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Cola wars continue   coke and pepsi in 2006-1
Cola wars continue   coke and pepsi in 2006-1
Cola wars continue   coke and pepsi in 2006-1
Cola wars continue   coke and pepsi in 2006-1
Cola wars continue   coke and pepsi in 2006-1
Cola wars continue   coke and pepsi in 2006-1
Cola wars continue   coke and pepsi in 2006-1
Cola wars continue   coke and pepsi in 2006-1
Cola wars continue   coke and pepsi in 2006-1
Cola wars continue   coke and pepsi in 2006-1
Cola wars continue   coke and pepsi in 2006-1
Cola wars continue   coke and pepsi in 2006-1
Cola wars continue   coke and pepsi in 2006-1
Cola wars continue   coke and pepsi in 2006-1
Cola wars continue   coke and pepsi in 2006-1
Cola wars continue   coke and pepsi in 2006-1
Cola wars continue   coke and pepsi in 2006-1
Cola wars continue   coke and pepsi in 2006-1
Cola wars continue   coke and pepsi in 2006-1
Cola wars continue   coke and pepsi in 2006-1
Cola wars continue   coke and pepsi in 2006-1
Cola wars continue   coke and pepsi in 2006-1
Cola wars continue   coke and pepsi in 2006-1
Cola wars continue   coke and pepsi in 2006-1
Cola wars continue   coke and pepsi in 2006-1
Cola wars continue   coke and pepsi in 2006-1
Cola wars continue   coke and pepsi in 2006-1
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Cola wars continue coke and pepsi in 2006-1

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  • 1. Cola Wars Continue Coke & Pepsi in 2006 DILSHAN HYE JOO LEE Dae-Ryang-Woo
  • 2. Overview Industry  Background Production  &  Distribution  of  CSD Questions
  • 3. 1886: John Pemberton 1893: Caleb Bradham
  • 4. Concentrate producer Bottler Supplier Retail Channel
  • 5. Concentrate  Producer   • Key  produc+on  investment  areas   • Manufacturing  plant     • Customer  Development  Agreements  (CDA)     • Spent  for  adver+sing,  promo+on,  market  research  
  • 6. Bo.lers   •  Purchased  concentrate     •  Added  carbonated  water  and   high-­‐fructose  corn  syrup     •  BoEled  or  canned  the  resul+ng   CSD  product   •  Delivered  it  to  customer  account  
  • 7. Suppliers   •  Coke  and  Pepsi  were  among  the  Metal  Can  industry’s   largest  customers.   •    Major  Can  producers-­‐  Ball,  Rexam,  Crown  Cork  &  Seal  
  • 8. Retail  Channels   In  2004,  distribu+on  of  CSDs  in  U.S.  was  through:   •  •  Fountain  outlets(23.4%)   •  Vending  Machines(14.5%)   •  Mass  Merchandisers(11.8%)     •  Convenience  Stores  &Gas  Sta+ons(7.9%)   •    Super  Markets  (32.9%)   Other  outlets(9.5%)  
  • 9. Sales  through  Retail  Channel   Supermarkets 7.90% 9.50% Fountain Outlets 32.90% Vending Machines 11.80% Mass Merchandisers 14.50% 23.40% Convenience stores and Gas Stations Other Outlets
  • 10. Suppliers  to  Concentrate  producers  &  Bo.lers   2% 42% 56% Metal Cans Plastic bottle Glass bottle
  • 11. Bottlers  UP! —  Relationship  with  the  bottlers  has  been  critical  to   Pepsi’s  success  over  Coke —  Coke  raised  its  concentrate  prices  leaving  the   bottlers  a  narrower  proBit  margin  in  the  highly   price  sensitive  industry
  • 12. 1.  Why  has  the  so<  drink  industry  been  so   profitable?    
