Asha cola wars


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Asha cola wars

  3. 3. How do you Open Happiness? • Coca-Cola was formulated in 1886 by pharmacist John Pemperton who sold the product at drug stores as “potion for mental and physical disorders.” • In 1891, Asa Candler acquired the formula, established a sales force and began brand advertising of Coca-Cola. • In 1919, went public under control of Robert Woodruff expanded and developed in national and international markets • Successful during WWII with the high CSD consumption from the U.S soldiers
  4. 4. Who made the Generation Next? • Pepsi was created in 1893 in North Carolina by Pharmacist Caleb Bradham. • By 1910 Pepsi had built a network of 270 bottlers. • Pepsi struggled and declared bankruptcy twice • During Great Depression grew in popularity due to price decrease to a nickel. • In 1938, Coke sued Pepsi-Cola brand for infringement on Coca-Cola’s trademark.
  5. 5. Economics of the U.S. CSD industry • Americans consumed 23 gallons of CSDs annually in 1970 • Consumption grew by 3% per year over the next 3 decades • Increasing availability of CSDs and introduction of diet and flavored varieties • Non-cola CSDs were introduced
  6. 6. 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 • CDA’s with retailers like Wal-Mart
  7. 7. Concentrate Producer • Significant costs were for advertising, promotion, market research. • Coca-Cola and PepsiCola claimed a combined 74.8% of the U.S. CSD market in sales volume in 2004
  8. 8. Production & distribution of CSD • • • • Concentrate producers Bottlers Retail channels Suppliers
  9. 9. Bottlers Purchased concentrate Added carbonated water and high-fructose corn syrup Bottled or canned the resulting CSD product Delivered it to customer account 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. • • • • • •
  10. 10. Retail channel • • • • • • In 2009 distribution of CSDs in U.S. was through: Super Markets (29.1%) Fountain outlets(23.1%) Vending Machines(12.5%) Mass Merchandisers(16.7%) Convenience Stores &Gas Stations(10.8%) Other outlets(7.8%)
  11. 11. Production & distribution of CSD • Sales through Retail Channel Supermarkets 7.80% 10.80% 29.1% Fountain Outlets Vending Machines Mass Merchandisers 16.70% Convenience stores and Gas Stations 12.50% 23.1% Other Outlets
  12. 12. Suppliers to Bottlers • Coke and Pepsi were among the Metal Can industry’s largest customers. • Major Can producersBall, Rexam, Crown Cork & Seal
  13. 13. EVOLUTION of COKE • Formulated in 1886 by John Pemberton, a pharmacist in Atlanta, Georgia • Sold it at a drug store soda fountains as “ a potion for mental and physical disorders” • In 1891, Asa Candler acquired the formula, established a sales force and began brand advertising • The formula for Coca-Cola syrup known as “Merchandise 7X” remained a secret
  15. 15. EVOLUTION OF PEPSI • • • • • Invented in 1893 in New Bern, North Carolina by pharmacist Caleb Bradham In 1910 built a network of 270 bottlers Declared bankruptcy in 1923 and 1932 Business began to grow during the Great Depression Pepsi lowered price of its 12 –oz bottle to a Nickel – the same price Coke charged for its 6.5-oz bottle
  16. 16. THE EVOLUTION OF THE PEPSI BOTTLE •The 6 oz. Bottle Era [1905-1933] •The 12oz. Bottle Era [1934-1960] •The Non-returnable Bottle Era [1964-Present] Source
  17. 17. Coke’s downfall vs Pepsi’s uprise Coke • Unsuccessful execution of several initiatives – Failed joint ventures with P&G and Quaker Oats (the latter was later purchased by PEPSI) • Disagreement among internal top management and radical shifts in company policies Pepsi • “Grow the core and add some more” – Pepsi CEO – Diversified portfolio of Products – Launch of new CSDs like Sierra Mist and Mountain Dew and expanding into other beverage categories like Getorade – Volume growth by 3% in 2004 • Proactive to consumer demand – Pepsi distributed its focus to DIET PEPSI to cater the increasing popularity of alternative beverages
  18. 18. Adapting to the Times • New challenges faced by the CSD Industry from 90’s onwards – Core product demand was leveling down – Sales volume grew at a meager rate of 1% or less between 1998 to 2004 in contrast to 3% to 7% during the 1980’s and early 1990’s – Global CSD demand remained flat increasing only 0.26 billion during 1999 and 2003
