Coca Cola Company and Pepsi Co.

are the largest players in the Carbonated Soft Drinks (CSD) industry. Cola war is the term used to describe the campaign of mutually targeted television advertisement & marketing campaigns between Coke & Pepsi. Both Coke & Pepsi have segmented the soft drink industry into two divisions, via 1. Production of soft drink syrup. 2. Manufacturing & distribution of soft drinks at retail level. Coke & Pepsi have chosen to operate primarily on the production of soft drinks syrup, while leaving independent bottlers with more competitive segment of the industry.

The purpose of this report is to gain insight into the possible strategies that can be applied, in order to expand the overall throat share in the future This report focuses on increasing the overall share and finding new opportunities in the unrevealed markets Highly competitive strategies were utilized in the past by both companies which resulted in cannibalization

Gaining Hold

Bottling Pricing Brand Strategies To emerge in international markets, they expanded their brand portfolios to include non carb beverages like Tea, Juice, Sports Drink and Bottled Water

Structure of soft drink industry

Concentrate Producers

Soft drink

Company Bottlers

Challenges to soft drink industry

Flat demand during 1998 2004. Contaminations scare in India. Obesity issues. Challenges of internationalization.

Company Profile
The Coca-Cola Company was originally established as the J. S. Pemberton Medicine Company, a co-partnership between Dr. John Stith Pemberton and Ed Holland. Dr. John Stith Pemberton for the first time produced the syrup for Coca-Cola on May 8, 1886

The company was formed to sell three main products. 1. Pemberton's French Wine of Cola (later known as Coca-Cola). 2. Pemberton's Indian Queen Hair Dye, 3. Pemberton's Globe Flower Cough Syrup.

Interbrands Global Brand Scorecard for 2003 ranked Coca-Cola the #1 Brand in the World and estimated its brand value at $70.45 billion

BOARD OF DIRECTORS

Brian L. Barber - Vice Chairman; Donald R. Ching - Director; Lorraine Sali - Director; Thomas A. Shepherd- Director; Grant J. Kook - President/CEO/Director; Bob Ellard Director; Ronald S. Waldman - Director; Douglas W. Banzet- CFO/Director; Honourable William McKnight- Chairman

Coca Cola Products and Brands

The Coca-Cola Company offers nearly 400 brands in over 200 countries
Diet Coke (introduced in 1982) Diet Coke Caffeine-Free Cherry Coke (1985) Diet Cherry Coke (1986) Coke with Lemon (2001) Diet Coke with Lemon (2001) Vanilla Coke (2002) Coca-Cola C2 (2004) Aquarius Mineral Water (2004) Diet Coke with Lime (2004) Diet Coke Sweetened with Splenda

(2005)
Coca-Cola Zero (2005) Coca-Cola Black Cherry Vanilla (2006) Diet Coca-Cola Black Cherry Vanilla (2006) Coca-Cola BlK (2006) Diet Coke Plus (2007) Coca-Cola Orange (2007)

COCA-COLA
Coca-Cola Thums-up Fanta Limca Sprite Maaza Kinley Georgia Minute Maid

COCA-COLA FAST COMPETETOR

PEPSI NESTLE DABUR

Manufacturing Process
Ingredient Delivery

Washing and Rinsing Mixing and Blending Filling Capping Labelling Coding Inspection Packaging Warehousing and delivery

COMPANY QUALITY PROCESS

QUALITY IS OUR HIGHEST BUSINESS OBJECTIVE The Coca-Cola Company exists to benefit and refresh everyone it touches. For us, Quality is more than just something we taste or see or measure. It shows in our every action.

PEPSI'S BEGINNINGS
AS USUAL, WAS HOT AND HUMID IN NEW BERN, NORTH CAROLINA. SO A YOUNG PHARMACIST NAMED CALEB BRADHAM BEGAN EXPERIMENTING WITH COMBINATIONS OF SPICES, JUICES AND SYRUPS, TRYING TO CREATE A REFRESHING NEW DRINK TO SERVE TO HIS CUSTOMERS. HE SUCCEEDED BEYOND ALL EXPECTATIONS, INVENTING THE BEVERAGE NOW KNOWN AROUND THE WORLD AS...PEPSICOLA.

BUILDING THE BUSINESS

Advertising Pepsi-Cola as "Exhilarating, Invigorating, Aids Digestion," the business began to grow. Caleb sold 7,968 gallons of syrup in 1903. Two years later, he awarded two franchises to bottle Pepsi- Cola to independent investors in Charlotte and Durham, North Carolina. In 1906, the number of franchises grew to 15, and leapt to 40 by 1907. By the end of 1910, there were Pepsi-Cola franchises in 24 states, and the company was selling more than 100,000 gallons of syrup per year.

