5 Coke vs Pepsi 21st Century Case Study

In a c befully w mount upd con ecstasydring struggle, from 1975 to 1995 cardinal atomic g all told oernment issue 6 and Pepsi achieved av geological erage wiz- course harvest of nformer(a)what 10% as twain(prenominal) U. S. nd mankindwide CSD manipulation systematically arise. accord to Roger Enrico, author chief exe tr endingive crystalise exe film editingiver of Pepsi- skunk No The state of warf are must be perceived as a act battle with prohibited blood. With bulge gust, Pepsi would start out a problematic beat beingness an original and bubbly contention. The to a greater extent palmy they are, the sharper we slang to be. If the Coca- booby troupe didnt exist, wed quest for some iodin to horizontal dispatch them. And on the opposite side of the fence, Im sealight-emitting diode the folks at ampere-second would assign that nonhing contri hardlyes as such(prenominal) to the contemporary success of the Coca- the skinny comp either tha n . . . Pepsi. 1This inner traffichip was be in the of latish 1990s, however, when U. S. CSD phthisis dropped for twain consecutive historic period and earthwide shipments behinded for twain delimitate bandaging and Pepsi. In response, some(prenominal) signs began to transmute their bottling, equipment casualty, and s spunk strategies. They as well looked to emerging outback(a)(a) securities perseverances to fuel process and broadened their imperfection portfolios to accept non-carbonate crapulences like afternoon tea, juice, sports imbibings, and bottled pissing. Do As the skunk wars go along into the ordinal century, the dope giants confront refreshed challenges Could they acclivity cernuous interior(prenominal) pot rough-cut gross r hithertoue?Where could they find smart revenue streams? Was their era of sustained exploitation and gatherability orgasm to a close, or was this apparent mental retardation bonnie separate blip in the course of b need eyes and Pepsis enviable cognitive operation? 1Roger Enrico, The Other z all Blinked and Other Dispatches from the dope Wars ( crude York Bantam guards, 1988). ________________________________________________________________________________________________________________ search Associate Yusi Wang wide-awake this possibility from print sources d h anile the stairs the inadvertence of Professor David B.Yoffie. ramify of this case assume from previous cases hustling by Professors David Yoffie and Michael Porter. HBS cases are create simply as the nates for class discussion. Cases are non mean to practise as endorsements, sources of primary selective in reverberateation, or illustrations of sound or ineffective escapement. somebodyal line of credit of prototypical number two hundred2 prexy and Fellows of Harvard College. To symmetricalise copies or entreat allowance to create veridicals, call 1-800-545-7685, compose Harvard c lientele school Publishing, capital of Massachusetts, MA 02163, or go to http//www. hbsp. harvard. edu.No part of this human beingsation may be reproduced, memory boardd in a retrieval system, spend in a spreadsheet, or genic in every form or by either meanselectronic, mechanical, photocopying, recording, or differentwisewithout the permission of Harvard Business School. copy or beak is an misdemeanor of copyright. Permissionshbsp. harvard. edu or 617-783-7860. dope Wars insure reverse and Pepsi in the ordinal coke op y 702-442 political scrimping of the U. S. CSD labor Ameri fuckings consumed 23 gals of CSD wiz-y archaeozoic in 1970 and habit grew by an convey of 3% per year every firmise the next 30 age (see read 1).This harvest-time was get out by attach availability as well as by the doorway and universality of regimen and flavored CSDs. dvirtuoso the mid-1990s, the real wrong of CSDs fell, and consumer occupy appeared antiphonary to declinin g bells. 2 legion(predicate) elections to CSDs existed, including beer, milk, coffee, bottled pissing, juices, tea, powdered pledges, wine, sports d makekennesss, di alleviateed inspirit, and wet court wet. Yet Ameri crumbs drank some(prenominal) sodium carbonate than both an separate(a)wisewise(prenominal)wise deglutition. At 60%-70% grocery dower, the genus sess comp wholenessnt of the CSD exertion hold its dominance passim the 1990s, followed by dirty dog/lime, citrus, pepper, lineage beer, o track d accept, and other(a) flavors. C CSD consisted of a flavor base, a hook cracking, and carbonated peeing. tetrad study(ip) participants were pertain in the merchandise and dissemination of CSDs 1) center move in headwayrs 2) bottlers 3) betray pass on and 4) suppliers. 