Cola Wars Continue Case Study Analysis Presented byDhirendra Singh Erwin Saurabh Tigga Debabrata Swain Dilip Kumar Ganesan.M
War over $66bn industry lasted between 1950-1990s
New Challenges • Cola wars continued into the 21st century with new challenges – Was their era of sustained growth and profitability coming to a close? – Could they boost flagging domestic CSD sales? – Would newly popular beverages provide them with new (and profitable) revenue
Production & distribution of CSD • concentrate producers • Bottlers • Retail channels • suppliers
Concentrate Producer • Blended raw material ingredients,packaged the mixture, shipped those container to the bottler. • Key production investment areas - machinery, overhead and labor. A typical manufacturing plant cost - $25 million to $50 million
Concentrate Producer • Significant costs were for advertising, promotion, market research. • Coca-Cola and Pepsi-Cola claimed a combined 74.8% of the U.S. CSD market in sales
Bottlers • Bottlers purchased concentrate • Added carbonated water and highfructose corn syrup • Bottled or canned the resulting CSD product • Delivered it to customer account
Bottlers • Bottling process is capital intensive. • Packaging accounted for 40% to 45% of sales, same for concentrate and sweeteners for 5% to 10%. • Coke and Pepsi bottlers offered “direct store door delivery”. • Cooperative merchandizing agreements is a key ingredient of soft drink sales.
Profitability • Concentrate producer earn more profit than bottler. • Cost of sale is more in bottler.
Retail channel • Super markets • Vending machines • Convenience stores • Gas stations
Suppliers to Bottlers • Coke and Pepsi were among the metal can industry’s largest customers. • Major can producers- Ball, Rexam, Crown
Cola War begins • “Beat Coke” • “Pepsi Generation” • “young at heart.” • Concentrate Price 20% lower • 1970 – larger bottlers
• “American’s preferred taste” • “No wonder Coke refreshes best”
Year 1960s – the Armageddon
• Teem (1960)
• Fanta (1960) • Mountain Dew (1964) • Sprite (1961) • Low calorie cola Tab • Diet Pepsi (1964) (1963)
Non-CSD (Merged) Non-CSD (Purchased) •Frito Lays
• Minute Maid (fruit juice) • Duncan foods (coffee, tea, hot chocolate) • Belmont Springs water
Pepsi’s Challenge • Blind taste test • Eroded Coke’s Market share • Part of Pepsi’s promotional strategy not a not a part of marketing research.
• Rebates • Retail price cuts • Advertisements that questions tests validity • 1978 – Re-negotiation of contract with franchisee bottlers
Leadership • 2001: Steve Reinemund “Grow the core add some more” • Launched new CSD products (Sierra Mist, Mountain Dew code red) • Acquisition of Quaker Oats • Net income raised by 17.6% per year • ROI capital 29.3 (2003) from 9.5 (1996)
• 1980 – Roberto Goizueta •Share price rose by 3500% •Most valuable Brand • Use of lower priced corn syrup against sugar • Double spending on ads 1981-84
Product Launch • Teem (1960) • Mountain Dew (1964) • Diet Pepsi (1964) • Lemon Lime Slice (1984) • Caffeine free Pepsi Cola (1987) • Sierra Mist (2000) • Mountain Dew Code Red (2001) • Pepsi One (2005) • Diet Coke with Splenda (2005)
• Fanta (1960) • Sprite (1961) • Low calorie cola Tab (1963) • Diet Coke (1982) •Caffeine free coke (1983) •Coca-Cola Classic (1985) • New Coke (1985) • Cherry Coke (1985)
Expansions • Acquired – Pizza hut (1978), Toco Bell (1986), KFC (1986) • Merged with Frito Lay to form PepsiCo • Pepsi purchased Quaker Oats
• Exclusive deals with Burger king, McDonalds • Purchased Minute Maid, Duncan Foods, Belmont Springs water • Acquired – Planet Java coffee drink brand • Acquired - Mad River juices and tea
Marketing Campaigns • Pepsi generation • Young at heart • Pepsi challenge • Smart Spot – good for you
• Americans Preferred Taste • No wonder Coke refreshes best
Challenges •Flat demand during 1998 to 2004. •Contamination scare at India •Obesity Issue •Challenges of Internationalization
Challenges to CocaCola • Performance & execution: on providing alternative beverages on adjusting key strategic relationships, on cultivating international markets • Currency crisis in Asia and Russia • Recall in Belgium – (public relations disaster) • Series of legal problems
