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Cola wars Cola wars Presentation Transcript

  • Cola Wars Continue Coke and Pepsi in 2006 Presented by- TEAM 6
    • War over $66bn CSD industry
    • lasted from 1975-mid1990s
  • New Challenges
    • Cola wars continued into the 21st century with new challenges
      • Was their era of sustained growth and profitability coming to a close or was this slowdown just another blip in the course of the cola giants’ long and evitable history?
      • Could they boost flagging domestic CSD sales?
      • Would newly popular beverages provide them with new (and profitable) revenue streams?
  • 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
  • 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
    • CDA’s with retailers like Wal-Mart
  • 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 volume in 2004
  • Bottlers
    • Purchased concentrate
    • Added carbonated water and high-fructose 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
    • In 2004, distribution of CSDs in U.S. was through:
    • Super Markets (32.9%)
    • Fountain outlets(23.4%)
    • Vending Machines(14.5%)
    • Mass Merchandisers(11.8%)
    • Convenience Stores &Gas Stations(7.9%)
    • Other outlets(9.5%)
  • Suppliers to Bottlers
    • Coke and Pepsi were among the Metal Can industry’s largest customers.
    • Major Can producers- Ball, Rexam, Crown Cork & Seal
  • 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
    • The rest is history
  • 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
  • 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
    • Fanta (1960)
    • Sprite (1961)
    • Low calorie cola Tab (1963)
    • Non-CSD (Purchased)
    • Minute Maid (fruit juice)
    • Duncan foods (coffee, tea,hot chocolate)
    • Belmont Springs water
    • Teem (1960)
    • Mountain Dew (1964)
    • Diet Pepsi (1964)
    • Non-CSD (Merged)
    • Frito Lays
  • The Pepsi Challenge
    • Blind taste test
    • Eroded Coke’s Market share
    • Part of Pepsi’s promotional strategy not a part of marketing research.
    • Rebates
    • Retail price cuts
    • Advertisements that questions tests’ validity
    • 1978 – Re-negotiation of contract with franchisee bottlers
  • Leadership
    • 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
    • Sold non-CSD business
    • Diet Coke (1982)
    • 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 )
  • 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)
    • Sierra Mist Free (2004)
    • Coca-Cola Zero (2005)
  • Expansions
    • Acquired – Pizza hut (1978), Toco Bell (1986), KFC (1986)
    • Merged with Frito Lay to form PepsiCo
    • Pepsi purchased Quaker Oats (Gatorade)
    • 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 to Pepsi
    • Flat demand during 1998 to 2004.
    • Contamination scare at India
    • Obesity Issue
    • Challenges of Internationalization
  • 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
  • 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)
    • Shareholders return 46%
    • Coke struggled
    • Flat growth
    • Annual growth in net income falls to 4.2% from 18%(1990-96)
    • Shareholders return -26%
  • 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%
  • 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 structures and strategies
    • System profitability
    • Price war
    • Low -cost strategy by the bottlers
    • Incidence pricing
    • Retailers resist price increases (Wal-Mart)
    • Coke’s relationship with bottlers like CCE was “Dysfunctional”
  • Internationalizing the Cola Wars
    • 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 beverage sales took place overseas.
    • Arab and Soviet exclusion of Coke
  • Venezuela crisis(1996)
    • Before
    After
  • Strengths
    • 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
    • PepsiCo Brands Enjoy a High-Profile Global Presence
    • Pepsi Owns the World’s 2 nd Best-Selling Soft Drinks Brand
    • Constant Product Innovation
    • Aggressive Marketing Strategies Using Famous Celebrities
    • A Broad Portfolio of Products
  • Weaknesses
    • Carbonates Market is in Decline
    • Over-complexity of relationship with bottlers in North America
    • Execution ability
      • Carbonates Market is in Decline
      • Pepsi is Strongest in North America
      • They Only Target Young People
  • Opportunities
    • 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
    • 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
  • Threats
    • Growing "health-conscience" society
    • PepsiCo’s Gatorade, Tropicana and Aquafina are stronger brands
    • Boycott in the Middle East
    • Protest against Coke in India
    • Negative publicity in WesternEurope
    • Obesity and Health Concerns
    • Coca-Cola Increases Marketing and Innovation Spending to $400M Globally
    • Relying on North America only is Bad
  • Key Issues
    • Who has been losing?
    • Smaller Brands:
    • Because-Entry Barrier, Duopoly
    • 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%
    • Could they boost flagging domestic CSD sales?
    • Through Product innovation
    • Aggressive marketing and promotion
    • Packaging innovations
    Key questions
      • 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
    • 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
  • CURRENT UPDATES UPDATES $31,944 $43,251 NET OPERATING REVENUES (2008) (millions of $) SHARE PRICE MUHTAR KENT INDRA K.NOOYI CEO COCA-COLA PEPSI
  • Thank you Presented By, Shivappa Ganesh Santanu Vijay Savla Mahaveer