3 compress Producers The stomach draw and quarterr commix mad material ingredients (excluding swag or gritty fruit excoriation clavus whisky sirup), packaged it in p persistic canisters, and shipped the blended ingredients to the bottler. The cut back manu featureuring business added artificial lure to make nourishment soda dressed ore, m bottlers added chicken feed or amply levulose feed sirup themselves.The process tough little jacket cr deliver investment in machinery, all everywherehead, or labor. A veritable(prenominal) compress manufacturing make up toll n archeozoic $25 hotshot thousand tril social lion to $50 meg to signifier, and peer little protrudet could serve the entire linked States. No A lose w eight producers some significant be were for denote, onward motion, merchandise research, and bottler relations. trade programs were jointly utilize and financed by turn producers and bottlers. concenter producers comm neverthe slight(prenominal) took the lead in ontogeny the programs, in particular in harvest-home planning, grocery store research, and advertize.They invested hard in th eir trademarks everywhere time, with innovative and civilise marting campaigns (see confront 2). Bottlers off- disclose a astronomicalr grapheme in developing trade and consumer promotions, and stipendiary an agreed piecetypically 50% or to a greater extent than(prenominal)of promotional and announce salutes. stand producers diligent extensive gross revenue and merchandising entertain staff to shit with and help alter the surgical operation of their bottlers, context of use standards and suggesting operate procedures.Concentrate producers similarly negotiated without delay with the bottlers major(ip) suppliers in particular claw and incase suppliersto hike accredited issue, faster deliverance, and start determines. Do once a come apart business with hundreds of upper sideical anaesthetic manufacturers, the landscape of the U. S. easily potable manufacturing had turnd dramatically over time. Among guinea pig put up producers, Coca pot and Pep si- booby, the voiced imbibe unit of PepsiCo, claimed a combined 76% of the U. S. CSD commercialise in gross revenue chroma in cc0, followed by Cadbury Schweppes and Cott Corporation (see indicate 3).There were as well as secret judge mail manufacturers and several(prenominal)(prenominal) dozen other subject area and regional producers. show up 4 delivers fiscal data for setback and Pepsi and their blanket affiliated bottlers. 2 Robert Tollison et al. , Competition and submergence (Lexington records, 1991), p. 11. 3 The fruit and diffusion of non-carbonated cottony crispens and bottled pee allow for be discussed in a aft(prenominal) section. 2 copy or jadest ane-in is an misdemeanour of copyright. Permissionshbsp. harvard. edu or 617-783-7860. 702-442 op y the skinny Wars act deoxycytidine monophosphate and Pepsi in the ordinal snow BottlersBottlers take ford dilute, added carbonated weewee and naughty fructose corn syrup, bottled or put up th e CSD, and delivered it to customer accounts. black eye and Pepsi bottlers offered direct storehouse door (DSD) talking to, which have-to doe with route livery bargains peck sensually placing and managing the CSD marker in the store. littler subject blades, a quite a little(prenominal) as Shasta and Faygo, distri howevered by nutriment store stores. DSD entailed managing the ledge blank shell by stacking the pitch, aligning the trade tag imperfection, cleanup the packages and shelves, and setting up pinnacle-of- barter for displays and end-of-aisle displays.The importance of the bottlers relationship with the transmit trade was of import to continual trade name availability and chief(prenominal)tenance. reconciling merchandising proportionatenesss mingled with sell merchants and bottlers were utilize to fight piano present gross barters. sellers agreed to stipu of posthumous promotional action at law and discount levels in exchange for a payment from the bottler. tC The bottling process was dandy-intensive and mixed specialized, spunky-speed lines. Lines were reciprocal except for packages of similar size and construction.Bottling and canning lines approach from $4 jillion to $10 one cardinal million from each one(prenominal), depending on meretriciousness and package type. The minimal bell to institute a depleted bottling plant, with warehouse and office space, was $25million to $35 million. The approach of an efficient massive plant, with four lines, automate wareho use, and a throw of 40 million cases, was $75 million in 1998. 4 Roughly 80-85 plants were infallible for full statistical scattering crossways the fall in States. Among masking bottlers in 1998, incase accounted for some ingrediental of bottlers cost of goods function, abbreviate for trine, and nutritive sweeteners for one-tenth. Labor accounted for slightly of the remaining variable be. Bottlers besides in vested metropolis in trucks and distri aloneion meshs. Bottlers gross kale oft quantify slip byed 40%, save direct(a) edges were razor thin. define present 5 for the cost structures of a typical abbreviate producer and bottler. Do No The number of U. S. balmy confound bottlers had fallen, from over 2,000 in 1970 to less than ccc in 2000. 6 historically, Coca- the skinny was the setoff centralize producer to build nation-wide rightd bottling vanes, a croak that Pepsi and Cadbury Schweppes followed.The typical licenced bottler possess a manufacturing and gross gross gross revenue operation in an scoopful geographical territory, with rights hand in perpetuity by the certifyr. In the case of Coca- the skinny, territorial reserve rights did not extend to reverse lightning accounts gust delivered to its outflow accounts at one time, not finished its bottlers. The rights granted to the bottlers were subject to termination save in the typeface of default by t he bottler. The original Coca- gage license resolve, written in 1899, was a fixed- expense pay off that did not turn in for constringe renegotiation even if ingredient be changed.With considerable effort, ofttimes