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Cola Wars

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Cory Beaudoin

on 9 February 2011

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Transcript of Cola Wars

Cola Wars Business Policy
Professor Song
Thursday, February 10th, 2011

Cory Beaudoin
Michael Cipolla
Joseph Iaquinto
Amanda Lovie
Brianna Thompson Which is your soda preference? http://www.polleverywhere.com/multiple_choice_polls/MTEyNzU2NDk0Ng

Why the sudden plateau effect?
Carbonated Soft Drinks’ Annual Volume Growth in the U.S.
1970’s = 3 - 7%

1980’s = 3 - 7%

1998 to 2004 = 1% or less. Changing consumer demands Coke and Pepsi’s Brand Extensions Solves consumer demands -> Diet and low calorie sodas Battle for shelf space -> Competition vs. rivals Entering New Markets Coke and Pepsi must continue to increase profitability The U.S. accounts for 1/3 of the total CSD market
Overseas markets provide room for growth because they are unsaturated Interesting Observations There are not that many differences between Coke and Pepsi
People are loyal to Cola, but not water

The industry has reached a plateau so now Cola companies need to enter new markets, such as International markets in order to continue to gain shares

The beverage industry is huge, but is only dominated by two companies

Interesting how Coca-cola and Pepsi have made brand extensions and gained more market shares by differentiating their products, such as with Desani and Aquafina The Race for #1 1950: Motto “Beat Coke” born
1963: “Pepsi Generation” campaign
1970: Consolidated bottle plants
1974: Pepsi Challenge launches in Dallas, TX
1979: Pepsi surpasses Coke in food store sales
The Battle Continues 1985: Coke announces formula change

Pepsi declares holiday for all employees
Late 1980s: Pepsi acquires several large bottling companies Coke Stumbles 1997 CEO suddenly passes away
Coke loses high-profile discrimination suit
Suffered many negative PR reactions
Walked away from chance to partner with Proctor and Gamble
Pepsi buys SoBe in 2001 after Coke did not Pepsi Thrives 2001: Pepsi acquires Gatorade and launches many other drinks

2005: Makes Diet Pepsi flagship brand

Pepsi makes shift to non-CSD beverages

Aligned company strategy with bottlers better than Coke did

Coke still holds 51.4% of market share worldwide, Pepsi holds 21.8% and 6% for Cadbury Schweppes Cola Industry/ CSD: Five Forces Current Rivals- Non-carbonated Drink Industry, bargain private label brands
Medium Threats
Cola industry working to gain market shares with the non-carbonated drink industry
Buying up segments
Coke-Cola buying up Minute-Maid and PepsiCo buying up Tropicana/ SoBe
Coke-Cola & PepsiCo creating brand-name waters (Dasani & Aquafina)
Bottlers pay more for space on the shelves -> Increase their visibility. Potential Rivals
Other non-carbonated products, such as coffee companies, as well as other Cola companies that are able to offer more flavors. Relatively weak threat
No new rivals in years
Rival Cadbury Schweppes continue to lose market share
Difficult industry to enter and achieve success when up against Coke-Cola and PepsiCo. Suppliers
Suppliers of raw materials such as sugar and other flavorings, as well as plastic and aluminum suppliers.
Medium Threat
Cost of sweeteners, plastic and aluminum are regularly changing, affecting the cost for production
Industry is constantly competing and pushing to keep cost down with suppliers
Contracts may not always be exclusive
Include supermarkets, fountain outlets, vending machines, convenience stores, gas stations.
High Threat
Buyers will pay more or give rebates which only make them a small profit, but help increase their market in the industry
Buyers are able to demand lower prices and better quality because of the Cola war
Juice, water, coffee and other non-carbonated products, sparkling water, seltzer waters
High threat
Society has become more health conscious and fearful of sweeteners in Cola
Attractive Structure
The Cola industry is an attractive structure because even the average firm earns a good return Five Forces: Bottling Current Rivals

• Consolidation

– Medium/high level threat
– Makes smaller producers increasingly dependent
on Coke and Pepsi
– Coke and Pepsi are able to control industry
practices Potential Rivals

• Medium threat

– Consumer choice to “go green” is leading to
increase in reusable containers
– Cost-cutting is leading consumers to more cost
effective options such as at home soda making
(eliminating need for bottling) Suppliers

• Plastics, aluminum, and glass

– Medium threat. Variable prices for the raw
materials determine the cost of bottling. Extreme
rises may push buyers and consumers to look for
money-saving alternatives. Buyers

• Beverage companies

– High threat: Buyers have extreme control
on smaller, independent bottling companies
considering they are dependent on their business Substitutes

• Low threat: There are few alternatives to
the materials used in bottling and packaging
beverages. Most substitutes would be so
costly that it would not be a cost-effective
alternative. Recommendations Pepsi should focus on countries Coke is weak in
Avoid direct competition with Coke
Differentiate brand image Key Strategies Pepsi uses other CSDs to compete directly
Pepsi = brand of the young
Coke relies on tradition
Both have created brand loyalty
Similar distribution plans with local bottlers
Accounted for 73.1% of the non-alcoholic beverage industry in 2004
High level of brand loyalty
Brand extensions mitigate the effect of changing consumer demands
Changing consumer demands
Unhealthy stigma Carbonated Soft Drink Industry’s SWOT Analysis Opportunities
Advancements in technology that would rid Carbonated Soft Drinks of phenylalanine
That would be better for people and sweeteners
Healthier soda that would help people lose weight
Juice, bottled water, coffee, energy drinks, sparkling water, seltzer waters.
Volatility in the cost of sweeteners, plastic and aluminum Changing Five Forces Current rivals are becoming more independent

Potential rivals are developing strategies to cut costs and attract new customers through new channels & by targeting new demographics

Suppliers are looking for new ways to create bottles with less plastic to cut costs and attract a 'green' demographic

Buyers becoming more reliant on the bottling companies

Substitutes are becoming a more viable option for beverage manufacturers, but still aren't a huge threat Other Segments Competitive advantage can travel to other beverage segments

Competitive advantage is bred in other segments when demand suffers in the main segments

New products are developed outside the realm of the normal segments to spur growth
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