  • 13. Threat Of New Entrants –Low •  Bottling  Network -­‐  Have  franchisee  agreements  with  their  existing  bottlers   who  have  rights  in  a  certain  geographic  area  in  perpetuity •  Access  to  distribution  is  limited •  High  brand  loyalty •  Advertising  Spend -­‐huge  advertising  and  marketing  spend  required
  • 14. •  Commodity Ingredients •  Majority of the U.S. CSDs were packed in metal cans - Coke and Pepsi were among the largest customers for metal can industry -  Cans are commodity, 2-3 manufacturers competed for single contract •  Plastic Bottles - 42% of CSD packaging - Bargaining power of them was low
  • 15. Bargaining  power  of  Buyer  -­‐  moderate Fountain and Vending, 34% Super markets, 31% Convenience and Gas, 15% Drug stores, 3% Club stores, 4% Mass retailers, 4% Supercenters, 9%
  • 16. Supermarkets (Food stores) - Several chain stores , Intense competition for shelf space Mass Merchandiser - Have private label CSDs - Extremely fragmented Fountain - Intense competition : Sacrificed profits to land and keep Fountains
  • 17. Threat of Substitutes - Low • Large number of substitutes were available • Americans drank more soda than any other beverage with cola market share 71% in 1990 • Huge advertising, brand equity, and making easy availability of product reduced the threat of substitutes
  • 18. Extent of Rivalry - High • Concentrate Producer Industry – DUOPOLY • Rest of the competition too small to cause any upheaval of pricing or industry structure • Strategic convergence • Head-to-Head • Coke Competition between both and Pepsi reinforced brand recognition of each other
  • 19. 2.  Compare  the  economics  of  the  concentrate   business  to  the  bo.ling  business:  why     is  the  profitability  so  different?     Concentrate Producers •  Blend raw material ingredients, packaged the mixture and shipped those to the container bottler. •  A typical manufacturing plan costs $25 million to $ 50million. •  Significant costs were for advertising, promotion, market research and bottler relations •  Invest heavily in their trademarks and innovative marketing campaign
  • 20. Bottler • Cost of sale is more in bottlers than concentrate producers • Bottled or canned is the resulting CSD product • Bottling process is capital - intensive plant, and involved specialized lines • Invest a lot of capital in trucks and distribution networks • Purchase major inputs: packaging in can, bottle and class , sweetener …
  • 21. 3.  How  has  the  compeIIon  between  Coke  and   Pepsi  affected  the  industry’s  profits?   •  The war between Coca-cola and Pepsi enables them to elevate their level of innovation •  Overseas operations after 1960s. •  Tw o c o m p a n i e s c h a n g e d f r o m A m e r i c a n companies to international ones. •  Coca-cola and Pepsi share the most of the market;
  • 22. 3.  How  has  the  compeIIon  between  Coke  and   Pepsi  affected  the  industry’s  profits?   •  Advertising budgets are significantly increased. •  The cola wars weaken the other competitors by their advantages of plants and equipments •  Many small bottlers fold •  Coca-cola and Pepsi are both able to share the market with high profits.
  • 23. 4.  Can  Coke  and  Pepsi  sustain  their  profits  in   the  wake  of  fla.ening  demand  and  the   growing  popularity  of  non-­‐CSDs?     Alternative beverages bring increasing profitability due to the health consciousness of the consumers. •  Coca-cola and Pepsi can sustain their profits in the industry •  Adding new products allows larger margins and brings more potential opportunities. •  Shifting the advertising budget and marketing slogans to deliver the messages related to health consciousness also increase the demand of the consumers.
  • 24. Number of competitors • 2 major players: Coke, Pepsi • Combine market share: 74.8% Competitive strategy • Focused on advertising and promotion • Main strengths from advertising campaigns Industry Growth • Average of 10% till 1990s and then demand leveled off • Diversify to address beverage need Competitor Diversity • Coke and Pepsi are very similar products • Similar changes made
  • 25. Exit Barriers • Relatively low costs to exit • Contractual agreements with bottling companies Proprietary Information • Secret and famous cola recipe for both Coke and Pepsi • Difficult to copy by other firms Competitive Advantage • Famous, international brands • Partnered with fast food franchises as well
  • 26. • Initially through the early 1960s Coke was the winner. • But passage of the time Pepsi creates strong hold on the market. • Coke was focused on overseas markets, while Pepsi focused on the US grocery channel. • Coke and Pepsi hold almost 75% the whole market and 25% have other local CSDs or non CSDs brands.
  • 27. Thank You

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