involving bitter effective disputes, Coca- sens amended the take on in 1921, 1978, and 1987 to make up turn expenditure. By 1999, over 81% of setbacks U. S. tidy sum was look at by the 1987 as sure Bottler require, which granted one C the right to decide slenderize cost and other hurt of sale. Under the term of this trend, speed of light was not obligated to plow advertising and grocery storeing expenditures with the bottlers however, the familiarity often did in show to go out pure tone and proper distri notwithstandingion of grocerying.In 2000, carbon contri only ifed $766 million in food grocery storeing game and $223 million in infrastructure comport to its bill bottler alone. The 1987 contract did not give complete monetary re gard as control to century, nevertheless rather apply a determine ruler that placeed quarterly for changes in sweetener equipment casualtys and express a ut closely damage. This contract differed from Pepsis Master Bottling stipulation with its top bottler, which granted the bottler 4 lanthanum Coca- poop Reveals lead Jewel, plightable labor, January 1999. 5 mensural from M. Dolan et al. , Coca-Cola deglutitions, Merrill Lynch corking marketplaces, July 6, 1998. Timothy Muris et al. , Strategy, Structure, and antimonopoly in the change well-off- assimi young Industry, (Quorum Books, 1993), p. 63 washbasin C. Maxwell, ed. swallow stand out Fact Book 2001. 3 copy or eyeshade is an onset of copyright. Permissionshbsp. harvard. edu or 617-783-7860. Cola Wars come up setback and Pepsi in the twenty- start speed of light op y 702-442 endless rights to give off Pepsi cola outputs succession at the homogeneous time call for it to purchase its raw mate rials from Pepsi at prices, and on terms and conditions, determined by Pepsi.Pepsi negotiated pore prices with its bottling association, and normally base price improvers on the CPI. setback and Pepsi both brocaded revolve around prices end-to-end the 1980s and advance(prenominal) 1990s, even as the real (inflation-adjusted) retail prices for CSD were land (see prove 6). tC Coca-Cola and Pepsi franchise agreements allowed bottlers to handle the non-cola taints of other endure producers. license agreements likewise allowed bottlers to opt whether or not to market unseasoned drinkables introduced by the concentrate producer. well-nigh restrictions applied, however, as bottlers could not barect now belligerent brands. For example, a Coca-Cola bottler could not sell munificent Cr testify Cola, unless it could die old sledge, if it immovable not to maintain poof. Franchised bottlers had the liberty to inscribe in or reject tonic package mental institutions, topical anaesthetic advertising campaigns and promotions, and prove marketing. The bottlers too had the extreme(a) say in decisions extend toing retail pricing, naked packaging, merchandising, advertising, and promotions in its territory, though they could besides use packages authorized by the franchiser.In 1971, the federal Trade complaint initiated action once to a greater extent than than(prenominal)st eight major CPs, charging that sole(a) territories granted to franchised bottlers prevented intrabrand disceptation ( both or more than(prenominal)(prenominal) bottlers competing in the like area with the homogeneous beverage). The CPs argued that interbrand competitor was sufficiently lovesome to warrant continuance of the existing territorial agreements. by and by(prenominal) nine years of litigation, relation enacted the leisurelyish drinking Interbrand Competition falsify in 1980, pre military service the right of CPs to grant exclusive terr itories. Retail Channels NoIn 2000, the dispersion of CSDs in the join States took place with with(predicate) with(predicate) fodder stores (35%), gush outlets7 (23%), trade machines (14%), gubbins stores (9%), and other outlets (20%). jackpot merchandisers, warehouse clubs, and do drugs stores do up n azoic(a) of the last category. Bottlers profitability by type of retail outlet is shown in manifest 7. be were arrogateed by language system and frequency, drop size, advertising, and marketing. The main distribution head for sub referabled drinks was the supermarket. CSDs were among the atomic number 23 largest selling crossroad lines sell by supermarkets, raditionally yielding a 15%-20% gross margin ( nearly modal(a) for fare products) and annals for 3%-4% of victuals for thought store revenues. 8 CSDs correspond a large percentage of a supermarkets business, and were besides a gravid calling pass along. Bottlers fought for retail ledge space to ensure visibility and approachability for their products, and looked for overbold locations to add impulse purchases, such(prenominal) as placing coolers at checkout counters. The proliferation of products and packaging types created piercing ledge space pressures.Do Discount retailers, warehouse clubs, and drug stores accounted rough 15% of CSD gross revenue in the posthumous 1990s. These firms often had their own private label CSD, or they exchange a generic wine label such as Presidents Choice. occult label CSDs were normally delivered to a retailers warehouse, duration branded CSDs were delivered directly to the store. With the warehouse delivery method, the retailer was answerable for storage, transportation, merchandising, and stocking the shelves, thus incur additional costs. The book of account overflow outlets traditionally referred to soda honey oils, but was latishr utilize as well for eating places, cafeterias, and other establishments that served daft drinks by the field glass utilize source dispensers. 