Cola Wars Case Study

     PepsiCo. Incorporated and The Coca-Cola Company are the two largest and oldest archrivals in the carbonated soft drink (CSD) industry. Coca-Cola was invented and first marketed in 1886, followed by Pepsi Cola in 1898. Coca-Cola was named after the coca leaves and kola nuts John Pemberton used to make it, and Pepsi Cola after the beneficial effects its creator, Caleb Bradham, claimed it had on dyspepsia. The rivalry between the soda giants, also known as the "Cola Wars", began in the 1960’s when Coca-Cola's dominance was being increasingly challenged by Pepsi Cola. The competitive environment between the rivals was intense and well-publicized, forcing both companies to continuously establish and

The existing concentrate business is largely controlled by Coca-Cola Company (Coca-Cola) and PepsiCo (Pepsi), together claiming a combined 72% of the U.S. carbonated soft drink (CSD) market sales volume in 2009. Refer to Exhibit 1 for an illustration of the CSD industry value chain. For more than a century, Coca-Cola and Pepsi have maintained growth and large market shares through mastering five competitive forces, shown in Exhibit 2, that drive profitability and shape the industry structure.

"Bottlers ' gross profits routinely exceeded 40%, but operating margins were usually in the 7% to 9% range (Comparative Costs of a Typical U.S. Concentrate Bottler and Producer).

Porter’s (2008) competitive forces play a significant role in the success of the concentrate producers (CPs) in this industry. The forces are "threat of new entrants, rivalry among existing competitors, bargaining power of buyers, threat of substitute products or services, and bargaining power of suppliers" (p. 27). Concentrate producers usually produce carbonated soft drink (CSD). Coca-Cola and Pepsi-Cora are known as two big CPs in the world.

The participants of the Cola Wars experiment were gathered from the PSYC/SOCL/CJUS 351 Research Methods in Social Sciences Section A class at Benedictine University. The total number of students in the class is eighteen, but only sixteen participated. Two students did not participate due to personal reasons. Among the sixteen participants, there were five males and eleven females. The students participated in the experiment because they were a convenient sample to be a part of the class activity.

Historically there are a relatively small amount of concentrators, a large number of bottlers (around 500), and an even larger number of retail outlets. The concentrators are the typical companies mentioned above like Coca-Cola, Pepsi, and Dr. Pepper/Seven Up; these concentrators are at the top of the supply chain. The concentrators produce the flavor- like the Mountain Dew or Coke flavorings for the bottlers to then add the sugar and carbonated water followed by the actual bottling and distribution to retail outlets. The bottlers, even though a separate part of the process, are typically owned, franchised, or have stake held by the concentrators. For example, Coca-Cola Co. is in charge of producing the flavor, which is then sent to a bottling plant to be finish mixing and be bottled, which is owned by Coca-Cola, and then distributed to retail outlets.

The high demand of nutritional liquid supplements means the industry has to be serviced with capacity, formulas and products, including product bottling and packaging and having liquid supplements in bulk containers.

To keep shipping costs low, Coca-Cola was sold as concentrated syrup. Water was added at the destination

As the above table indicates concentrate business is highly profitable compared to the bottling business. The reasons for this are:

share dropped from 71% in 1990 to 55% in 2009.6 Non-cola CSDs included lemon/lime, citrus,

PepsiCo and the Coca-Cola Company have competed with each other for as long as most people could remember. Pepsi and Coca-Cola are the original sodas that the companies have produced. The two products are similar, but there are minuscule differences that are the deal-breaker for many individuals. When looking at the popular choice of soft drinks between Pepsi and Coke, Coca-Cola would be considered the winner due to its well-known enterprise, taste, and nutritional value.

The Coca-Cola system is not a single entity from a legal or managerial perspective, and the company does not own or control all of their bottling partners. While many view the company as simply "Coca-Cola," their system operates through multiple local channels. The Company manufactures and sells concentrates, beverage bases and syrups to bottling operations, owns the brands and is responsible for consumer brand marketing initiatives. Coca Cola’s bottling partners manufacture, package, merchandise and distribute the final branded beverages to Coca Cola customers and vending partners, who then sell their products to consumers (Wikipedia, 2).

The case explains the economics of the soft drink industry. There activities that add value to consumer at nearly every stage of the value chain of the soft drink industry. The war is primarily fought between Coca-Cola and PepsiCo as market leaders in this industry; who combined have roughly a ninety percent market share in their industry. The impact of globalization on competition has allowed both of these major players to find new markets to tap which has allowed each continued growth potential.

The CSD industry has undergone many changes, while Coke and Pepsi continued to maintain their positioning as the official competitors and dominant market players. The key trends in the industry include:

1.) Why do companies like Pepsi need to globalize? What are the various ways in which foreign companies can enter a foreign market? What hurdles and problems did Pepsi Face when it tried to enter India during the 1980s?