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Cola Wars Continue: Coke and Pepsi in 2010

Submitted by:
Al-Jazzer M.A. Usad
Rizal Daujr U. Tingkahan
Andre Lawrence G. Ang
Jan Eleazar A. Jimenez
Robi B. Saavedra

Submitted to:
Mr. Francis H. Arroyo

September 21, 2015

Problem Statement
In what ways can Coke and Pepsi boost CSD sale while competing in the
growing non-CSD category, thereby ensuring sustainable growth and profitability?
Objective
-

To be able to ensure the sustainable growth, development, profitability of both

Coke and Pepsi despite the evident facts that both companies are rivals to each
other.

To be able to look through the eyes of the consumers and consider the
preferences they have.

Brief Description of the Case

Between 1975 and the mid-1990s, the most intense battle in the Coke and Pepsi
COLA WARS were fought over the $74 billion CSD industry in the U.S., where the
average American consumes 46 gallons of CSD per year. In a carefully waged
competitive struggle, both Coke and Pepsi had achieve an average annual growth of
around 10%, as both U.S. and worldwide CSD consumption consistently roused.
However, starting in the late 1990s, U.S. CSD consumption started to decline and new
non-sparkling beverages become popular, threatening to alter the companies brand,
bottling and pricing strategies.
Areas of Consideration
Strengths:

Coke and Pepsi had each had around 100 plants for nationwide distribution.

Coke was the first concentrate producer to build a nationwide franchised

bottling network, and Pepsi and DPS followed suit.

Coke made huge investments to support its bottling network.

Pepsi entered the fast-food restaurant business by acquiring Pizza Hut

(1978), Taco Bell (1986) and Kentucky Fried Chicken (1986). While CocaCola persuaded competing chains such as Wendys, and Burger King to
switch to Coke.

Refranchising allowed Cokes largest bottlers to expand outside their

traditionally exclusive geographic territories.

In 1986, the company created an independent bottling subsidiary, Coca-Cola

Enterprise (CCE), selling 51% of its shares to the public and retaining the
rest.

Coca-Cola Zero became the most successful new CSD product launched in
the second half of the decade.

Within 2004 to 2007, 77% of Pepsis new products released in the US market
were non-carbs compare to Cokes 56%.

Cokes most notable was its $4 billion purchase of Energy Brands, maker of
the popular Vitamin water drinks the deal was the biggest acquisition of Coke
ever.

Weaknesses:

By 1970, Pepsi bottlers were generally larger than their Coke counterparts.

Pepsis challenge had successfully eroded Cokes market share.

The cola wars had particularly weakened small, independent bottlers.

Schools throughout the nation banned the sale of soft drinks on their
premises. Several states pushed for a soda tax on sugary drinks like soda
and energy beverages.

As of April 2010, 29 states already taxed sodas and around 12 more states
were considering the measure.

Opportunities:

Americans consumed 23 gallons of CSDs annually in 1970, and consumption

grew by an average of 3% per year over the next three decades.

Franchise agreement with both Coke and Pepsi allowed bottlers to handle the
non-cola brands of other concentrate producers.

In 1980, after years of litigation, Congress enacted the Soft Drink Interbrand
Competition Act, which preserved the right of concentrate makers to grant
exclusive territories.

Local fountain accounts, which bottlers handled in most cases, were

considerable more profitable than national accounts.

Cans were an alternative packaging material because they were easily

handled and displayed, weighed less, and were durable and recyclable.

Alfred Steele, a former Coke marketing executive, became CEO of Pepsi

focused on take-home sales through supermarkets.

Pepsi promised to spend extra income on advertising and promotion.

Coke began buying up poorly manage bottlers, infusing them with capital, and
quickly reselling them to better-performing bottlers.

Both Coke and Pepsi intensified their effort to use alternative sweeteners.

Stevia, an herb that could be used as a natural zero-calorie sweetener.

The U.S. remained the largest market, accounting for a third of global CSD
consumption, followed by Mexico, Puerto Rico, and Argentina.

Expanding and modifying access to market in Asia and Eastern Europe.

Global expansion in emerging markets, such as, China and India.

In China and India, use of small returnable glass bottles allowed Coke to
reach poor, rural consumers at a very low price point, while boosting revenueper-ounce.

Threats:

Among national concentrate producers, Dr. Pepper Snapple Group (DPS) and
Cott Corporation are among the concentrate produces. In addition, there were
private-label manufacturers and several dozen other national and regional
producer are involved.

The number of U.S. soft drink bottlers had fallen steadily, from more than
2,000 in 1970 to fewer than 300 in 2009.

Pressures to spend more on advertising, product and packaging proliferation,

widespread retail price discounting together, these factors resulted in higher
capital requirements and lower profit margins. Many family-owned bottlers, no
longer had the resources needed to remain competitive.

Cadbury Schweppes emerged as the third-largest concentrate producer the

main competitor of the CSD giants.

The growing linkage between CSD and health issues such as obesity and
nutrition.

Alternative Courses of Action

1. Coke and Pepsi contract with all bottlers to prevent other companies of the same
nature to further compete with them.
Pros:
-

This would allow other competing companies to have a lesser chance in coping
up with Coke and Pepsi.

Also it would lead an increase in the percentage of both companies CSD

markets sales volume.
Cons:

It will take a longer time and effort to contract with all bottlers.

It will be expensive

2. Maximize their brand publicity through innovating and advertising non-CSD

beverages in order to solve the issue towards both companies being unhealthy.
Pros:
-

Bad perception towards both companies might be eradicated for they would be
innovating being healthier beverages.
Cons:

They would be competing with non-CSD which have already built its name and
had proven its worth which are already in the market.

Recommendation
We recommend that we need to maximize their brand publicity trough innovating
and advertising non-CSD beverages in order to solve the issue towards both companies
being unhealthy. Because of negative publicities and Schools throughout the nation
banned the sale of soft drinks on their premises, and several states pushed for a soda
tax on sugary drinks like soda and energy beverages. As of April 2010, 29 states

already taxed sodas and around 12 more states were considering the measure. Bothe
companies should focus on innovating to much healthier product that would not only
removed negative publicities among the companies, but also encouraging the public to
purchase their product, because of it being healthy and nutrition to the consumer.
Action Plan
Who

Bottlers

Concentrate producers

What
Will need to create a merchandise
or packaging types that is well
suited to the new non-CSD
products being made.

Wil need to research and make

adjustments to the new product or
beverage being that it would be a
non-CSD product.
Create new different all natural
flavors for its beverages.

When

As soon as possible.

As soon as possible.

Marketing Dept. of both

companies

Top management of both

companies

Conclusion

Promoting and creating

advertisements for its new
beverages.
Accessing the nationwide
markets and the schools to
sell and promote its nutritious
and healthy drink.
Notifying the press on its new
drinks.
Creating a new contract with
bottlers and concentrate
producers.

As soon as possible.