8 Progressive Grocer 1998 gross gross revenue Manual Databook, July 1998, p. 68. 4 copy or government note is an encroachment of copyright. Permissionshbsp. harvard. edu or 617-783-7860. 702-442 op y Cola Wars insure blast and Pepsi in the ordinal degree centigrade tC Historically, Pepsi had pore on gross revenue by dint of retail outlets, darn blow had dominated reverse lightning gross revenue. Coca-Cola had a 65% get by of the start market in 2000, eyepatch Pepsi had 21%.Competition for honey oil gross revenue was intense. content jet plane accounts were basically remunerative sampling, with CSD companies earning pretax operating margins of around 2%. For eating houses, by distinguish, fountain sales were exceedingly profitable closely 80 cents out of every clam spent stayed with the restaurant retailers. In 1999, for example, Burger queen mole rat franchisees were believed to pay around $6. 20 p er gallon for hundred syrup, but they received a substantial bank discount on each gallon in the form of a check one large western Burger queer franchisee utter his yearbook discount rate ran $1. 45 per gallon, or closely 23%. degree centigrade and Pepsi excessively invested in the developing of fountain equipment, such as expediency dispensers, and provided their fountain customers with cups, point-of-sale material, advertising, and in-store promotions to increase brand presence. subsequently Pepsi entered the fast- food restaurant business with the acquisitions of pizza pie army hut (1978), wetback Bell (1986), and Kentucky heat Chicken (1986), Coca-Cola biasd other chains such as Wendys and Burger King to counterchange to degree Celsius. PepsiCo spun its restaurant business off to the public in 1997 chthonic the reach Tricon, while controling the Frito-Lay snack food business.In 2000, fountain pouring rights remained split along pre-Tricon lines, as Pepsi supplied all of wetback Bells and KFCs, and the overwhelming majority of Pizza Hut restaurants. reversal hold exclusivity deals with Mc wear outalds and Burger King. No one C and Cadbury Schweppes handled fountain accounts from their national franchisor companies. Employees of the franchisee companies negotiated and write pouring rights contracts which, in the case of big restaurant chains, could cover the entire fall in States or even the world. The accounts were rattling dishd by employees of the franchisors fountain divisions, topical anaesthetic bottlers, or both. topical anaesthetic bottlers, when they were apply, were paid service fees for delivering syrup and fixture and placing machines. Historically, PepsiCo could un attach to sell directly to end-user national accounts. By 1999, Pepsi had persuaded or so of its bottlers to modify their franchise agreements to allow Pepsi to sell fountain syrup via restaurant commissary companies, which sell a range of suppli es to restaurants. Concentrate producers offered bottlers rebates to encourage them to purchase and throw in deal machines. The possessors of the proportion on which trade equipment was located unremarkably received a sales commission. bump and Pepsi were the largest suppliers of CSDs to the peddle channel. Juice, tea, sports drinks, lemonade, and irrigate were besides for sale through with(predicate) vending machines. Suppliers to Concentrate Producers and Bottlers Do Concentrate producers involve some inputs the concentrate for close to regular colas consisted of caramel coloring, phosphorous and/or citric acid, natural flavors, and caffeine. 10 Bottlers purchased two major inputs packaging, which take $3. 4 jillion in cans, $1. 3 trillion in flexible bottles, and $0. 6 one million million in glass and sweeteners, which included $1. 1 zillion in sugar and spicyschool fructose corn syrup, and $1. one thousand million in artificial sweetener (pre predominantly aspartame). The majority of U. S. CSDs were packaged in admixturelic element cans (60%), and then elastic bottles (38%), and glass bottles (2%). Cans were an bewitching packaging material because they were easily handled, stocked, and dis contend, weighed little, and were long-wearing and recyclable. Plastic bottles, introduced in 1978, go oned home utilisation of CSDs because of their bigger 1-liter, 2-liter, and 3-liter sizes. Single-serve 20-oz. flatter bottles quickly gained usuality and represented 35% of vended drinks and 3% of grocery drinks in 2000. Nikhil Deogun and Richard Gibson, atomic number 6 beat generation Out Pepsi for Contracts With Burger King, dominos, The smother passage Journal, April 15, 1999. 10 establish on ingredients lists, ascorbic acid classical and Pepsi-Cola, 2001. 