Cola Wars Continue: Coke vs. Pepsi in the 1990s (Cola Wars)

Essentially, the soft-drink industry is largest beverage industry. It gross millions a year, and has different distribution channels. For example, these soft-drinks are sold in supermarket, Vending Machines, Gas stations, etc. The cost is incomparable to the amount of consumer we currently have in America. If Americans consumer on average 50 gallons in a year. The cost of 2.00 is not missed by the average person. With that said, there is a least likely chance that a person would attempt to duplicate the process at home. The soda making process is too time consuming, and inconvenient when a person can simply can go to the store to purchase. Consumers can either be very loyal to the brand or fickle. Influx in prices can make consumers switch very quickly. However, there are typically incentives associated with loyalty. There are giveaways and contest that entices the customers to keep purchasing. For example, Snapple does this with a real fact on every lid. I personally know people that will buy the product just to read the facts.

The soft drink industry is one of the most highly profitable industries in the USA. Also, the competitive market is a very large market. Americans consumed about 53 gallons of soft drinks per person a year in 2000 by $ 60.3 billion!! Comparing with the market in 1990, since it was 47 gallons. In recent years, the market growth has slowed.

     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

Essentially, all risk in price fluctuations in the raw materials market is transferred and paid for by the bottling business. Supplier power of the concentrate business is also exerted over the bottling business by the threat of acquisition and vertical integration – the concentrate business supports its bottling business through providing suggestions for operational improvement. While this support can be viewed positively, both Coca-Cola and Pepsi have acquired its bottling franchises due to their dissatisfaction over the operational effectiveness of its bottling business. Through the last few decades, Coca-Cola and Pepsi have oscillated between acquiring and re-franchising its partner bottling businesses.

Stability. The returns received by bottlers are less than returns received by concentrate producers due to the risk levels as well. The concentrate producers are responsible for brand promotion and invest heavily in trademark to stimulate sales. High returns are what they get as the result. However, bottlers have little risk in their operations as they are given the famous name well-known all over the world. This development provides them with stable returns, and low risk.

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.

Many of their functions overlap; for instance, CPs do some bottling, and bottlers conduct many promotional

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

Red Bull, and Monster Beverage corporations. have created higher entry barriers to enter the industry. In oligopoly, the increased difficulty of new rivals depends on the limited number of firms. This can be contributed to the majority of the soda market being owned by either Coke or Pepsi; these two corruptions as well as a few others have control and serve the overwhelming majority of the market. These oligopolistic firms have the most advanced technology to reduce their cost of production; they understand the consumers; and their products are consistently widely available.

In January 2006, company-owned bottling operations were brought together to form the Bottling Investments operating group, now the second-largest bottling partner in the Coca-Cola system in terms of unit case volume.

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

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 pricing technique of Coca-Cola has supported the firm to compete and grow in the soft drink effectively. The volume discount and pricing penetration are the vital aspects to provide the firm generates its sales in the market. For instance, Coca-Cola partners with large supply chains such as Costco, Sam’s Club, and Walmart to provide great discount pricing in order to generate its sales substantially in the U.S and the global market. Equally, the firm also distributes its

Coca-Cola is the number one non-alcoholic beverage in the world and is also the golden standard in the beverage industry. Over the pass decade carbonated beverage sales has decrease which has lead Coca-Cola to seek for new opportunity and investor. Contribution of US soda sales in Coca-Cola’s revenue could decline to less than 15% by 2020. By the end of 2017 Coca-Cola is looking to refranchise two-thirds of its bottling territories in North America. The outcome of Coca-Cola refranchise two-third of its bottling territories will reduce the revenue to Coca-Cola sales of its products, however the operating margin will increase. Also, this could reduce the percentage contribution by the U.S to Coca-Cola overall revenue.

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: