The cola wars between Coke and Pepsi continued into the 21st century with both companies facing new challenges. While CSD consumption had grown steadily in the US from 1970 to 2000, growth slowed in the 2000s. Both companies relied on brand extensions like Diet Coke and Diet Pepsi to boost sales. By 2004, Pepsi had gained market share over Coke, but both remained the top two brands. To sustain profits, Coke and Pepsi expanded their product portfolios beyond carbonated soft drinks into non-carbonated beverages, bottled water and juices.

1. Cola Wars Continue Coke and Pepsi in 2006 Presented by- TEAM 6

2. War over $66bn CSD industry lasted from 1975-mid1990s

3. 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?

4. 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

5. Production & distribution of CSD Concentrate producers Bottlers Retail channels Suppliers

6. 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

7. 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

8. Bottlers Purchased concentrate Added carbonated water and high-fructose corn syrup Bottled or canned the resulting CSD product Delivered it to customer account

9. 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.

10. Profitability Concentrate producer earn more profit than bottler. Cost of sale is more in bottler.

11. 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%)

12. Suppliers to Bottlers Coke and Pepsi were among the Metal Can industry’s largest customers. Major Can producers- Ball, Rexam, Crown Cork & Seal

13. 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

14. 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

15. 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”

16. 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

17. 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

18. 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 )

19. 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)

20. 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

21. Marketing Campaigns Pepsi generation Young at heart Pepsi challenge Smart Spot – good for you Americans Preferred Taste No wonder Coke refreshes best

22. Challenges to Pepsi Flat demand during 1998 to 2004. Contamination scare at India Obesity Issue Challenges of Internationalization

23. 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

24. 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%

25. 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%

26. 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

27. 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”

28. 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

29. Venezuela crisis(1996) Before After

30. 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

31. 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

32. 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

33. 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

34. 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%

35. 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

36. CURRENT UPDATES UPDATES $31,944 $43,251 NET OPERATING REVENUES (2008) (millions of $) SHARE PRICE MUHTAR KENT INDRA K.NOOYI CEO COCA-COLA PEPSI

37. Thank you Presented By, Shivappa Ganesh Santanu Vijay Savla Mahaveer