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Cola Wars Continue  Case Study Analysis  Presented by- Dhirendra Singh Erwin Saurabh Tigga Debabrata Swain Dilip Kumar Gan...
<ul><li>War over $66bn industry </li></ul><ul><li>lasted between 1950-1990s </li></ul>
New Challenges <ul><li>Cola wars continued into the 21st century with new challenges </li></ul><ul><ul><li>Was their era o...
Production & distribution of CSD <ul><li>concentrate producers  </li></ul><ul><li>Bottlers  </li></ul><ul><li>Retail chann...
Concentrate Producer <ul><li>Blended raw material ingredients,packaged the mixture, shipped those container to the bottler...
Concentrate Producer <ul><li>Significant costs were for advertising, promotion, market research. </li></ul><ul><li>Coca-Co...
Bottlers  <ul><li>Bottlers purchased concentrate  </li></ul><ul><li>Added carbonated water and high-fructose corn syrup  <...
Bottlers  <ul><li>Bottling process is capital intensive. </li></ul><ul><li>Packaging accounted for 40% to 45% of sales, sa...
Profitability  <ul><li>Concentrate producer earn more profit than bottler. </li></ul><ul><li>Cost of sale is more in bottl...
Retail   channel  <ul><li>Super markets </li></ul><ul><li>Vending machines </li></ul><ul><li>Convenience stores </li></ul>...
Suppliers to Bottlers <ul><li>Coke and Pepsi were among the metal can industry’s largest customers. </li></ul><ul><li>Majo...
 
Caleb D. Bradham
Cola War begins <ul><li>“ Beat Coke”  </li></ul><ul><li>“ Pepsi Generation” </li></ul><ul><li>“ young at heart.” </li></ul...
Year 1960s –  the Armageddon <ul><li>Fanta (1960) </li></ul><ul><li>Sprite (1961) </li></ul><ul><li>Low calorie cola Tab  ...
Pepsi’s Challenge <ul><li>Blind taste test </li></ul><ul><li>Eroded Coke’s Market share </li></ul><ul><li>Part of Pepsi’s ...
Leadership <ul><li>1980 – Roberto Goizueta </li></ul><ul><li>Share price rose by 3500% </li></ul><ul><li>Most valuable Bra...
Product Launch <ul><li>Teem (1960) </li></ul><ul><li>Mountain Dew (1964) </li></ul><ul><li>Diet Pepsi (1964) </li></ul><ul...
 
 
 
Expansions <ul><li>Acquired – Pizza hut (1978), Toco Bell (1986), KFC (1986) </li></ul><ul><li>Merged with Frito Lay to fo...
Marketing Campaigns <ul><li>Pepsi generation </li></ul><ul><li>Young at heart </li></ul><ul><li>Pepsi challenge </li></ul>...
Challenges <ul><li>Flat demand during 1998 to 2004. </li></ul><ul><li>Contamination scare at India </li></ul><ul><li>Obesi...
Challenges to Coca-Cola <ul><li>Performance & execution :  </li></ul><ul><ul><li>on providing alternative beverages  </li>...
1996-2004:reversal of fortune <ul><li>Pepsi flourished </li></ul><ul><li>Acquisition of Quaker oats </li></ul><ul><li>3% g...
Quest for alternatives <ul><li>Market share: </li></ul><ul><li>CSD- 80%(2000) to 73.1%(2004)  </li></ul><ul><li>Diet soda-...
Quest for alternatives <ul><li>No longer designing of marketing course  </li></ul><ul><li>Diet Pepsi, Pepsi One, Diet Coke...
Evolving stuctures and stratgies <ul><li>System profitability </li></ul><ul><li>Price war </li></ul><ul><li>low -cost stra...
Internationalisation <ul><li>Next largest market : Mexico, Brazil, Germany, China, and the United Kingdom  </li></ul><ul><...
Venezuela crisis  <ul><li>Before  </li></ul>After
SWOT : Strengths <ul><li>Coke Brands Enjoy a  High-Profile Global Presence </li></ul><ul><li>Four of the top five leading ...
SWOT : Weaknesses <ul><li>Carbonates Market is in Decline </li></ul><ul><li>Over-complexity of relationship with bottlers ...
