Cola Wars

Introduction to Cola Wars

• Analyzed the competition between Coca-Cola and Pepsi over the past century.

• Focused on their rivalry for market share in the beverage industry, especially the carbonated soft drink (CSD) market, worth $74 billion in the U.S.

• Both companies saw annual revenue growth of about 10% during their peak years.

• Key quote from Roger Enrico, former CEO of Pepsi:

  • "Without Coke, Pepsi would have a tough time being an original and lively competitor."

Decline of CSD Consumption

• By early 2000s, U.S. per-capita CSD consumption began to decline, reaching 46 gallons in 2009, the lowest since 1989.

• Increased focus on non-CSD markets and challenges related to sustainability and profitability emerged.

Economic Insights of U.S. CSD Industry

• Historical consumption data shows annual CSD consumption grew from 23 gallons per person in 1970 to 46 gallons in 2009.

• Growth attributed to increased availability and the introduction of diet and flavored varieties.

• Market segmentation shows cola segment's market share decreased from 71% (1990) to 55% (2009).

Major Participants in CSD Production

• Concentrate Producers: Produce flavored concentrate and ship to bottlers. Major costs include marketing and market research.

• Bottlers: Mix concentrate with carbonated water, package, and deliver products. Significant investments are made in distribution networks.

• Retail Channels: Supermarkets (29.1%), fountain outlets (23.1%), vending machines (12.5%) are key sales channels.

Structure of the CSD Industry

Concentrate Producers

• Blend ingredients, package, and distribute concentrate to bottlers.

• Significant advertising and promotion costs; dominant market players include Coke and Pepsi, holding 72% of market share.

Bottlers

• Responsibility includes mixing, bottling, and distribution of CSDs.

• High capital investment required; operating margins average around 8% compared to the higher margins of concentrate producers.

Retail Channel Dynamics

• Supermarkets account for 37% of industry volume; competitive pressure in mass merchandising and convenience store sales.

• Bottlers aim for shelf space and promote impulse purchases using cooling displays and strategic placements.

The Evolution of Consumer Preferences

Early History of Both Brands

• Coca-Cola: Formed in 1886; Asa Candler grew the bottling franchise network significantly.

• Pepsi-Cola: Invented in 1893; faced initial struggles including bankruptcy but found success by comparing its larger 12-oz bottles favorably against Coke.

The Cola Wars Begin

• Notable marketing campaigns like the Pepsi Challenge launched by Pepsi to win against Coke led to sales increases for Pepsi.

• Both brands began to diversify with new flavors and product lines throughout the 1960s and 1970s.

Innovations and Marketing Strategies

• Diet Coke was launched in 1982 and became a significant part of Coca-Cola's portfolio, indicating success in targeting health-conscious consumers.

• Coca-Cola introduced Coca-Cola Classic after consumer backlash against New Coke, a significant marketing misstep.

Shift Towards Non-CSDs

• As CSD sales declined, both companies shifted focus to non-carbonated drinks like juices, sports drinks, and bottled water, especially in emerging markets.

• Development of natural sweeteners like Stevia as a response to health concerns around high-fructose corn syrup.

Conclusion

• The rivalry between Coke and Pepsi continues to evolve, responding to consumer health trends and market demands, as both navigate a shrinking CSD market while seeking growth through innovation and diversification.

• Future success may rely heavily on adapting to consumer preferences for non-CSD products and addressing health-related issues.