By,Group 6G. VAIBHAV KUMAR REDDY (P111012)P. PRAVEEN (P111033)PRAGYA JAISWAL (P111037)RAKESH NAVAL (P111039)

GREAT LAKES INSTITUTE OF ENERGY MANAGEMENT AND RESEARCH, GURGOAN

COLA WARS CONTINUE: COKE AND PEPSI IN THE TWENTY-FIRST CENTURY

www.thecoca-colacompany.comwww.pepsico.com

CONCENTRATE PRODUCER AND BOTTLERS

1993Concentrate Producer Bottler

Dollars perCase

Percent ofTotal

Dollars perCase

Percent ofTotal

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%

Source: Cola Wars Continue Case

2000Concentrate Producer Bottler

Dollars perCase

Percent ofTotal

Dollars perCase

Percent ofTotal

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%

Source: Cola Wars Continue Case

RETAIL CHANNELS% of Industry Volume

1993 2000Coca-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%

Source: Cola Wars Continue Case

STRATEGIC PATH COCA-COLA PEPSI-COLA

• Franchise bottling system , reaching 370 franchises by 1910

• During 1920s and 30s, introduction of open-top coolers to storekeepers, automatic fountain dispensers, vending machines.

• Introduced Fanta (1960), Sprite (1961), low-calorie Tab (1963).

• Purchased Minute Maid (fruit juice), Duncan Foods (coffee, tea, hot chocolate), Belmont Springs Water.

• Coke countered “Pepsi Challenge” with rebates, price cuts and price discounts.

• Franchise bottling system , reaching 270 franchises by 1910 •In 1920s, lowered the price for its 12-ounce bottle.

• Introduced Teem (1960), Mountain Dew (1964), Diet Pepsi (1964). Worked with bottlers to modernize and improve services.

•In 1963, launched the ”Pepsi Generation” campaign targeting the youth, which helped narrow coke’s lead to 2-to-1 margin.• In 1974, introduced the “Pepsi Challenge”.

Source: Cola Wars Continue Case

COCA-COLA PEPSI-COLA

• In 1978, hike in concentrate price after securing bottler approval.

• In 1980, switched from sugar to lower-priced high fructose corn soup.

• Increased advertising expenditure.

• Sold off most of non-CSD businesses i.e. wine, coffee, tea etc.

• Introduced Diet Coke in 1982 – huge success.

• 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 1970s, sold concentrate to bottlers @ 20% lower than coke. •Merged with Frito-lay in 1965.

• In 1978, 15% increase in price of concentrate.

• Emulated the move of fructose corn soup in 1983.

• Increased advertising expenditure.

• In 80s, introduced 13 new CSD products.

Source: Cola Wars Continue Case

COCA-COLA PEPSI-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.

• Started acquiring international markets in more structured way.

• In late 80s, acquired MEI bottling, Grand Metropolitan’s bottling operations and General Cinima’s 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”.

• Non-Cola Beverages – introduced Aquafina (1998), Tropicana (1998), Gatorade and SoBe (2000).

• Started acquiring international markets in more structured way.

Source: Cola Wars Continue Case

SWOT ANALYSIS OF COCA-COLASTRENGTHS• 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-COLASTRENGTHS• 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 INDUSTRYIndustry Competitors

Coca-Cola, Pepsi-Cola, Cadbury Schweppes and others.

Threat of New EntrantsHigh entry costsHigh 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 FINANCIALSCoca-Cola Pepsi-Cola

Market Cap 154.38b 100.48b

Revenue Growth 5.20% 11.03%

Profit Margin 14.98% 7.02%

Beta 0.55 0.52

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

Coke VS Pepsi Share price

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

ISSUES TO PONDER for PepsiHard 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.

RECOMMENDATIONSFor 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