Cola wars continue

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Cola wars continue

  1. 1. Coke & Pepsi in 2006
  2. 2.  Abhishek Rahman  Md. Estanul Kabir  C. M. Sadat Ullah  Abdullah Al Jubayer  Amitabh Roy
  3. 3. • 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. • 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.  So called cold wars were fought over $66 billion in *CSD industry in the USA  Both achieved average annual growth of 10% within1975 ~ Mid 90’s ◦ Continues growth in the USA and worldwide  However, the war started more then a centaury ago  At the late 90’s ◦ US per capita went down slightly ◦ Their relationship began fray ◦ Avg consumption of 52 gallons by the US people *CSD: Carbonated Soft Drinks
  6. 6.  At the late 90’s ◦ Both experienced ups and downs on  Coke started facing operational difficulties  Pepsi became more aggressive and launched new alternatives ◦ & both started working on  Developing Brand Strategies  Pricing &  Bottling
  7. 7.  Consumption grew by an avg. of 3% annually  In 1970, avg. consumption was 23 gallons  Went up because of ◦ Availability of CSD ◦ Introduction of diet & ◦ Flavored items  Alternatives & status of CSD ◦ Beer, Milk, Coffee, Bottled water, juices, tea, powdered drinks, wine, sports drinks, distilled spirits & tap water ◦ Yet, Americans drank soda than any other beverage ◦ Cola maintained its dominance although its market share ◦ Dropped from 71% in 1990 to 60% in 2004
  8. 8.  Involved 4 major participants ◦ Concentrate Producers ◦ Bottlers ◦ Retail Channels ◦ Suppliers
  9. 9.  Concentrate Producers ◦ Blend raw material ingredients ◦ Packaged the mixture in plastic canisters & ◦ Shipped the containers to the bottlers  Concentrate makers often added artificial sweetener with regular CSDs  Bottlers added sugar or high fructose corn syrup themselves
  10. 10.  Concentrate manufacturing ◦ Involves capital investment in Machinery & overhead ◦ Cost about $ 25 million to $50 million  Good enough to serve the entire United States  Most significant cost involves ◦ Advertising, Promotion, Market Research and bottler support ◦ Innovative & sophisticated campaigns ◦ Spend on joint marketing programs with bottlers  Also look after ◦ Customer development agreement ◦ Supporting the bottlers in Sales efforts, setting standards & suggesting operational improvements ◦ Negotiate with the bottlers’ supplier for reliable supply, fast delivery and lower price  Sweetener & packaging makers
  11. 11.  Coca cola and Pepsi Cola combined 74.8% of the US CSD market sales volume in 2004 followed by Cadbury and Cott Corporation
  12. 12.  Bottlers ◦ Purchased concentrate, add Carbonated water and high fructose corn syrup ( in bottled or canned) ◦ Deliver to the customer accounts ◦ Responsible for  Direct Store Door  Secure shelf space  Staking CSD products  Positioning the brands trademark label  Setting POS & ensure in store displays
  13. 13.  Bottlers process was capital intensive ◦ High speed production line ◦ Cost $4 million to $10 million each  Invest in trucks and distribution network ◦ Cost allocation  Packaging involved 40% cost  Cost of sales 45%  Sweeteners 5 to 10%  Concentrate 5% ◦ Gross profit routinely exceeded 40% ◦ Operating margin within 7% to 9%
  14. 14.  Retail Channel ◦ Pepsi had focused on sales through retail outlets ◦ Coke had dominated fountain sales  Restaurants, Cafeterias and other outlets using fountain type dispensers ◦ At the 80’s  Pepsi entered into the restaurants by acquiring Pizza Hut, Taco Bell, KFC  Coca Cola took the same route targeting the competitors - Burger King, Wendy’s & Burger, McDonadls, Subway
  15. 15.  Sales through Retail Channel 32.90% 23.40% 14.50% 11.80% 7.90% 9.50% Supermarkets Fountain Outlets Vending Machines Mass Merchandisers Convenience stores and Gas Stations Other Outlets
  16. 16.  Suppliers to Concentrate producers & Bottlers 56% 42% 2% Metal Cans Plastic bottle Glass bottle
  17. 17. Growth of Pepsi at starting of 1950 and onwards  “Beat Coke” motto of Pepsi  Pepsi improves distribution channel and sales through supermarket  Convenient SKUs size of Pepsi picks up consumption  Marketing Campaign named “Pepsi Generation” for young and teenagers
  18. 18.  Pepsi sells concentrate to its bottlers @ 20% lower cost of Coke  Pepsi take initiatives to modernize the Bottlers plant and store delivery service  Coke remain unchanged with 800 independent bottlers  After modernizing the bottlers of Pepsi, increase the rate of concentrate equal to coke rate by promising to take part in advertising and marketing campaign
