COLA WARS CONTINUE: COKE AND PEPSI

IN THE TWENTY-FIRST CENTURY

B y ,
G r o u p 6
G . V A I B H A V

K U M A R

R E D D Y

( P 1 1 1 0 1 2 )

P . P R A V E E N ( P 1 1 1 0 3 3 )
P R A G Y A J A I S W A L ( P 1 1 1 0 3 7 )
R A K E S H

G R E A T

N A V A L

L A K E S

( P 1 1 1 0 3 9 )

I N S T I T U T E

O F

E N E R G Y

M A N A G E M E N T

A N D

R E S E A R C H ,

G U R G O A N

www.thecoca-colacompany.com
www.pepsico.com

CONCENTRATE PRODUCER AND

BOTTLERS
Concentrate Producer

1993

Dollars per
Case

Bottler

Percent of
Total

Dollars per
Case

Percent of
Total

Net Sales

0.66

100%

2.99

100%

Cost of sales

0.11

17%

1.69

57%

Gross profit

0.55

83%

1.30

43%

Selling and
delivery

0.01

2%

0.85

28%

Advertising and
marketing

0.26

39%

0.05

2%

General and
administrative

0.05

13%

0.13

4%

Pretax profit

0.23

29%

0.27

9%

Concentrate Producer

2000

Bottler

Dollars per
Case

Percent of
Total

Dollars per
Case

Percent of
Total

Net Sales

0.71

100%

5.80

100%

Cost of sales

0.12

17%

3.77

65%

Gross profit

0.59

83%

2.03

35%

Selling and delivery

0.01

2%

1.22

21%

Advertising and
marketing

0.28

39%

0.12

2%

General and
administrative

0.06

8%

0.23

4%

Pretax profit

0.25

35%

0.52

9%

RETAIL CHANNELS
% of Industry
Volume

1993

2000

Coca-Cola

Pepsi-Cola

Coca-Cola

Pepsi-Cola

Food Stores

32.8%

28.5%

36.1%

32.2%

Convenience
and Gas

29.6%

37.4%

35.7%

41.5%

Fountain

58.9%

27%

65%

21%

Vending

48.6%

40.6%

50%

40%

Other

45.4%

32.5%

35.5%

33.3%

Total

40.7%

31.3%

44.1%

31.4%

STRATEGIC PATH
COCA-COLA
Franchise bottling system , reaching 370
franchises by 1910

PEPSI-COLA
Franchise bottling system , reaching 270
franchises by 1910

During 1920s and 30s, introduction of open- In 1920s, lowered the price for its 12top coolers to storekeepers, automatic
ounce bottle.
fountain dispensers, vending machines.
Introduced Teem (1960), Mountain Dew
(1964), Diet Pepsi (1964). Worked with
Introduced Fanta (1960), Sprite (1961), lowcalorie Tab (1963).
bottlers to modernize and improve
services.
Purchased Minute Maid (fruit juice),
Duncan Foods (coffee, tea, hot chocolate),
In 1963, launched the Pepsi Generation
Belmont Springs Water.
campaign targeting the youth, which helped
narrow cokes lead to 2-to-1 margin.
Coke countered Pepsi Challenge with
In 1974, introduced the Pepsi
rebates, price cuts and price discounts.
Challenge.

COCA-COLA

PEPSI-COLA

In 1978, hike in concentrate price after

securing bottler approval.

In 1970s, sold concentrate to bottlers @

20% lower than coke.

In 1980, switched from sugar to lowerpriced high fructose corn soup.

Merged with Frito-lay in 1965.

Increased advertising expenditure.

In 1978, 15% increase in price of

concentrate.

Sold off most of non-CSD businesses

i.e. wine, coffee, tea etc.

Emulated the move of fructose corn soup

in 1983.

Introduced Diet Coke in 1982 huge

success.

Increased advertising expenditure.

Change in formula in 1985 major

setback. Reintroduced original formula
in the name of Coca-Cola Classic after 3
months.

In 80s, introduced 11 new CSD brands.

In 80s, introduced 13 new CSD

products.

COCA-COLA

In 1980, refranchised bottling

operations-helped in expansion.

Created independent bottling subsidiary,

Coca-Cola Enterprises (CCE) in 1986.
Employed low-price strategy.
Marketing agreements with celebs Harry Potter .
Introduced PowerAde, Nestea, Dasani
in 1998, 1999 in response to Pepsi.

