Transcript Cola Wars Continue: Coke and Pepsi in 2006 Presented by: Tigers Team Spring 2008

Cola Wars Continue:
Coke and Pepsi in 2006
Presented by:
Tigers Team
Spring 2008
Overview

History

Historical Industry Profitability

Concentrate vs. Bottler Profitability

Competition between Coke and Pepsi

Sustaining Profits
History of Pepsi

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Pepsi was created in 1893 in North Carolina by
Pharmacist Caleb Bradham.
By 1910 Pepsi had built a network of 270
bottlers.
Pepsi struggled and declared bankruptcy twice
During Great Depression grew in popularity due
to price decrease to a nickel.
In 1938, Coke sued Pepsi-Cola brand for
infringement on Coca-Cola’s trademark.
History of Coca-Cola
Coca-Cola was formulated in 1886 by pharmacist John
Pemperton who sold the product at drug stores as “potion for
mental and physical disorders.”
In 1891, Asa Candler acquired the formula, established a
sales force and began brand advertising of Coca-Cola.
In 1919, went public under control of Robert Woodruff
expanded and developed in national and international
markets.
Successful during WWII with the high CSD consumption
from the U.S soldiers.

Industry Profitability: Porter’s
Five Forces

Rivalry

Substitutes

Coke
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Alliances
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Pepsi
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Acquisitions
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Cadbury
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Product Innovation
Porter’s Five Forces (Cont.)
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Barriers to Entry
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Power of Suppliers
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Exclusive Territories
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Sugar
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Substantial Investment
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Packaging
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Current Market
Presence
Porter’s Five Forces (Cont.)

Power of Buyers
Vending
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Super Markets
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Convenience and Gas
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Mass Merchandisers
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Fountain
Fast Food
 Profitability of the
CSD Industry
Concentrate Business vs.
Bottling Business
Concentrate Producers

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Blend raw material ingredients
Packaged Mixture in plastic canisters
Shipped to bottlers
Diet CSDs
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Added artificial sweeteners
Concentrate Business vs.
Bottling Business
Bottlers
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Purchased Concentrate
Added carbonated water and high fructose corn
syrup
Bottled CSD product
Delivered to customers accounts
Diet CSDs
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Added sugar or high-fructose corn syrup
Concentrate Business vs.
Bottling Business
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Concentrate Producer
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Little Capital Investment
Cost of $25 million - $50
million
One plant to serve US
Significant costadvertising, promotion,
market research and
bottler support
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Bottlers
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Capital Intensive
High-speed production
lines
Bottling costs $4 million
to $10 million
Capacity of $40 million
warehouse cost $75
million
Coke and Pepsi each
require 100 plants
Pressure from Coke/Pepsi
Bottler Consolidation
Bottler plants decreased in the US
2000 plants to 300 from 1970-2004
Coke’s re franchising bottling operations
Buying Poor managed bottlers
Infusing with capital
Selling to large bottling plants
•In 1985, Coke purchased two of the largest bottling
companies
Vertical integration
Affects on Industry’s Profits

Coke was the first concentrate producer to build a
nationwide franchise bottling network, that Pepsi and
Cadbury Schweppes followed suit.

Franchise agreements with both Coke and Pepsi allowed
bottlers to handle the non-cola brands of other
concentrate producers.

Bottlers could not carry directly competing brands.
Affects on Industry’s Profits
(Cont.)

Throughout the 1980s, the growth of Coke and
Pepsi put a squeeze on smaller concentrate
producers

Shelf space for small brands declined and were
shuffled from one own to another.
Affects on Industry’s Profits
(Cont.)

In a five year span, Dr Pepper was sold several
times, Canada Dry twice, Sunkist once, Shasta
one, and A&W once.
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Phillip Morris acquired Seven-UP in 1978 for a
big premium, but racked up huge losses in the
early 1980s, and then left the CSD business in
1985.
Affects on Industry’s Profits
(Cont.)

In 1990s, through a series of strategic
acquisitions, Cadbury Schweppes became the
third-largest concentrate product.
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Coke has a world market share of 51.4%, Pepsi
has 21.8% and Cadbury Schweppes has 6%
Sustaining Profits
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Shift to non-carbonated beverages (keep up
with demand of health conscious society)
Continue on current path and see where it
leads
U.S. Liquid Consumption Trends
60
50
40
30
20
CSD
10
Alcohol
0
Milk
1970
1981
1990
1996
2000
2003
NCSD