Building a strong franchise system was one of Caleb's greatest achievements.

PEPSI-COLA HITS THE SPOT

Times were tough and five cents was a lot to pay for a sixounce soft drink. So, Guth decided to make Pepsi- Cola a great value for hard-pressed consumers. In Baltimore, he offered twice as much Pepsi for the same price as other soft drinksa 12-ounce bottle of cola for just a Nickel- and it was a big hit.

BROADENING APPEAL
During its first 65 years, Pepsi Cola Company sold only one product Pepsi.

In 1965, the Pepsi-Cola Company merged with a successful Dallas, Texas, marketer of salty snacks, Frito-Lay, Inc., to form PepsiCo, Inc.one of the great consumer products companies on the U.S.
Since Then, PepsiCo, Inc has continued to grow,adding new product lines. Tropicana Products,Inc. joined the Pepsi portfolio in 1998 and gives PepsiCo the strongest brand name in Juice.

The Cola war begins

MARKET CAMPAIGNS

PEPSI
Beat Coke Pepsi generation Young at heart Pepsi, the Choice of a New Generation

COCA-COLA
Americans preferred taste No wonder Coke refreshes Best You can`t beat the real thing Taste it All

Product Portfolio diversification

PEPSI
Teem (1960)
Mountain dew (1964) Diet Pepsi (1964)

COCA -COLA
Fanta (1960)
Sprite (1961) Low calorie Tab (1963)

Non CSD (Merger)

Frito Lay

Non CSD (Purchased)

Minute Maid Duncan Foods Belmont Springs Water

Product launch
Pepsi Teem (1960) Mountain Dew (1964) Diet Pepsi (1964) Lemon Lime Slice (1984) Caffeine free Cola (1987) Sierra Mist (2000) Mountain Dew Code Red (2001) Pepsi One (2005) Coca Cola 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)

Expansions
Pepsi Acquired Pizza Hut (1978), Taco Bell (1986) Merged with Frito Lay to form Pepsi Co. Purchased Quaker Oats Coca Cola Exclusive deal with Burger King, Mc Donald Purchased Minute Maid, Duncan foods, Belmont Spring Water Acquired planet Java coffee drink brand Acquired Mad River juices & Tea

ADVERTISING
Pepsi: Leaned towards the appeal of celebrities, popular music, and young people in television commercials Coke Relies more heavily on images of happiness and togetherness, tradition, and nationalism

CELEBRITIES PLAYING PART IN THE SALES PROMOTION OF THE PRODUCT

Coca-Cola

Pepsi

SALMAN KHAN AISHWARYA RAI AAMIR KHAN VIVEK OBEROI BIPASHA BASU AKSHAY KUMAR IMRAN KHAN KALKI

AMITABH BACHHAN SHAHRUKH KHAN PRIETY ZINTA SACHIN TENDULKAR SAIF ALI KHAN SOURAV GANGULY RAHUL DRAVID MOHD. KAIF ZAHEER KHAN HARBHAJAN SINGH YUVRAJ SINGH RANBIR KAPOOR DEEPIKA PADUKONE

The Cola War

The Warfare must be percieved as a continuing battle without blood. Without Coke, Pepsi would have a tough time being an original and lively competitor. The more successful they are, the sharper we have to be. If the Coca Cola company did not exist, wed pray for someone to invent them. And on the other side of the fence, Im sure the folks at coke would say that nothing contributes to their present day success than Pepsi - Roger Enrico, former CEO of Pepsi

Economics of U.S. CSD Industry

In 1970, average consumption 23 gallons 3% growth every year Many alternatives yet CSDs highest consumed drink Cola segment of CSD industry dominated

Major participants of the soft drink industry

Concentrate producers Bottlers Retail channels Suppliers

Concentrate Producers

Raw material- blended and packaged in plastic canisters Low capital investment in labor, machinery, overhead Manufacturing plant cost $25 to 50 million- 1 plant could serve the entire US Significant costs include

Advertising Promotion Market Research Bottler Relations

Concentrate Producers Contd..