  19. 19.  Coke experiment with new cola and non cola flavors, that includes Coke - Fanta in 1960 - Sprite in (1961) - Tab in 1963, low calorie cola Pepsi - Teem in 1960 - Mountain Dew in 1964 - Diet Pepsi in 1964  Both introduced nonrefundable bottle and convenient bottle size
  20. 20.  Coke purchased - Minute Maid : fruit juice - Duncan Foods: Coffee, Tea, chocolate etc  Pepsi merged with - Frito-Lay: snack food to form PepsiCo  Bothe diversify their business to reach same target customer, use delivery system and same marketing orientation  Coke take initiatives to expand in overseas market and become aggressive in late 1970
  21. 21. 0 5 10 15 20 25 30 35 40 45 Year 1966 1970 1975 1980 1985 1990 1995 2000 2004E Consumption Comparison Coke Pepsi
  22. 22.  Coke advertising message ◦ “American’s preferred Taste” in 1955 and ◦ “No Wonder Coke refreshes Best” in 1960  Pepsi’s Market Survey and demonstration that Consumer Preferred Pepsi to Coke  Coke Counter part- discounting on price  Pepsi passed Coke in food store sales for first time in 1979
  23. 23.  Coke switched from using sugar to high- fructose corn syrup, lower price concentration  Doubling advertising cost in 1981 to 1984 by Coke and Pepsi.  in 1982 ◦ Coke sold off Non-CSD business and introduced Diet Coke ◦ became most successful beverage in Eighties
  24. 24.  In between 1983 to 1987 ◦ Coke again introduced 11 new products and ◦ Pepsi introduced 13 Coke- Caffeine free coke, Cherry Coke etc Pepsi- Lemon lime slice, caffeine free Pepsi cola  Both introduced new packaging, bottle size and shape. Discounting from both parties grew the customer  Cadbury Schweppes become third largest concentrate producer and became threat to the two giants
  25. 25.  Both Coke and Pepsi is busy to manage Bottlers  Coke started to buy poorly managed Bottlers and sell those to better performing bottlers  Coke bought two big bottlers in 1985 and owned one third coke’s volume in company owned operations and created Coca-Cola Enterprise (CCE)  Pepsi acquired few bottlers and open subsidiary by name of Pepsi Bottling Group.
  26. 26.  CCE raised $1 billion from capital market through offering 51% its shares to public  Improved operational excellence through ◦ Increasing territories size ◦ Organizing purchasing arrangements ◦ Downsizing its works force by 20%  Coke became as an investment bank specialized in bottler deals
  27. 27.  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
  28. 28.  Challenges related to performance and execution were addressed by ◦ providing alternatives beverages to the health conscious consumers ◦ Adjusting key strategic relationships ◦ Cultivating international markets
  29. 29. 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
  30. 30.  Share of total CSD volume grew from 24.6% to 29.1% during 1997 to 2004 ◦ Primarily due to the gaining popularity of the diet/alternative beverages ◦ New products such as Coca-Cola Zero, Pepsi One and Sierra Mist Free became popular among young fitness conscious individuals especially men  In 2004 the US market experienced: ◦ 1% growth in CSD volume ◦ 7.6% growth in Non-Carb volume ◦ 18.8% leap in single-serve bottled-water volume
  31. 31. • In 2004, Non-carb/alternative drinks grew at twice the rate of other food and beverage items  Pepsi was more aggressive than Coke in adapting to this shift in trend ◦ Pepsi developed a portfolio of Non-CSD products that outsold Cokes’s rival product in each category  Getorade (Pepsi) led PowerAde (Coke) by 80.4% to 18.1%  Tropicana (Pepsi) lead Minute Maid (Coke) by 26.8% to 14.8% ◦ In the overall non-carb market Pepsi had a market share of 47.3% with Coke’s share of 27%
  32. 32.  After losing out on market share in the CSD category both Coke and Pepsi fared back in the $11.4 billion bottled water category  Primarily it was their distribution prowess that gave them a competitive advantage over the other companies selling Spring water.  By 2004: ◦ Aquafina (Pepsico) led the market share with 13.6% over Dasani (Coke) holding 12.1% ◦ The market leader was however Nestle waters with 42.1% market share
  33. 33.  Relationship with the bottlers has been critical to Pepsi’s success over Coke  Coke raised its concentrate prices leaving the bottlers a narrower profit margin in the highly price sensitive industry  Pepsi’s higher-margin-channels (especially the convenience and gas channel) gave its bottlers wider profit margins as these were high consumption venues. The increasingly 20oz PET bottle yielded margins as high as 35%, compared with the 5% and 7% margins on cans!

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