SWOT :: Opportunities <ul><li>Soft drinks volumes in the Asia-Pacific region forecast to increase by over 45% </li></ul><u...
SWOT : Threats <ul><li>Growing &quot;health-conscience&quot; society </li></ul><ul><li>PepsiCo’s Gatorade, Tropicana and A...
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 ) Source- US Beverage industry Consumption Statistics
Market Share  by case volume(percent ) Coca cola  1966-04 : 29.04% Gain PepsiCo  1966-04 : 55.14% Gain Others 1966-04-  82...
 
 
<ul><li>Q:Who has been losing? </li></ul><ul><li>Smaller Brands: </li></ul><ul><li>Because-Entry Barrier, Duopoly </li></ul>
<ul><li>Q: Who has been wining the war? </li></ul><ul><li>1950: Coke have 47% and Pepsi have 10% </li></ul><ul><li>1970: C...
Key questions <ul><li>Q: Could they boost flagging domestic CSD sales? </li></ul><ul><li>Through Product innovation </li><...
<ul><ul><li>Would newly popular beverages provide them with new (and profitable) revenue streams? </li></ul></ul><ul><li>Y...
<ul><li>Q-Can Coke and Pepsi sustain their profits in the wake of flattening demand and the growing popularity of non-CSDs...
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  1. 1. Cola Wars Continue Case Study Analysis Presented by- Dhirendra Singh Erwin Saurabh Tigga Debabrata Swain Dilip Kumar Ganesan.M
  2. 2. <ul><li>War over $66bn industry </li></ul><ul><li>lasted between 1950-1990s </li></ul>
  3. 3. New Challenges <ul><li>Cola wars continued into the 21st century with new challenges </li></ul><ul><ul><li>Was their era of sustained growth and profitability coming to a close? </li></ul></ul><ul><ul><li>Could they boost flagging domestic CSD sales? </li></ul></ul><ul><ul><li>Would newly popular beverages provide them with new (and profitable) revenue streams? </li></ul></ul>
  4. 4. Production & distribution of CSD <ul><li>concentrate producers </li></ul><ul><li>Bottlers </li></ul><ul><li>Retail channels </li></ul><ul><li>suppliers </li></ul>
  5. 5. Concentrate Producer <ul><li>Blended raw material ingredients,packaged the mixture, shipped those container to the bottler. </li></ul><ul><li>Key production investment areas </li></ul><ul><li>- machinery, overhead and labor. </li></ul><ul><li>A typical manufacturing plant </li></ul><ul><li>cost - $25 million to </li></ul><ul><li>$50 million </li></ul>
  6. 6. Concentrate Producer <ul><li>Significant costs were for advertising, promotion, market research. </li></ul><ul><li>Coca-Cola and Pepsi-Cola claimed a combined 74.8% of the U.S. CSD market in sales volume in 2004 </li></ul>
  7. 7. Bottlers <ul><li>Bottlers purchased concentrate </li></ul><ul><li>Added carbonated water and high-fructose corn syrup </li></ul><ul><li>Bottled or canned the resulting CSD product </li></ul><ul><li>Delivered it to customer account </li></ul>
  8. 8. Bottlers <ul><li>Bottling process is capital intensive. </li></ul><ul><li>Packaging accounted for 40% to 45% of sales, same for concentrate and sweeteners for 5% to 10%. </li></ul><ul><li>Coke and Pepsi bottlers offered “direct store door delivery”. </li></ul><ul><li>Cooperative merchandizing agreements is a key ingredient of soft drink sales. </li></ul>
  9. 9. Profitability <ul><li>Concentrate producer earn more profit than bottler. </li></ul><ul><li>Cost of sale is more in bottler. </li></ul>
  10. 10. Retail channel <ul><li>Super markets </li></ul><ul><li>Vending machines </li></ul><ul><li>Convenience stores </li></ul><ul><li>Gas stations </li></ul>
