Cola Wars Case Study


In the 21st century, the cola wars continue between Coca-Cola and Pepsi. The two companies are locked in a fierce battle for market share, with each trying to outdo the other in terms of marketing, product innovation, and price.

Pepsi has long been the underdog in the cola wars, but it has made significant inroads in recent years. In particular, Pepsi has focused on making its products more affordable, which has helped it gain ground on Coke in developing markets.

There is no end in sight for the cola wars, as both Coke and Pepsi continue to invest heavily in marketing and product innovation. Ultimately, it will be up to consumers to decide who comes out on top.

Pepsi is a carbonated soft drink produced by PepsiCo. Created in 1893 by Caleb Bradham, it was first introduced as “Brad’s Drink”, and was later renamed Pepsi-Cola in 1898. It is now one of the world’s most popular soft drinks, with over $30 billion in annual sales.

Pepsi has a long history of competition with Coca-Cola, and the cola wars are often seen as a symbol of the two companies’ rivalry. In recent years, Pepsi has made significant gains on Coke in terms of market share, particularly in developing markets.

There is no end in sight for the cola wars, and it remains to be seen who will come out on top. Ultimately, it will be up to consumers to decide.

Concentrate Producers and Bottlers were two of the four main players in the American Carbonated Soft Drinks (CSDs) industry, which includes both bottling and processing. The Concentrate Producers were in charge of mixing raw material components, packaging the blend in plastic containers, and shipping it to the bottler. We discovered that Buyer Bargaining Power was low using Porter’s Five Forces analysis for the CPs industry.

There were two reasons for this. First, CPs had a differentiated product and second, buyers were not well-informed about the production process of CSDs. As a result, the CPs had higher profitability than the Bottlers.

The Coca-Cola Company (KO) and PepsiCo, Inc. (PEP) were the two largest CPs in the United States. Together, they accounted for over 90% of CP industry revenues in 2004. The remaining players in the industry were much smaller and included Cadbury Schweppes plc (CSG), Dr Pepper Snapple Group, Inc. (DPS), and National Beverage Corp. (FIZZ).

In terms of market share, KO held 42.5% of the CSD market in 2004, while PEP held 30.8%. DPS was a distant third with an 8.4% share, followed by CSG (4.9%) and FIZZ (3.5%).

The Bottlers were responsible for mixing the concentrate with water and sweeteners, packaging the finished product in cans and bottles, and distributing it to retailers. The industry was highly fragmented, with the three largest players – Coca-Cola Enterprises Inc. (CCE), Pepsi Bottling Group Inc. (PBG), and Dr Pepper Snapple Group, Inc. (DPS) – accounting for less than 50% of industry revenues in 2009.

The Bargaining Power of Buyers in the Bottling industry was high due to the fact that there were many small and independent retailers who carried a wide variety of CSD brands. In addition, buyers were well-informed about the production process and had a good understanding of price points for different brands. As a result, bottlers had lower profitability than CPs.

The key participants in the US Carbonated Soft Drinks (CSD) industry are summarized in the table below:

Concentrate Producers:

– The Coca-Cola Company (KO)

– PepsiCo, Inc. (PEP)

Bottlers:

– Coca-Cola Enterprises Inc. (CCE)

– Pepsi Bottling Group Inc. (PBG)

– Dr Pepper Snapple Group, Inc. (DPS)

Other Players:

– Cadbury Schweppes plc (CSG)

– National Beverage Corp. (FIZZ)

In 1987, Coca-Cola obtained a Master Bottler Contract that gave it the power to regulate concentrate pricing based on a formula that adjusted quarterly and set a maximum price for the sweetener used in production. Pepsi’s Master Bottling Agreement required top bottlers to purchase their raw materials from Pepsi on terms and conditions determined by Pepsi. These agreements restricted negotiations over price between buyers and CPs.

In addition, these agreements also created switching costs because it would be costly for a bottler to switch from one concentrate producer to another.

In the early 1990s, two new CEOs took over at Coke and Pepsi, respectively. M. Douglas Ivester replaced Roberto Goizueta at Coke, while Craig Weatherup became CEO of Pepsi after Roger Enrico stepped down. Under Ivester’s leadership, Coke began to focus more on cost-cutting measures and less on innovation. At the same time, Weatherup shifted Pepsi’s focus from marketing to product development. As a result of these changes in strategy, both companies began to lose market share to smaller rivals such as Dr Pepper/Seven Up and Snapple.

In response to these changes in the marketplace, Coke and Pepsi both undertook major initiatives in the late 1990s. In 1997, Coke announced its “Coca-Cola Change” program, which was a $500 million initiative focused on cost-savings, organizational streamlining, and increased marketing efforts. The following year, Pepsi launched its “Performance with Purpose” initiative, which was a $350 million effort to refocus the company on its core businesses of soft drinks and snacks.

Despite these initiatives, both companies continued to lose market share in the early 2000s. In an effort to reverse this trend, Coke and Pepsi embarked on a series of aggressive price wars in 2003. These price wars resulted in significant losses for both companies, and led to a decline in profitability for the entire industry.

In recent years, Coke and Pepsi have been working to regained lost market share through a variety of initiatives. In 2006, Coke relaunched its “Coca-Cola Classic” drink with a new recipe and marketing campaign. The following year, Pepsi introduced a new line of lower-calorie drinks called “Pepsi Max”. In 2009, Coke launched its “Open Happiness” campaign, which was designed to appeal to young consumers.

Despite these efforts, both companies continue to face challenges in the current marketplace. Declining sales of carbonated beverages have led to a decline in profitability for the industry as a whole. In addition, health-conscious consumers are increasingly seeking out alternatives to soft drinks. As a result, both Coke and Pepsi have been working to expand their portfolios of non-carbonated beverages.

Looking forward, it remains to be seen how the cola wars will play out in the 21st century. However, one thing is certain – the competition between Coke and Pepsi will continue to be intense.

Pepsi is a carbonated soft drink manufactured by PepsiCo. Originally created and developed in 1893 and introduced as Brad’s Drink, it was renamed as Pepsi-Cola on August 28, 1898, then as Pepsi in 1961. It is currently sold in over 200 countries and regions. The drink represents a significant share of the carbonated soft drink market, with US sales in 2010 of $5.01 billion.


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