  19. 19. Adapting to the Times • Challenges related to performance and execution were addressed by – Providing alternatives beverages to the health conscious consumers – Adjusting key strategic relationships – Cultivating international markets
  20. 20. Strengths • • PEPSI PepsiCo Brands Enjoy a HighProfile Global Presence • Pepsi Owns the World’s 2nd BestSelling Soft Drinks Brand Constant Product Innovation • • Aggressive Marketing Strategies Using Famous Celebrities • A Broad Portfolio of Products • COKE • 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
  21. 21. Weaknesses • PEPSI • Carbonates Market is in Decline • Pepsi is Strongest in North America • They Only Target Young People • COKE • Carbonates Market is in Decline • Over-complexity of relationship with bottlers in North America • Execution ability
  22. 22. Opportunities • PEPSI • 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 • COKE • 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 “Health-concerned” market • Use distribution strengths in Eastern Europe and Latin America
  23. 23. Threats • PEPSI • Obesity and Health Concerns • Coca-Cola Increases Marketing and Innovation Spending to $400M Globally • Relying on North America only is Bad • COKE • Growing "healthconscience" society • PepsiCo’s Gatorade, Tropicana and Aquafina are stronger brands • Boycott in the Middle East • Protest against Coke in India • Negative publicity in Western Europe
  24. 24. PORTER’S FIVE FORCE MODEL - COKE SUPPLIER POWER THREAT OF ENTRY •CSD market •More profitable to produce CSDs other than cola •Time and capital requirements for building of brand image / recognition /Customer loyalties •Economies of scale •High profit margins compared to bottlers •Switching costs •Product differentiation and positioning for success •Access to distribution channels, contracts, retaliation •Legal/ regulatory barriers •Cost disadvantages dependent on scales • Suppliers of ingredients / raw material •Not very high supplier power •Suppliers’ price sensitivity • Relative bargaining power INDUSTRY RIVALRY •Concentration •Competitors: All CSDs (red bull…) •Coca Cola and Pepsi are market leaders brands •Diversity of competitors •Product differentiation •Excess capacity & exit barriers •Cost conditions for competition (advertising…) BUYER POWER • Buyers’ price sensitivity •Low price, fast decision making •Large customer base • Relative bargaining power SUBSTITUTE COMPETITION • Buyers’ propensity to substitute •Substitutes: non alcoholic Beverages ( tea, coffee…) •Relative prices & performance of substitutes
  25. 25. PEPSI SUPPLIER POWER THREAT OF ENTRY •Producers started to launch bottling business: Pepsi Bottling •Switching barriers •Contracts with producers •Relationships with material suppliers •Economic conditions, high costs of sale •Packaging technology and cost threats • Two or three can manufacturers competed for a single contract Buyers •Long term relationship with customers •Dependence on suppliers INDUSTRY RIVALRY •Producers have more than one bottling suppliers •Competition based on relationships BUYER POWER • Long term relationship with producers •Relationship based SUBSTITUTE COMPETITION •Relative prices & performance of substitutes •Restaurants automatic dispensers (Mc Donalds…)
  26. 26. Challenges to Coca-Cola • 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
  27. 27. Quest for alternatives Market share: • CSD- 80%(2000) to 73.1%(2004) • Diet soda- 24.6%(1997) to 29.1%(2004) • Bottled water 6.6%(2000) to 13.2%(2004) • Non-carbs 12.6%(2000) to 13.7%(2004) • Non-carbs & bottled water contribution to volume growth – coke 100% & Pepsi 75%
  28. 28. Quest for alternatives • PEPSI • No longer designing of marketing course • Diet Pepsi, Pepsi One, Diet Coke with slpenda • Diet Pepsi as flagship brand • Non-CSD: total beverage company • COKE • Reluctant to diversify
  29. 29. EXHIBITS
  30. 30. Production & distribution of CSD • Suppliers to Concentrate producers & Bottlers 2% 42% Metal Cans 56% Plastic bottle Glass bottle
  31. 31. CURRENT UPDATES PEPSI CEO NET OPERATING REVENUES (2009) (millions of $) COCA-COLA INDRA K.NOOYI MUHTAR KENT $31,990 (exhibit 3 a) $43,232 (exhibit 3 a)