  11. 11. Suppliers to Bottlers <ul><li>Coke and Pepsi were among the metal can industry’s largest customers. </li></ul><ul><li>Major can producers- Ball, Rexam, Crown Cork & Seal </li></ul>
  12. 13. Caleb D. Bradham
  13. 14. Cola War begins <ul><li>“ Beat Coke” </li></ul><ul><li>“ Pepsi Generation” </li></ul><ul><li>“ young at heart.” </li></ul><ul><li>Concentrate Price 20% lower </li></ul><ul><li>1970 – larger bottlers </li></ul><ul><li>“ American’s preferred taste” </li></ul><ul><li>“ No wonder Coke refreshes best” </li></ul>
  14. 15. Year 1960s – the Armageddon <ul><li>Fanta (1960) </li></ul><ul><li>Sprite (1961) </li></ul><ul><li>Low calorie cola Tab (1963) </li></ul><ul><li>Non-CSD (Purchased) </li></ul><ul><li>Minute Maid (fruit juice) </li></ul><ul><li>Duncan foods (coffee, tea, hot chocolate) </li></ul><ul><li>Belmont Springs water </li></ul><ul><li>Teem (1960) </li></ul><ul><li>Mountain Dew (1964) </li></ul><ul><li>Diet Pepsi (1964) </li></ul><ul><li>Non-CSD (Merged) </li></ul><ul><li>Frito Lays </li></ul>
  15. 16. Pepsi’s Challenge <ul><li>Blind taste test </li></ul><ul><li>Eroded Coke’s Market share </li></ul><ul><li>Part of Pepsi’s promotional strategy not a part of marketing research. </li></ul><ul><li>Rebates </li></ul><ul><li>Retail price cuts </li></ul><ul><li>Advertisements that questions tests validity </li></ul><ul><li>1978 – Re-negotiation of contract with franchisee bottlers </li></ul>
  16. 17. Leadership <ul><li>1980 – Roberto Goizueta </li></ul><ul><li>Share price rose by 3500% </li></ul><ul><li>Most valuable Brand </li></ul><ul><li>Use of lower priced corn syrup against sugar </li></ul><ul><li>Double spending on ads 1981-84 </li></ul><ul><li>Sold non-CSD business </li></ul><ul><li>Diet Coke (1982) </li></ul><ul><li>2001: Steve Reinemund “Grow the core add some more” </li></ul><ul><li>Launched new CSD products (Sierra Mist, Mountain Dew code red) </li></ul><ul><li>Acquisition of Quaker Oats </li></ul><ul><li>Net income raised by 17.6% per year </li></ul><ul><li>ROI capital 29.3 (2003) from 9.5 (1996 ) </li></ul>
  17. 18. Product Launch <ul><li>Teem (1960) </li></ul><ul><li>Mountain Dew (1964) </li></ul><ul><li>Diet Pepsi (1964) </li></ul><ul><li>Lemon Lime Slice (1984) </li></ul><ul><li>Caffeine free Pepsi Cola (1987) </li></ul><ul><li>Sierra Mist (2000) </li></ul><ul><li>Mountain Dew Code Red (2001) </li></ul><ul><li>Pepsi One (2005) </li></ul><ul><li>Diet Coke with Splenda (2005) </li></ul><ul><li>Fanta (1960) </li></ul><ul><li>Sprite (1961) </li></ul><ul><li>Low calorie cola Tab (1963) </li></ul><ul><li>Diet Coke (1982) </li></ul><ul><li>Caffeine free coke (1983) </li></ul><ul><li>Coca-Cola Classic (1985) </li></ul><ul><li>New Coke (1985) </li></ul><ul><li>Cherry Coke (1985) </li></ul><ul><li>Sierra Mist Free (2004) </li></ul><ul><li>Coca-Cola Zero (2005) </li></ul>
  18. 22. Expansions <ul><li>Acquired – Pizza hut (1978), Toco Bell (1986), KFC (1986) </li></ul><ul><li>Merged with Frito Lay to form PepsiCo </li></ul><ul><li>Pepsi purchased Quaker Oats </li></ul><ul><li>Exclusive deals with Burger king, McDonalds </li></ul><ul><li>Purchased Minute Maid, Duncan Foods, Belmont Springs water </li></ul><ul><li>Acquired – Planet Java coffee drink brand </li></ul><ul><li>Acquired - Mad River juices and tea </li></ul>