Marketing programs financed jointly by concentrate producers and bottlers Concentrate producers helped bottlers

to improve their performance negotiations with their suppliers to ensure reliable supply at lower prices

Coke & Pepsi CPs combined market share76%

Bottlers
BUY CONCENTRA TE

CARBONAT ED WATER

BOTTLER

HIGH FRUCTOSE CORN SYRUP

BOTTLED OR CANNED

Bottlers

DSD delivery

Product stacking Positioning the trademarked label Cleaning the packeages and shelves Point-of-purchase & end-of-aisle displays

Capital-intensive- bottling plant cost $25mn to $75 mn 80-85 plants required for full distribution across US

Bottlers Contd..

Bottlers cost of goods sold

Additional investment in trucks and distribution networks Bottlers

Packaging 50% Concentrate 33% Sweeteners 10% Lobor 7%

2000 in 1970 300 in 2000

Original 1899 Coca Cola franchise contract- a fix price contract, even if ingredient cost changed 1987 Master bottler contract used pricing formula that changed quarterly Franchise agreements of both Pepsi & Coke allowed bottlers

To handle non cola brands of other CPs Choice to introduce new beverages introduced by CPs But bottlers could not carry directly competing brands
Exclusive territories

Soft drink Intrabrand Competition Act, 1980

Retail Channels

Distribution of CSDs in US

Food stores 35% Fountain outlets 23% Vending machines 14% Convinience stores 9% Other outlets 20%

CSDs largest selling product in SUPERMARKETS

Retail Channels Contd.

Coca Cola Dominated fountain sales- 65% in 2000 Fountain sales for restaurants- profitable

McDonalds Burger King

Pepsi Focused on retail outlets Entered Fast food restaurant business to increase fountain outlets

Fountain accounts handled by national franchiser companies

Pizza hut Taco bell Kentuky fried chicken

Suppliers

Raw material for Concentrate

Raw material for bottlers

Caramel coloring Phosphoric/citric acid Natural flavors Caffeine Artificial sweetener

Packaging

Sweeteners

Cans 60% Plastic bottles 38% Glass bottles 2% Sugar high fructose corn syrup

BEGINS :

Alferd Steele , a former Coca-Cola marketing executive, became Pepsis CEO. Steele made Beat Coke his theme.

Encouraged bottlers to focus on take home sales through super markets.

1950

Launched 26 ounce bottles, targeting family consumption.

1950

Coke stayed with 6.5 ounce bottles

1950

Launched Pepsi Generation

New CEO Donald Kendell Intense commercial using sports cars etc and catchy slogans. Targetted young people.

narrowed Cokes lead to a 2 to 1 margin.

1963

Worked with bottlers to modernize plants and improve store delivery services. Pepsis bottlers became larger than Coke.

1963

Began advertising: Americans Preferred Taste.(1955)

No Wonder Coke Refreshes Best (1960)

Cokes bottling network remained fragmented. 800 independent franchised bottlers in 50,000 cities.

Pepsi sold concentrate at a price 20% lower than Coke

FANTA (1960) SPRITE (1961) LOW CALORIE TAB (1963)

PRODUCT PORTFOLIO DIVERSIFICATION

TEEM (1960) MOUNTAIN DEW (1964) DIET PEPSI (1964)

NON CSD ( PURCHASED)

MINUTE MAID DUNCON FOODS BELMONT SPRINGS WATER

NON CSD (MERGER)

FRITO LAY

EXPANSIONS

EXCLUSIVE DEAL WITH BURGER KING, MC DONALD ACQUIRED PLANET JAVA COFFEE ACQUIRED MAD RIVER JUICES AND TEA

ACQUIRED PIZZA HUT (1978), TACO BELL (1986)

MERGED WITH FRITO LAY AND FORMED PEPSI CO. PURCHASED QUAKER OATS

THE PEPSI CHALLENGE:

Launched Pepsi Challenge in Texas. Blind taste test. Coke countered with rebates, rival claims, retail price cuts and series of advertisements questioning the tests validity.

Cola war heats up :

Coke switched from sugar to lower priced high fructose corn soup. Diet coke was introduced.

Market efforts were also intensified. Coke elevated its advertising expenditure from $74 m to $ 181 m. pepsi dis it from $ 66 m to $125 m. 1985, coke announced its change of 99 year formula.

Cola war heats up :

Coke introduced 11 new products.

Pepsi introduced 13 products.

SMALLER CONCENTRATE PRODUCERS WERE INCREASINGLY SQUEEZED.

BOTTLER CONSOLIDATION AND SPIN OFF:

Cokes strained relations with its bottlers. Coke began buying up poorly manged bottlers, infusing capital and quikly reselling them to better bottlers. Pepsi also followed coke and aquired MEI bottling for $ 591 m. After 10 years, pepsi changed the course and adopted the anchor bottle model.

