Cola Wars Continue: Coke and Pepsi in 2010

Cola Wars Continue: Coke and Pepsi in 2010

                      Important Facts:[pic 1]

Situational Analysis:

• In the $74 bn CSD industry, Coke and Pepsi have been fighting it through since 1975 to capture majority market share. Currently Coke holding 42% and Pepsi 30% of market share in volume.
• As the consumption of CSD in the U.S. grew at 3% average per year till the 2000’s, both the companies achieved annual revenue growth of around 10%.
• Year 2000 onwards, the consumption of CSD started falling reaching the lowest of 46 gallons (from 53 gallons) in the year 2009 due to increase in consumer preference towards healthier beverages (including bottled water) compared to CSD.
• Hence, there is a need to either bring innovation in the product range or promote their existing products even better in order to achieve sustainable growth with profitability.

Comparative Analysis:

• In the CSD and non-CSD beverages industry, currently Coke and Pepsi are the market leaders with collectively 72% market share in volume. The next major competitor is Dr. Pepper Snaple Group with 16.4% market share captured and the remaining by the local and regional beverage producers.
• Coke followed the 1987 Master Bottler Contract for pricing its concentrates for bottled and canned beverages in U.S. which granted Coke right to determine the process and other terms of sale. Pepsi followed Master Bottling Agreement which required the bottlers to purchase the raw materials from Pepsi at prices and terms determined by Pepsi and granted perpetual rights to distribute its CSD products.
• Both Coke and Pepsi had around 100 production plants for nationwide distribution of their products.
• While Pepsi focused sales through retail outlets, Coke had the lead through fountain sales.
• Pepsi entered the fast food restaurant business by acquiring few food chains. Coke followed suit since as both these companies implemented almost same strategies as the other so as to not let the other gain in competitive advantage. It has always been when one take an innovate step, the other immediately counters with its similar strategy.
• Pepsi has been more aggressive in expanding its non-CSD portfolio (product innovation) than Coke by introducing more non-carbs than Coke between 2004 and 2007. In reaction to Coke expanded its non-CSD portfolio through acquisitions. By 2009, Pepsi has 43% of non-carbs market share in U.S while Coke has 32%.
• Coke performed better in international markets deriving 80% of its sales from there while Pepsi could get only 50% and relied on U.S. Hence, in early 2000s, Pepsi focused more on emerging markets like Asia and Africa. However, CSD consumption being lower in abroad, both pursued non-carb opportunities in international markets.
• In marketing strategy, Coke spend $230 mn in advertising for Cola-Cola, it spent on sponsorships and global marketing such as for World Cup in 2010. Whereas, Pepsi redesigned its logo in 2008 and spending $1 bn over 3 years to rejuvenate its image and promoting the company’s overall image as a snack and beverage company. This shows how hard Pepsi is trying to go ahead of Coke which has remained ahead of Pepsi most of the times.
• Pepsi’s strategy was to beat Coke in every step they take and hence provided beverages at lower prices than coke. It has been targeting only young people which is one of the reasons it is lagging behind Coke.

Alternatives:

• Maintain the status quo: The market is mature and is giving you stable returns; since the only threat is the other, both can enjoy the “cow” nature of the market.
• Continue to expand the market in terms of new products; Run marketing campaigns; create more reasons to buy beverages.

Recommendations:

• Expand their operations further into developing markets
• Bring innovative products in the market based upon the target consumers and their requirements
• Develop better vending machines and equipment to optimize the space in the retail stores
• Start using healthy sweeteners in the product
• To expand the current market of CSDs, bring out more innovative products like diet coke