  19. 23. Marketing Campaigns <ul><li>Pepsi generation </li></ul><ul><li>Young at heart </li></ul><ul><li>Pepsi challenge </li></ul><ul><li>Smart Spot – good for you </li></ul><ul><li>Americans Preferred Taste </li></ul><ul><li>No wonder Coke refreshes best </li></ul>
  20. 24. Challenges <ul><li>Flat demand during 1998 to 2004. </li></ul><ul><li>Contamination scare at India </li></ul><ul><li>Obesity Issue </li></ul><ul><li>Challenges of Internationalization </li></ul>
  21. 25. Challenges to Coca-Cola <ul><li>Performance & execution : </li></ul><ul><ul><li>on providing alternative beverages </li></ul></ul><ul><ul><li>on adjusting key strategic relationships, </li></ul></ul><ul><ul><li>on cultivating international markets </li></ul></ul><ul><li>Currency crisis in Asia and Russia </li></ul><ul><li>Recall in Belgium – (public relations disaster) </li></ul><ul><li>Series of legal problems </li></ul>
  22. 26. 1996-2004:reversal of fortune <ul><li>Pepsi flourished </li></ul><ul><li>Acquisition of Quaker oats </li></ul><ul><li>3% growth 2004 </li></ul><ul><li>Net income rose by 17.6% per year </li></ul><ul><li>ROI 29.3% from 9.5%(1996) </li></ul><ul><li>Shareholders return 46% </li></ul><ul><li>Coke struggled </li></ul><ul><li>Flat growth </li></ul><ul><li>Annual growth in net income falls to 4.2% from 18%(1990-96) </li></ul><ul><li>Shareholders return -26% </li></ul>
  23. 27. Quest for alternatives <ul><li>Market share: </li></ul><ul><li>CSD- 80%(2000) to 73.1%(2004) </li></ul><ul><li>Diet soda- 24.6%(1997) to 29.1%(2004) </li></ul><ul><li>Bottled water 6.6%(2000) to 13.2%(2004) </li></ul><ul><li>Non-carbs 12.6%(2000) to 13.7%(2004) </li></ul><ul><li>Non-carbs & bottled water contribution to volume growth – coke 100% & Pepsi 75% </li></ul>
  24. 28. Quest for alternatives <ul><li>No longer designing of marketing course </li></ul><ul><li>Diet Pepsi, Pepsi One, Diet Coke with slpenda </li></ul><ul><li>Diet Pepsi as flagship brand </li></ul><ul><li>Non-CSD: total beverage company </li></ul><ul><li>Reluctant to diversify </li></ul>
  25. 29. Evolving stuctures and stratgies <ul><li>System profitability </li></ul><ul><li>Price war </li></ul><ul><li>low -cost strategy by the bottlers </li></ul><ul><li>Incidence pricing </li></ul><ul><li>Retailers resist price increases(Wal-Mart) </li></ul><ul><li>Coke’s relationship with bottlers : </li></ul><ul><li>Dysfunctional, </li></ul>
  26. 30. Internationalisation <ul><li>Next largest market : Mexico, Brazil, Germany, China, and the United Kingdom </li></ul><ul><li>Asia and Eastern Europe </li></ul><ul><li>837 eight ounce cans: 21 eight ounce cans </li></ul><ul><li>Coke’s dominance : Western Europe, much of Latin America, while Pepsi :Middle East and Southeast Asia. </li></ul><ul><li>Coca-Cola became synonymous with American culture . </li></ul><ul><li>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 beverage sales took place overseas. </li></ul><ul><li>Arab and Soviet exclusion of Coke </li></ul>
  27. 31. Venezuela crisis <ul><li>Before </li></ul>After
  28. 32. SWOT : Strengths <ul><li>Coke Brands Enjoy a High-Profile Global Presence </li></ul><ul><li>Four of the top five leading brands </li></ul><ul><li>Broad-based bottling strategy </li></ul><ul><li>47% of global volume sales in carbonates </li></ul><ul><li>• PepsiCo Brands Enjoy a High-Profile Global Presence </li></ul><ul><li>Pepsi Owns the World’s 2 nd Best-Selling Soft Drinks Brand </li></ul><ul><li>Constant Product Innovation </li></ul><ul><li>Aggressive Marketing Strategies Using Famous Celebrities </li></ul><ul><li>A Broad Portfolio of Products </li></ul>
