Cola Wars Case Essays

     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.

The competition between Coke and Pepsi reached its peak to become a real war battle by the year 1980. This war had affected the industry profit for both concentrate producers and bottlers, while the effect of bottlers was much higher. After the successful “Pepsi Challenge” (blind taste tests: sales shot up) in 1974, Coke countered with rebates, retail price cuts and significant concentrate price increases. Pepsi followed of a 15% price increase of its own. During the early 1990’s bottlers of Coke and Pepsi employed low price strategies in the supermarket channel in order to compete with store brands. The concentrate producers were always able to increase their profits by increasing the concentrate price, while the bottlers, especially the

Factors that can limit the threat of new entrants are known as barriers to entry. In this case barriers to entry are low because: there is no government intervention to prevent businesses from entering the industry, resources are abundant, and customers’ switching costs are low as well as fixed costs to start this type of business.

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.

Threat to new entrants: There is no barrier to entry in this industry but it might be difficult for newcomers to compete against existing well establishing companies.

convenience and gas, fountain, vending, and mass merchandisers (primary part of “Other” in “Cola Wars…”

For decades, the battle between PepsiCo. and Coca-Cola has lasted over the control of restaurants to supplies to big countries, but the ultimate deciders would be consumers, profits and sales.

Bottling Network: Both Coke and PepsiCo have franchisee agreements with their existing bottler’s who have rights in a certain geographic area in perpetuity. These agreements prohibit bottler’s from taking on

Barriers to Entry: The entry barriers in the market are relatively low, making it easy to access. However, as the market is saturated it could be unlikely for new companies to decide to start new enterprises in this field.

The economics of the concentrate business and bottling is different from each other in terms of number and size of rivals and cost structure etc. Concentrate business has few buyers and through its value chain compare to bottling business has many buyer and mid-way player in the soft drink industry. The concentrate manufacturing process involved a little capital investment in machinery, overhead, or labour to reduce the risks whereas bottlers involving high capital investment. Franchise agreements with soft drink industry allowed bottlers to handle the non-cola brand of other concentrate producers. It also allowed bottlers to choose whether to market new beverages introduced by a concentrate producer. Concentrate producers product cost structure is mostly based on variable costs such as advertising, promotion, market research, and bottler support however, bottler products cost constitution is mostly based on fixed costs and have higher cost leverage. Concentrate producers also took charge of negotiating customer development agreements with nationwide retailers such as Wal-Mart. Concentrate producers collaborated to make more profitable control with bottlers, for example, raw material negotiation with suppliers and sales price

It has taken much more than simply the brand and product to grow Coca-Cola in the number one leader in the soft drink market. Over the past 100 plus years, Coca-Cola has built a huge network of distribution and manufacturing networks. These collaborations that are superior to all others and all types of relationships are a distinctive competency for Coca-Cola. The way that they organize and plan their contracts has proven to be extremely successful and continues to keep Coca-Cola at the top of the market. They have been able to build relationships with suppliers, buyers, bottlers, manufactures, retailers and consumers that are strengthened by the degree of loyalty from both sides of these relationships. They continue to manage their company

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.

Coca-Cola Enterprises (CCE) is the world’s largest marketer, producer, and distributor of Coca-Cola Company products. These products extend beyond traditional carbonated soft drinks to beverages, e.g., still and sparkling waters, juices, isotonics, teas, and energy, milk-based, and coffee-based drinks. CCE dis- tributes Coca-Cola brands, e.g., Coke, Dasani, Sprite, Barq’s, Fresca, Hi-C, Nestea, Powerade, and Minute Maid, and also beverage brands of several other com- panies. In 2005, CCE distributed two billion phys- ical cases (containing 42 billion bottles and cans), representing 20 percent of the Coca-Cola Company’s worldwide volume. While CCE is a publicly traded company, the Coca-Cola Company owns 36 percent of its stock. Coca-Cola has outsourced its production and dis- tribution to its bottling and

Coke was a company ruling the markets before Pepsi entered. Earlier the price of coke was cost based i.e. it was decided on the cost which was spent on making the product plus the profit and other expenses. But after the emergence of other companies especially the likes of Pepsi, Coca-Cola started with pricing strategy based on the basis of competition. Nowadays more expenses are spent on advertising rather than on manufacturing.