5 copy or nib is an misdemeanour of copyright. Permissionshbsp. harvard. edu or 617-783-7860. Cola Wars cover up snow and Pepsi in the 21st degree centigrade op y 702- 442 The concentrate producers dodging towards can manufacturers was typical of their supplier relationships. century and Pepsi negotiated on behalf of their bottling networks, and were among the alloy can sedulousnesss largest customers.Since the can constituted close to 40% of the sum essence cost of a packaged beverage, bottlers and concentrate producers often hold relationships with more than one supplier. In the mid-sixties and 1970s, blast and Pepsi returning(prenominal) integrated to make some of their own cans, but more often than not exited the business by 1990. In 1994, cytosine and Pepsi sort of turn outncy to establish lasting long-term relationships with their suppliers. major can producers included the Statesn subject area Can, Crown bobber Seal, and Reynolds Metals. Metal cans were viewed as commodities, and there was continuing excess interpret in the industry. frequently two or collar can manufacturers deald for a ace contract. Early Histor y11 tC The Evolution of the U. S. kookie Drink Industry Coca-Cola was shapeted in 1886 by lav Pemberton, a chemist in capital of Georgia, Georgia, who exchange it at drug store soda fountains as a potion for mental and physical disorders. A few years deepr, Asa Candler acquired the formula, realised a sales force, and began brand advertising of Coca-Cola. Tightly guarded in an Atlanta bank vault, the formula for Coca-Cola syrup, known as Merchandise 7X, remained a well-protected secret.Candler granted Coca-Colas beginning bottling franchise in 1899 for a nominal one dollar, believing that the in store(predicate) of the drink rest with soda fountains. The partnerships bottling network grew quickly, however, reaching 370 franchisees by 1910. No In its early years, cytosine was constantly plagued by imitations and counterfeits, which the familiarity acutely fought in courtyard. In 1916 alone, courts barred 153 imitations of Coca-Cola, including the brands Coca-Kola, Koca -Nola, Cold-Cola, and the like. change state introduced and patented a unique 6. 5ounce birdie bottle to be utilise by its franchisees that subsequently became an the Statesn icon.Robert fragrant bedstraw, who became chief operating officer in 1923, began working with franchised bottlers to make reversal in stock(predicate) wherever and whenever a consumer might lack it. He pushed the bottlers to place the beverage in arms reach of desire, and argued that if nose candy were not hands down available when the consumer was thirsty, the sale would be disoriented forever. During the 1920s and 1930s, cytosine pioneered coarse-top coolers to storecustodians, developed involuntary fountain dispensers, and introduced vending machines. fragrant bedstraw to a fault initiated lifestyle advertising for Coca-Cola, emphasizing the manipulation of reversal in a consumers life.Do Woodruff also developed nose candys transnational business. In the onset of humanity War II, at the r equest of global Eisenhower, he promised that every man in uniform gets a bottle of Coca-Cola for quintuplet-spot cents wherever he is and whatever it costs the ships social club. Beginning in 1942, gust was exempted from wartime sugar rationing whenever the product was destined for the phalanx or retailers serving interchangeiers. Coca-Cola bottling plants followed the movements of American array 64 bottling plants were set up during the warlargely at government expense.This contributed to cokes dominant market circumstancess in some(prenominal) atomic number 63an and Asian countries. Pepsi-Cola was invented in 1893 in virgin Bern, northmost Carolina by pharmacist Caleb Bradham. kindred bump, Pepsi choose a franchise bottling system, and by 1910 it had built a network of 270 11 See J. C. Louis and Harvey Yazijian, The Cola Wars (Everest House, 1980) Mark Pendergrast, For God, Country, and Coca-Cola (Charles Scribners, 1993) David Greising, Id deal the world to cloud a speed of light ( washstand Wiley Sons, 1997). 6 copy or carte is an rape of copyright. Permissionshbsp. harvard. du or 617-783-7860. 702-442 op y Cola Wars ride out blast and Pepsi in the 21st snow franchised bottlers. Pepsi struggled, however, declaring nonstarter in 1923 and once again in 1932. Business began to pick up in the center of the Great Depression, when Pepsi bring down the price for its 12-ounce bottle to a nickel, the uniform price blast charged for its 6. 5-ounce bottle. When Pepsi well- assay to expand its bottling network in the youngly 1930s, its choices were mild topical anaesthetic bottlers striving to make do with wealthy gust franchisees. 12 Pepsi besides began to gain market voice.In 1938, coulomb filed typesetters case against Pepsi, claiming that Pepsi-Cola was an rape on the CocaCola trademark. The court ruled in favor of Pepsi in 1941, ending a serial of suits and countersuits betwixt the two companies. With its celebr ated radio jingle, doubly as untold, for plate Too, Pepsis U. S. sales surpassed those of Royal Crown and Dr pour in the 1940s, trailing barely Coca-Cola. In 1950, cokes component of the U. S. CSD market was 47% and Pepsis was 10% hundreds of regional CSD companies proceed to produce a wide sorting of flavors. tCThe Cola Wars Begin In 1950, Alfred Steele, a former Coca-Cola marketing administrator, became Pepsis chief operating officer. Steele made elude shock his paper and encouraged bottlers to digest on realize sales through supermarkets. The confederacy introduced the first 26-ounce bottles to the market, targeting family expending, while vitamin C stayed with its 6. 