1996-2004:reversal of fortune • Pepsi flourished • Acquisition of Quaker oats • 3% growth 2004 • Net income rose by 17.6% per year • ROI 29.3% from 9.5%(1996)
• Coke struggled • Flat growth • Annual growth in net income falls to 4.2% from 18%(199096) • Shareholders return -26%
Quest for alternatives
• Market share: • CSD- 80%(2000) to 73.1%(2004) 73.1%(2004) • Diet soda- 24.6%(1997) 24.6%(1997) to 29.1%(2004) 29.1%(2004) • Bottled water 6.6%(2000) to 13.2%(2004) 13.2%(2004) • Non-carbs 12.6%(2000) to 13.7%(2004) 13.7%(2004) • Non-carbs & bottled water contribution to volume growth – coke 100% & Pepsi 75%
Quest for alternatives • No longer designing of marketing course • Diet Pepsi, Pepsi One, Diet Coke with slpenda • Diet Pepsi as flagship brand • Non-CSD: total beverage company
• Reluctant to diversify
Evolving stuctures and stratgies • • • • •
System profitability Price war low -cost strategy by the bottlers Incidence pricing Retailers resist price increases(WalMart)
• Coke’s relationship with bottlers : • Dysfunctional,
Internationalisation • Next largest market: Mexico, Brazil, Germany, China, and the United Kingdom • Asia and Eastern Europe • 837 eight ounce cans: 21 eight ounce cans • Coke’s dominance : Western Europe, much of Latin America, while Pepsi :Middle East and Southeast Asia. • Coca-Cola became synonymous with American culture. • About 70% of Coke’s sales and about 80% of its profits came from outside the United States; only about one-third of Pepsi’s
Venezuela crisis Before
After
SWOT : Strengths PepsiCo Brands Enjoy a High-Profile Global Presence •
•Pepsi Owns the World’s 2nd Best-Selling Soft Drinks Brand •Constant Product Innovation •Aggressive Marketing Strategies Using Famous Celebrities •A Broad Portfolio of
• Coke Brands Enjoy a High-Profile Global Presence • Four of the top five leading brands • Broad-based bottling strategy • 47% of global volume sales in carbonates
SWOT : Weaknesses •Carbonates Market is in Decline •Pepsi is Strongest in North America • They They Only Target Young People
• Carbonates Market is in Decline • Over-complexity of relationship with bottlers in North America • Execution ability
SWOT :: Opportunities •Increased Consumer Concerns with Regard to Drinking Water •Growth in Healthier Beverages •Growth in RTD Tea and Asian Beverages •Growth in the Functional Drinks Industry
• Soft drinks volumes in the Asia-Pacific region forecast to increase by over 45% • Brands like Minute Maid Light and Minute Maid Premium Heart Wise are positioned well with the “Healthconcerned” market • Use distribution strengths in Eastern Europe and Latin
SWOT : Threats •Obesity and Health Concerns •Coca-Cola Increases Marketing and Innovation Spending to $400M Globally •Relying on North America only is Bad
• Growing "healthconscience" society • PepsiCo’s Gatorade, Tropicana and Aquafina are stronger brands • Boycott in the Middle East • Protest against Coke in India • Negative
Profit Margins of Industry Concentrate Producers and Bottlers
US Liquid consumption trends (gallons/capita)
Source- US Beverage industry Consumption Statistics
Promising Segment US Liquid consumption trends (gallons/capita ( gallons/capita)
Source- US Beverage industry Consumption Statistics
volume(percent) Market Share by case volume(percent) Coca cola 1966-04 : 29.04% Gain PepsiCo 1966-04 : 55.14% Gain Others 1966-04- 82.55 % loss
Q:Who has been losing? • Smaller Brands: • Because-Entry Barrier, Duopoly
Q: 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%
Key questions Q: Could they boost flagging domestic CSD sales? • Through Product innovation • Aggressive marketing and promotion • Packaging innovations
• Would newly popular beverages provide them with new (and profitable) revenue streams?
• Yes • Non carb and Bottled water contribution to
Total volume growth: Coke-100%, Pepsi-75 • Contamination issue, Obesity issue
Q-Can Coke and Pepsi sustain their profits in the wake of flattening demand and the growing popularity of non-CSDs? • Coke and Pepsi did not just inherit this business they created it. • By diversification. • Innovation : e.g diet coke
Thank you
