and

high fructose corn syrup $1.0 billion in artificial

Bottlers

Business Process Producer blended raw material

ingredients

Packaged it in plastic canisters

Shipped it to the bottler

Supplier Caramel coloring

Phosphoric and / or citric acid

Natural flavors and caffeine

ConcentrateProducers

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Food stores (35%)

Fountain outlets (23%)

Vending Machines (14%)

Convenience stores (9%)

Other outlets (20%)

Retail Channels

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Cola Wars Highlights

Coca-Cola invented

“Kick Pepsi's can” Diet CokeNew Coke

Repair Coke and restore Stock price Diversify product line

1886

1893

1950s

1960s

1970s

1980

1990

2000

“Beat Coke”

“Pepsi Generation”

“Pepsi Challenge”

Foster entrepreneurial spirit of Pepsi’s people

Jettison slow-growing businesses

Diversify beyond soft-drinks

Pepsi-Cola invented

“American’s Preferred Taste”

“No wonder Coke Refreshes Best”

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Issues

Saturated market

Healthy issues

Huge potential market outside USA

Highly competitive industry

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http://www.economywatch.com/in-the-news/infographic-the-cola-wars.17-11.html

Business Strategy

Single product strategy flagship brand

Diversified products acquisition

Niche strategy targeted geographic area

teen teen

adult

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Why is the soft drink industry so profitable ?Consumption• CSD consumption consistently grow

53 galons in 2000 (exhibit 1)Growth • The growth because of downward-slopping

(economical condition-changed in consumer lifestyle)• Dominance the market share

Industry• 1970-2000: average growth 3 % (exhibit 1)• $60-billion industry in US• Widely available and conveniently packaged.• Became a part of their life style in US and worldwide

huge potential market• Highly competitive

44.1 31.4 14.7

Exhibit 3

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Industry analysis

Rivalry between firms:

Threat of new

entrants:

Customer's power of

bargaining:

Threat of substitutes:

Supplier's power of

bargaining:

PORTER’S FIVE FORCES MODEL

Low switching costs.Huge number of suppliers.Maintaining the quality and flexibility of supply chain

Higher buying power –Choice of customers is high

Non-CSD drinks Threat of saturation of consumption in US market thereby leading to increase in the consumption of non-Cola beverages.

Large industry size

High entry costsHigh risk for entrants due to diversified natureGovernment Policy regulations.Existing Loyal customer base.Acquisition of major bottling units by existing firms, increases the entry barriers.

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Business Comparation

Concentrate Business Bottling Business

Little capital investment Large capital Investment

Short line of procurement & Distribution Long line of Procurement & Distribution

Strong position in determining the price of their product

Less favorable position regarding for pricing on their product

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Why is the profitability so different?

Exhibit 5 Cost of sale is more in bottler

the differences in added value between CPs and bottlers

in a slowing market, the bottlers faced increasing price pressure while CPs could continue raising their prices.

As the price of the concentrate rose, bottlers could not react in the same way and increase price of the final product as they were squeezed by other suppliers of different fruit drinks and other beverages. All of these factors contributed to lower returns in bottling business

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How has the competition between Coke and Pepsi affected the industry’s profits?

the companies diversified to other packaged foods and drinks,

aggressive entry of PepsiCo into the food business thus increasing their consumer base as well as the industry 's

Innovation in new product category / product line extension

Higher retail prices for alternative beverages meant that margins for the franchiser, bottler and distributor were consistently higher than on CSDs.

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Can Coke and Pepsi sustain their profits in the wake of flattening demand and the growing popularity of non carbonated drinks?

Yes, by introduction of new brands and diversification

Both companies predicted that future increases in market share would

come from beverages other than CSDs

advantage from the barriers to entry exist.

a strong brand identification; huge investments in advertising,

customer service and trademark itself stable consumption levels and

profit sustainability in future

Both companies predicted that future increases in market share would

come from beverages other than CSDs

To increase sales, they tried to make their products more affordable

through measures such as refundable glass packaging (instead of plastic)

and cheaper 6.5 ounce bottles

The cola wars are going to be played now across a lot of different

battlefields

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Thanks !