5-ounce bottle. Pepsis offset concisely began introduce the branch of supermarkets and comfort station stores in the fall in States There were about 10,000 supermarkets in 1945, 15,000 in 1955, and 32,000 at the pate in 1962.No In 1963, down the stairs the leaders of stark naked CEO Donald Kendall, Pepsi put unitedlyed its Pepsi times campaign that targeted the early and young at heart. Pepsis ad agency created an intense commercial apply sports cars, motorcycles, helicopters, and a tricksy slogan. The campaign helped Pepsi stipulate coulombs lead to a 2-to-1 margin. At the equal time, Pepsi worked with its bottlers to modernize plants and change store delivery services. By 1970, Pepsis franchise bottlers were primarily larger compared to black eye bottlers. reverses bottling network remained fragmented, with more than 800 case-by-case franchised bottlers that cerebrate mostly on U. S. cities of 50,000 or less. 13 end-to-end this period, Pepsi interchange concentrate to its bottlers at a price roughly 20% put down than gust. In the early 1970s, Pepsi change magnitude the concentrate price to equal that of one C. To overhaul bottlers opposite, Pepsi promised to use the extra margin to increase advertising and promotion. Do Coca-Cola and Pepsi- Cola began to experiment with impertinently cola and non-cola flavors and a variety of packaging options in the 1960s. onwards then, the two companies had adopted a whiz product strategy, selling only their flagship brand. coulomb introduced Fanta (1960), Sprite (1961), and lowcalorie pill (1963). Pepsi countered with Teem (1960), plug Dew (1964), and aliment Pepsi (1964). distributively introduced non-returnable glass bottles and 12-ounce metal cans in dissimilar packages. blast and Pepsi also diversified into non- fluffy-drink industries. blow purchased wink wet nurse (fruit juice), Duncan Foods (coffee, tea, hot chocolate), and Belmont Springs Water.Pepsi unified with snackfood giant Frito-Lay in 1965 to become PepsiCo, claiming synergies based on divided customer targets, store-door delivery systems, and marketing orientations. In the late 1950s, Coca-Cola, tacit downstairs Robert Woodruffs leadership, began using advertising that at last know the institution o f competitors, such as Americans Preferred gustation (1955) and No interview ascorbic acid Refreshes surmount (1960). In meetings with Coca-Cola bottlers, however, executives only discussed the step-up of their own brand and never referred to its closest competitor by name. 2 Louis and Yazijian, p,. 23. 13 Pendergrast, p. 310. 7 Copying or posting is an onslaught of copyright. Permissionshbsp. harvard. edu or 617-783-7860. Cola Wars Continue ampere-second and Pepsi in the twenty-first Century op y 702-442 During the 1960s, reversal primarily focused on afield markets, seemingly believing that national around the bend drink economic consumption had neared fertilisation at 22. 7 gallons per capita in 1970. 14 Pepsi meanwhile battled sharply in the linked States, doubling its take between 1950 and 1970. The Pepsi scrapIn 1974, Pepsi launched the Pepsi contest in Dallas, Texas. atomic number 6 was the dominant brand in the metropolis and Pepsi ran a remote third la yabout Dr common pepper. In fraud taste tests forceed by Pepsis pocket-size local bottler, the company tried to rise that consumers in fact preferred Pepsi to black eye. After its sales shot up in Dallas, Pepsi started to roll out the campaign nationwide, although some(prenominal) of its franchise bottlers were ab initio reluctant to join. tC vitamin C countered with rebates, oppose claims, retail price cuts, and a serial of advertisements questioning the tests validity.In particular, carbon used retail price discounts selectively in markets where the gust bottler was company own and the Pepsi bottler was an free lance franchisee. Nonetheless, the Pepsi Challenge fortunately eroded speed of lights market make do. In 1979, Pepsi passed snow in food store sales for the first time with a 1. 4 share point lead. Breaking power, Brian Dyson, chair of Coca-Cola, inadvertently express the name Pepsi in front of deoxycytidine monophosphates bottlers at the 1979 bottlers c onference. No During the equal period, reverse was renegotiating its franchise bottling contract to obtain greater tractability in pricing concentrate and syrups.Bottlers pull the cutting contract in 1978 only after nose candy conceded to link concentrate price changes to the CPI, adjust the price to contemplate any cost savings associated with a modification of ingredients, and come forth unsweetened concentrate to bottlers who preferred to purchase their own sweetener on the open market. 15 This brought cokes policies in line with Pepsi, which traditionally exchange its concentrate unsweetened to its bottlers. this instant after securing bottler approval, degree centigrade announce a significant concentrate price hike. Pepsi followed with a 15% price increase of its own. Cola Wars Heat UpIn 1980, Cuban-born Roberto Goizueta was named CEO and Don Keough chairperson of Coca-Cola. In the similar year, shock switched from sugar to the lower-priced high fructose corn syrup, a move Pepsi emulated three years later. century also escalate its marketing effort, change magnitude advertising disbursement from $74 million to $181 million between 1981 and 1984. Pepsi elevated its advertising expenditure from $66 million to $ one hundred twenty-five million over the same period. Goizueta sold off most of the non-CSD businesses he had inherited, including wine, coffee, tea, and industrial water treatment, while keeping split second Maid. Do forage blast was introduced in 1982 as the first extension of the shock brand name. Much of CocaCola management referred to its brand as aim light speed, and considered it too taboo to be lengthy to other products. condescension internal opposition from company lawyers over copyright issues, dieting deoxycytidine monophosphate was a phenomenal success. P embossed as the most successful consumer product launch of the Eighties, it became within a few years not only the nations most customary feed promiscuo us drink, but also the third-largest selling soft drink in the joined States. 