Case Study Analysis onCola Wars Continue : Coke

and Pepsi in 2010

Presented by :

Mohan Kanni Dhanunjay Naidu Thentu Vivek Lalam

History Of Coca-Cola• Coca-Cola was formulated in 1886 by John Pemberton (pharmacist).

• It was served at Jacobs Pharmacy.

• Frank Robinson named it as Coca-Cola.

• In 1891, Asa Candler acquired the formula of Coca-Cola.

• In 1919 Company was sold to a group of investors and four years later, Robert Woodruff became the Leader.

History Of Pepsi-Cola• Pepsi-Cola was invented in 1893 by Caleb Bradham (Pharmacist).

• During the Great depression (1929-1939),Pepsi lowered the price to a nickel.

• PepsiCo was established through the merger of Pepsi-Cola and Frito-Lay in 1965.

Cola Wars

• In 1959, Alfred Steele became CEO of Pepsi and his motto was “Beat Coke”.

• To target family consumption through supermarkets.

• In 1970, marketing campaign “Pepsi Generation” was launched.

• In late 1950’s, Coca-Cola advertised as “Americans Preferred Taste”

• Other Advertisements included “No Wonder Coke Refreshes Best”

Cola Wars

• Pepsi launched Teem (1960), Mountain Dew (1964) and Diet Pepsi (1964).

Non CSDPepsi merged with Frito-lay

• Coke launched Fanta (1960), Sprite (1961) and Cola Tab (1963).

Non CSDCoke purchased Minute maid, Duncan foods and Belmont Springs Water.

The Pepsi Challenge• In 1974 Pepsi launched “Pepsi

Challenge” in Dallas.

• Blind taste tests.

• Coke countered with rebates, retail price cuts.

Cola Wars Heat Up

• Pepsi doubled its advertising expenses.

• Pepsi introduced Lemon-Lime Slice (1984) and Caffeine Free Pepsi (1987)

• In 1980 Coke switched from sugar to high-fructose corn syrup.

• Doubled the advertising expenses.

• Diet Coke was introduced in 1982.

• Coke introduced Caffeine Free Coke (1983) and Cherry Coke (1985)

PRODUCTION AND DISTRIBUTION• CONCENTRATE PRODUCERS : The concentrate producer blended raw material

ingredients, packaged the mixture in plastic canisters and shipped those containers to bottler.

• BOTTLERS : Bottlers purchased concentrate ,added carbonated water and high-fructose corn syrup, bottled and canned the resulting CSD product to the consumers.

• RETAIL CHANNELS :The distribution of CSD’S took place through Super Markets, Fountain Outlets, Vending Machines, Mass merchandizers, Convienience stores and gas stations and other outlets.

• SUPPLIERS to concentrate producers and Bottlers :

Concentrate producers required inputs like caramel colouring, phosphoric or citric acid, natural flavours and caffeine. Bottlers purchased two major inputs : Packaging (including cans, plastic bottles

and glass bottles)Sweeteners (including high fructose corn syrup, sugar and artificial sweeteners

such as aspartame)

• The Franchised bottler owned a manufacturing and sales operation in an exclusive geographical territory, with rights granted in and other terms of sale by the franchiser.

• The 1987 Master Bottler contract granted coke the right to determine the concentrate price.

• Under this contract coke could assist bottlers with advertising or marketing

• In case of Pepsi, the agreement granted the bottler perpetual rights to distribute Pepsis CSD products but required it to purchase raw materials from pepsi at prices determined by Pepsi.

SWOT AnalysisWeakness

Threats

Strengths

Opportunities

Most Valuable Brand for 13 years Worlds largest in beverages : $15 Billion Diversification:500+brands;200 countries Extensive Global Dist. Network Leader in Fountain Accounts Strong in emerging markets : China, Brazil, Eastern

Europe

Declining market share since 2000 Negative publicity CSD focus : only32% non-CSD share Price Pressure from mass retailers(Wal-Mart):40% of

US packaged sales

Expand non CSD Products Expand and Mostly CSD line ;Sprite Green(coke) Global Expansion in emerging markets: India ,China,

Brazil(coke) Innovative Offerings tailored to local taxes

Growing "health-conscience" society Changing Consumer tastes and preferences PepsiCo’s Gatorade, Tropicana and Aquafina are stronger

brands Boycott in the Middle East Protest against Coke in India Negative publicity in Western Europe

SWOT AnalysisWeakness

Threats

Strengths

Opportunities

22nd Most Valuable Brand 2nd Largest in F & B in world : $22 Billion Leader in Non CSD Diversification : “The power of One” Extensive Global Dist. Network Successful marketing Campaigns and celebrity

endorsements.

Declining market share in beverages Negative publicity Overdependence on US markets ; 50%of total sales Low market share in fountain accounts: 20% vs Coke's 69% Price pressure from mass retailers: 12% of revenue(Wal

mart)

Expand non CSD juice sport energy bottled water Gatorade, Naked(Pepsi) Expand and Mostly CSD line ;Pepsi Next,Trop50(Pepsi) Global Expansion in emerging markets: India ,China &

Russia(Pepsi) Innovative Offerings tailored to local taxes Herb drinks (Pepsi) Growing nutritious snacks product markets

Obesity and Health Concerns Changing Consumer tastes and preferences Coca-Cola Increases Marketing and Innovation Spending to

$400M Globally Relying on North America only is Bad Decline in Demand for Carbonated Drinks. Negative publicity during 2003 World cup incident of Pepsi

Blue.

BCG Matrix – Coca Cola

Thumbs upKinley

Limca Fanta

Coca Cola

Diet CokeGold

Spot(India)Root Beer

SpriteMaazaMinute

maid

BCG Matrix - Pepsi

Aquafina Miranda

Mountain Dew

Pepsi

Diet Pepsi7 UP

Tropicana

Pepsi MaxPepsi Blue, Pepsi GoldMist Twist

Bottler Consolidation and Spin-Off

• Coke started refranchise bottling operation by buying up poorly managed bottlers, infusing them with capital and quickly reselling them to better performing bottlers.

• Coke created an independent bottling subsidiary called Coca-Cola Enterprises.

• Pepsi did the same through Pepsi Bottling Group.

The Quest for Alternatives

• Pepsi replaced high fructose corn syrup with natural sugar.

• Coke and Pepsi both developed their own versions of Stevia (herb with zero calorie sweetener).

• Pepsi developed non-CSD products like Gatorade and Tea based drinks (Lipton).

• Coke acquired maker of Vitamin water drinks and also entered business of supplying coffee and tea to food service customers.

Internationalizing the Beverage Wars

• India and China emerged as future battlegrounds.

• Coke relied on International market (80% of sales)

• Pepsi chose to focus on emerging markets

Who has been wining the war?

1950: Coke have 47% and Pepsi have 10%

1970: Coke have 35% and Pepsi have 29%

1990: Coke have 41% and Pepsi have 32%

2000:Coke have 44%Pepsi have31.4% other beverage Cadbury Schweppes 14.7%

2006:Coke have 43.1% Pepsi have 31.7% Cadbury Schweppes 14.5%