Adapting to the times:

Balancing market growth Market share Profitibilty Rise of non-cola beverages.

Internationalization

Mexico, Brazil, China, India and Eastern Europe were the next big markets. Coke was dominant in Western Europe and much of Latin America Pepsi was dominant in Middle East & Southern Asia American drank 874 eight ounce cans of CSDs in 1999, Chinese drank 22

Coca Cola became popular after World War II Became synonymous with American Culture Pepsi laid less emphasis on international operations Markey share was 62% for coke and 20% for Pepsi in 1980s Pepsi utilized Niche Strategies and targeted Coke Fortresses in 1990s

Problems faced

Cultural differences, political instability, regulations, price control, advertising restrictions and lack of infrastructure Coke set up vending machines and Pepsi gave exclusive distribution rights to businessmen in towns Also explored market for non cola drinks Crisis led to annual growth of less than 3% in 1990s Introduced Refundable Glass Packaging and cheaper 6.5 ounce bottles Profitability - Concentrate producers earned more profit than bottlers

PEPSI Co. Challenge

Pepsi Co. Coca Cola

Blind taste test

Eroded Cokes market share

Rebates
Retail price cuts Advertisement questioning test validity Re- negotiation of contract with franchisee bottlers

About 70% of Cokes sales & about 80% of its profit came from outside the U.S.; onl about 1/3rd of Pepsi leverage sales took place overseas.

Reversal of Fortune (1996 2004)

Pepsi
Pepsi flourished Acquisition of Quakers oat Net income rose by 17.6% per year

Coke
Coke struggled Flat growth Annual growth in net income falls to 4.2% from 18% (1990 - 1996)

ROI 29.3% from 9.5% (1996)

Share holders return 26%

SWOT Analysis
Pepsi Co.

 High profile global presence Worlds 2nd best selling soft drink brand Constant product innovation Aggressive marketing strategy using celebrities Broad product portfolio

Carbonated soft drink market is declining Only target young people.

Strength

Weakness

Opportunity
Increased customer concern regarding drinking water Growth in healthier beverages Growth in Asian beverages Growth in functional drink industry

Threat
Obesity & health concern Coca Cola increases spending on marketing and innovation Relying only on North America is bad

SWOT Analysis
Coca Cola

 High profile global presence 4 0fBroad based bottling strategy 47% of global volume sales in carbonates top 5 leading brands

Carbonated soft drink market is declining Over complexity of relationships with bottlers in North America Execution ability

Strength

Weakness

Opportunity
Soft drink volume in the Asia Pacific region forecast to increase by over 45% Wise & Health concerned positioning of brands like Minute Maid & Minute Light. Use distribution strengths in Eastern Europe & Latin America.

Threat
Obesity & health concern Tropicana & Aquafina from Pepsi Protest in India Negative publicity by Pepsi

Porters Five Forces Analysis

Barriers to entry
Exclusive territories Substantial investment Current market performance Fear of retaliation

Power of buyers
Super markets Mass merchandiser

Power of Suppliers
Sugar Packaging Weak as only basic commodity ingredients are required

Substitutes
Rivalry
Alliances Pepsi Coca Cola Acquisitions Product

Who has been losing?

Smaller brands are losing Entry barriers Duopoly

Hence these brands merge into bigger brands or are acquired by bigger brands

Who is winning the war?

Year

Pepsi(%)

Coca-Cola(%)

1950
1970 1990 2000 2006

10
29 32 31.4 31.7

17
35 41 44 43.1

Market share

Could they boost flagging domestic CSD sales?

Through product innovation Aggressive marketing and promotion Packaging innovation

Would newly popular beverages provide them with new and profitable revenue streams?

Yes Non carbonated & bottled water contributed to total volume growth, approximately 100% for coke & 75% for Pepsi. Contamination issue & obesity issue

Can Coke & Pepsi sustain their profit in wake of flattening demand & the growing popularity of Non CSDs?

By Diversification Innovation eg. Diet Coke Tie ups with eating outlets and retailers

PREFERENCE TO THE BRAND

To give preferences
PARAMETERS Taste Packaging Price Popularity RESPONSE(%) 70 10 10 10

Changing the brand on basis of price reduction

YES NO 51 % 49 %

People found both companies` advertisements innovative Pepsi won over in terms of Exciting Offers Television Ads have a major impact on Sales

CONCLUSIONS

Both companies will lay emphasis on Taste Companies will concentrate more on Advertising. Events and exhibitions will be on high. Companies would take unethical steps in future. Pricing strategies will be reconsidered. Companies may widen their portfolio to