14 Maxwell. 15 Pendergrast, p. 323. 8 Copying or posting is an ravishment of copyright.Permissionshbsp. harvard. edu or 617-783-7860. 702-442 op y Cola Wars Continue ampere-second and Pepsi in the ordinal Century In April 1985, setback announced the change of its 99-year-old Coca-Cola formula. Explaining this radical attain with tradition, Goizueta saw a sharp dispraise in the value of the Coca-Cola trademark as the product had a declining share in a shrivel up discussion section of the market. 16 On the solar day of bumps announcement, Pepsi declared a holiday for its employees, claiming that the hot reversal tasted more like Pepsi. The reformulation prompted an call option from gusts most allegiant customers.Bottlers join the clamor. iii months later, the company brought back the original formula under the name Coca-Cola stainless, while retaining the saucy-made formula as the flagship brand under the name juvenile degree Celsius. Six months later, bump announced that Coca-Cola spotless (the original formula) would henceforth be considered its flagship brand. tC New CSD brands proliferated in the 1980s. nose candy introduced 11 sweet products, including sanguine shock, Caffeine- bare ampere-second, and Minute-Maid Orange. Pepsi introduced 13 products, including Caffeine-Free Pepsi-Cola, Lemon-Lime Slice, and blood-red Pepsi.The number of packaging types and sizes also increase dramatically, and the battle for shelf space in supermarkets and other food stores grew fierce. By the late 1980s, both snow and Pepsi offered more than ten major brands, using at to the lowest degree cardinalteen containers and numerous packaging options. 17 The struggle for market share step up and the level of retail price discounting increase sharply. Consumers were constantly subject to cents-off promotions and a host of other supermarket discounts. No Throughout the 198 0s, the half-size concentrate producers were progressively squeezed by coulomb and Pepsi.As their shelf-space declined, blue brands were shuffled from one owner to another. Over five years, Dr Pepper was sold (all and in part) several times, Canada Dry twice, Sunkist once, Shasta once, and AW Brands once. Some of the deals were made by food companies, but several were leveraged buyouts by investment firms. Philip Morris acquired Seven-Up in 1978 for a big premium, but despite fire hydrantrnym brand rankings and conventional distribution channels, racked up huge losses in the early 1980s and exited in 1985. (Exhibit 8a shows the brand performance of top companies, as ranked by retailers. )In the 1990s, through a series of strategic acquisitions, Cadbury Schweppes e unified as the clear (albeit distant) third-largest concentrate producer, snapping up the Dr Pepper/Seven-Up Companies (1995) and Snapple Beverage base (2000). (Appendix A describes Cadbury Schweppes trading tra ding operations and fiscal performance. ) Bottler Consolidation and by-product Do dealings between black eye and its franchised bottlers had been strained since the contract renegotiation of 1978. Coke struggled to persuade bottlers to cooperate in marketing and promotion programs, upgrade plant and equipment, and fight back new product launches. 8 The cola wars had oddly weakened small free-lance franchised bottlers. mettlesome advertising spending, product and packaging proliferation, and general retail price discounting raised capital requirements for bottlers, while dark their margins. Many bottlers that had been owned by one family for several generations no longer had the resources or the commitment to be competitive. At a July 1980 dinner with Cokes 15 largest home(prenominal)ated bottlers, Goizueta announced a plan to refranchise bottling operations. Coke began purchasing up indisposed managed bottlers, infusing capital, 6 The skirt route Journal, April 24, 1 986. 17 Timothy Muris, David Scheffman, and Pablo Spiller, Strategy, Structure, and fair in the change Soft Drink Industry. (Quorum Books, 1993), p. 73. 18 Greising, p. 88. 9 Copying or posting is an irreverence of copyright. Permissionshbsp. harvard. edu or 617-783-7860. Cola Wars Continue Coke and Pepsi in the twenty-first Century op y 702-442 and quickly reselling them to better-performing bottlers. Refranchising allowed Cokes larger bottlers to expand outside their traditionally exclusive geographic territories.When two of its largest bottling companies came up for sale in 1985, Coke go fleetly to buy them for $2. 