The document summarizes the history and competition between Coca-Cola and Pepsi from 1886 to 2006. It discusses how each company was founded and grew initially. In the late 20th century, both experienced ups and downs as consumption levels fluctuated and they launched new products and diversified. Pepsi became more aggressive in adapting to trends like the rise of non-carbonated drinks, while Coke struggled with execution issues. By 2004, Pepsi had grown its portfolio beyond cola drinks and achieved higher market shares across categories through proactive strategies.

1. Coke & Pepsi in 2006

2.  Abhishek Rahman
 Md. Estanul Kabir
 C. M. Sadat Ullah
 Abdullah Al Jubayer
 Amitabh Roy

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. • 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.  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.  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.  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.  Involved 4 major participants
◦ Concentrate Producers
◦ Bottlers
◦ Retail Channels
◦ Suppliers

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.  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.  Coca cola and Pepsi Cola combined 74.8% of
the US CSD market sales volume in 2004
followed by Cadbury and Cott Corporation

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.  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.  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.  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.  Suppliers to Concentrate producers & Bottlers
56%
42%
2%
Metal Cans
Plastic bottle
Glass bottle

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.  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.  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.  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. 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.  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.  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.  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.  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.  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.  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.  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. 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.  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. • 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.  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.  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!