Cola wars
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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