PEPSI-COLA
In late 80s, acquired MEI bottling,
Grand Metropolitans bottling operations
and General Cinimas bottling operations.
In 1999, created Pepsi Bottling Group
(PBG).
Employed low-price strategy.
Marketing agreements with celebs
Britney Spears, Jackson.
By end of 90s, reintroduced Pepsi
Challenge.

Started acquiring international markets in

more structured way.
Non-Cola Beverages introduced
Aquafina (1998), Tropicana (1998),
Gatorade and SoBe (2000).

Started acquiring international markets in

more structured way.

SWOT ANALYSIS OF COCA-COLA

STRENGTHS
First mover advantage.
More loyal customer base.
Large market share.
Economies of Scale.
International Brand recognition.
Huge distribution network.
Strategic move during world wars.
Success of diet coke.
Efficient global operations

WEAKNESS
Moving away from core competencies.
Brand Failures
Product Recalls

OPPORTUNITIES
Entry into new developing
international markets.
Introduction of newer brands.
Innovative advertising strategies.

THREATS
Barriers of entry in international
markets.
New age beverages.
Fierce competitors in local markets;
Private labels at low prices.

SWOT ANALYSIS OF PEPSI-COLA

STRENGTHS
Guerrilla Marketing strategies.
More focus on young generation.
Economies of Scale.
International Brand recognition.
Huge distribution network.
Innovative advertising strategies.
More flexible franchise network.

WEAKNESS
Smaller market than Coke.
Slower take off in international
markets.
Imitation of Coca-Cola.
Falling Behind in All-embracing
Markets, namely Russia, Venezuela, and
South America.

OPPORTUNITIES
Introduction of Pepsi Health Drink.
Image of Total Beverage Company
Entry new developing international
markets.
Introduction of newer brands.

THREATS
Fear of losing market share due to
rapid market fluctuations.
Barriers of entry in international
markets.
Decreasing brand loyalty among
consumers.
New age beverages.
Fierce competitors in local markets;
Private labels at low prices.

PORTERS FIVE FORCE ANALYSIS

SOFT DRINK INDUSTRY
Industry Competitors
Coca-Cola, Pepsi-Cola, Cadbury Schweppes and others.

Threat of New Entrants

High entry costs
High risk for entrants due to diversified nature of Coke and

Pepsi.
Government Policy regulations.
Existing Loyal customer base.
Acquisition of major bottling units by existing firms, increases

the entry barriers.

Threat of substitutes
Non-CSD drinks like milk, alcoholic beverages, juices, sports drinks, tea-based, dairy-

based drinks
Threat of saturation of consumption in US market thereby leading to increase in the

consumption of on-Cola beverages.

Bargaining power of suppliers
Low switching costs.
Huge number of suppliers.
Maintaining the quality and flexibility of supply chain through backward integration i.e.

acquiring bottling plants.

Bargaining power of buyers.
Higher buying power large grocers, discount stores and restaurants buy large volumes

demanding a lower price.

Choice of customers is high due to competition and variety in the market.

U.S. Non-Alcoholic Beverage Market Share,

% share by volume
Company

2005

2009

2011

Coca-Cola

30%

42.8
%

43%

Pepsi-Cola

22.6
%

31.1
%

31%

Cadbury Schweppes

10.6
%

15%

18%

Other

36.9
%

11.1% 8%

CURRENT FINANCIALS
Coca-Cola

Pepsi-Cola

154.38b

100.48b

Revenue Growth

5.20%

11.03%

Profit Margin

14.98%

7.02%

0.55

0.52

Market Cap

Beta

Source: http://ycharts.com/companies/KO

Coke VS Pepsi Share price

ISSUES TO PONDER for Pepsi

Hard to differentiate products in terms of taste as

product variety is very much limited within cola

beverages.
Coca-Cola has much stronger loyal customer base.
Consumer market moving from carbonated drinks

towards functional soft drinks.

In US, Cadbury Schweppes competing aggressively.

RECOMMENDATIONS
For Pepsi to grab the major pie,
It needs to follow the Cost Leadership and Product

Differentiation Strategies.
i.e. it needs to create a unique customer perception and

differentiate one product from another.

Rather than being a price follower, it must face the market by

a leading strategy of Price Setter, which can be made possible

by improving the production efficiencies and reducing the
bottlenecks.
It also needs to focus on strengthening its core competency.

THANK YOU