Cola wars continue final


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this story is about the world's two competing brands! Pepsi & Coca Cola.

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Cola wars continue final

  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 Supermarkets 9.50% Fountain Outlets 7.90% 32.90% Vending Machines 11.80% Mass Merchandisers Convenience stores 14.50% and Gas Stations 23.40% Other Outlets
  16. 16.  Suppliers to Concentrate producers & Bottlers 2% 42% Metal Cans 56% 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. Consumption Comparison4540353025 Coke20 Pepsi1510 5 0 Year 1966 1970 1975 1980 1985 1990 1995 2000 2004E
  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 13Coke- Caffeine free coke, Cherry Coke etcPepsi- 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 Pepsi • “Grow the core and add Unsuccessful some more” – Pepsi CEO execution of several – Diversified portfolio of initiatives Products ◦ Failed joint ventures with – Launch of new CSDs like Sierra Mist and P&G and Quaker Oats Mountain Dew and (the latter was later expanding into other purchased by PEPSI) beverage categories like Getorade Disagreement among – Volume growth by 3% in internal top 2004 management and • Proactive to consumer radical shifts in demand – Pepsi distributed its company policies 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!