  29. 33. SWOT : Weaknesses <ul><li>Carbonates Market is in Decline </li></ul><ul><li>Over-complexity of relationship with bottlers in North America </li></ul><ul><li>Execution ability </li></ul><ul><li>Carbonates Market is in Decline </li></ul><ul><li>Pepsi is Strongest in North America </li></ul><ul><li>They Only Target Young People </li></ul>
  30. 34. SWOT :: Opportunities <ul><li>Soft drinks volumes in the Asia-Pacific region forecast to increase by over 45% </li></ul><ul><li>Brands like Minute Maid Light and Minute Maid Premium Heart Wise are positioned well with the “Health-concerned” market </li></ul><ul><li>Use distribution strengths in Eastern Europe and Latin America </li></ul><ul><li>Increased Consumer Concerns with Regard to Drinking Water </li></ul><ul><li>Growth in Healthier Beverages </li></ul><ul><li>Growth in RTD Tea and Asian Beverages </li></ul><ul><li>Growth in the Functional Drinks </li></ul><ul><li>Industry </li></ul>
  31. 35. SWOT : Threats <ul><li>Growing &quot;health-conscience&quot; society </li></ul><ul><li>PepsiCo’s Gatorade, Tropicana and Aquafina are stronger brands </li></ul><ul><li>Boycott in the Middle East </li></ul><ul><li>Protest against Coke in India </li></ul><ul><li>Negative publicity in WesternEurope </li></ul><ul><li>Obesity and Health Concerns </li></ul><ul><li>Coca-Cola Increases Marketing </li></ul><ul><li>and Innovation Spending to </li></ul><ul><li>$400M Globally </li></ul><ul><li>Relying on North America only </li></ul><ul><li>is Bad </li></ul>
  32. 36. Profit Margins of Industry Concentrate Producers and Bottlers
  33. 38. US Liquid consumption trends (gallons/capita ) Source- US Beverage industry Consumption Statistics
  34. 39. Promising Segment US Liquid consumption trends (gallons/capita ) Source- US Beverage industry Consumption Statistics
  35. 40. 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
  36. 43. <ul><li>Q:Who has been losing? </li></ul><ul><li>Smaller Brands: </li></ul><ul><li>Because-Entry Barrier, Duopoly </li></ul>
  37. 44. <ul><li>Q: Who has been wining the war? </li></ul><ul><li>1950: Coke have 47% and Pepsi have 10% </li></ul><ul><li>1970: Coke have 35% and Pepsi have 29% </li></ul><ul><li>1990: Coke have 41% and Pepsi have 32% </li></ul><ul><li>2000:Coke have 44%Pepsi have31.4% other beverage Cadbury Schweppes 14.7% </li></ul><ul><li>2006:Coke have 43.1% Pepsi have 31.7% Cadbury Schweppes 14.5% </li></ul>
  38. 45. Key questions <ul><li>Q: Could they boost flagging domestic CSD sales? </li></ul><ul><li>Through Product innovation </li></ul><ul><li>Aggressive marketing and promotion </li></ul><ul><li>Packaging innovations </li></ul>
  39. 46. <ul><ul><li>Would newly popular beverages provide them with new (and profitable) revenue streams? </li></ul></ul><ul><li>Yes </li></ul><ul><li>Non carb and Bottled water contribution to </li></ul><ul><li>Total volume growth: Coke-100%, Pepsi-75 </li></ul><ul><li>Contamination issue, Obesity issue </li></ul>
  40. 47. <ul><li>Q-Can Coke and Pepsi sustain their profits in the wake of flattening demand and the growing popularity of non-CSDs? </li></ul><ul><li>Coke and Pepsi did not just inherit this business they created it. </li></ul><ul><li>By diversification. </li></ul><ul><li>Innovation : e.g diet coke </li></ul>
  41. 48. Thank you
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