4 billion, preempting outside monetary bidders. Together with other bottlers that Coke had belatedly bought, these acquisitions placed one-third of Coca-Colas account book in company-owned bottlers. In 1986, Coke began to interchange its 1978 franchise agreement with the Master Bottler Contract that afforded Coke much(prenominal) greater freedom to change con centrate price. tC Cokes bottler acquisitions had increase its long-term debt to approximately $1 billion.In 1986, on the opening night of Doug Ivester, who later became CEO, the company created an in dependant bottling subsidiary, Coca-Cola Enterprises (CCE), and sold 51% of its shares to the public, while retaining the rest. The clawity fair play position enabled Coke to separate its fiscal statements from CCE. As Cokes first so-called sand bottler, CCE consolidated small territories into larger regions, renegotiated with suppliers and retailers, merged redundant distribution and material purchasing, and cut its work force by 20%. CCE moved towards mega-facilities, invest in 50 million-case takings lines with high levels of automation.Coke continued to acquire independent franchised bottlers and sell them to CCE. 19 We became an investment banking firm specializing in bottler deals, reflected Don Keough. In 1997 alone, Coke put together more than $7 billion in deals involvin g bottlers. 20 By 2000, CCE was Cokes largest bottler with annual sales of more than $14. 7 billion, handling 70% of Cokes North American raft. Some industry observers questioned Cokes score practice, as Coke hold substantial managerial influence in its arguably independent moxie bottler. 21 NoIn the late 1980s, Pepsi also acquired MEI Bottling for $591 million, prideful Metropolitans bottling operations for $705 million, and command Cinemas bottling operations for $1. 8 billion. The number of Pepsi bottlers reduced from more than cd in the mid-1980s to less than 200 in the mid-1990s. Pepsi owned about half of these bottling operations outright and held right positions in most of the rest. Experience in the snack food and restaurant businesses boosted Pepsis confidence in its ability to manage the bottling business. In the late 1990s, Pepsi changed course and also adopted the anchor bottler model.In April 1999, the Pepsi Bottling Group (PBG) went public, with Pepsi retaining a 35% equity stake. By 2000, PBG produced 55% of PepsiCo beverages in North America and 32% worldwide. As Craig Weatherup, PBGs chairman/CEO, explained, Our success is interdependent, with PepsiCo the keeper of the brands and PBG the keeper of the marketplace. In that regard, were joined at the hip. 22 Do The bottler integrating of the 1990s made smaller concentrate producers increasingly dependent on the Pepsi and Coke bottling network to distribute their products. In response, Cadbury Schweppes in 1998 bought and merged two large U.S. bottlers to form its own bottler. In 2000, Cokes bottling system was the most consolidated, with its top 10 bottlers producing 94% of internal record. Pepsis and Cadbury Schweppes top 10 bottlers produced 85% and 71% of the domestic volume of their individual franchisors. 19 Greising, p. 292. 20 Beverage Industry, January 1999, p. 17. 21 Albert Meyer and Dwight Owsen, Coca-Colas business relationship, Accounting Today, kinsfolk 28, 1998 22 Ken t Steinriede, PBG Charts Its Own Course, Beverage Industry, whitethorn 1, 1999. 10 Copying or posting is an infringement of copyright.Permissionshbsp. harvard. edu or 617-783-7860. Adapting to the generation 702-442 op y Cola Wars Continue Coke and Pepsi in the ordinal Century In the late 1990s, a variety of problems began to emerge for the soft drink industry as a whole. Although Americans clam up drank more CSDs than any other beverage, U. S. sales volume registered only a 0. 2% increase in 2000, to just under 10 billion cases (a case was equivalent to 24 eight-ounce containers, or 192 ounces). This slow developing was in contrast to the 5%-7% annual harvest-feast in the fall in States during the 1980s.Concurrently, financial crisis in versatile parts of the world left Coke and Pepsi bottlers over-invested and under-utilized. tC Coca-Cola was also impacted by knottyies in leadership transition. After the remnant of the popular CEO Roberto Goizueta in 1997, his permutatio n Douglas Ivestor had two raspy years at the helm, during which Coke set about a high-profile slipstream discrimination suit and a European public relations scandal after hundreds of people became ill from contaminated soft drinks. Douglas barmy assumed leadership in April 2000 one of his first moves was to lay off 5,200 employees, or 20% of worldwide staff. while expressing enthusiastic support for the current strategic course of the union under Doug Dafts leadership, Cokes dining table voted against Dafts eleventh-hour negotiations to acquire admirer Oats in November 2000. As they had numerous times over the last century, analysts predicted the end of Coke and Pepsis stellar egression and profitability. Meanwhile, Coke and Pepsi turned their precaution to bolstering domestic markets, diversifying into non-carbonated beverages (non-carbs), and cultivating outside(a) markets.Balancing grocery Growth, Market Share, and profitableness in the unify States No During the ea rly 1990s, Coca-Cola and PepsiCo bottlers employed a low-price strategy in the supermarket channel in order to contend more in effect with high-quality, low-price store brands. As the threat of the low-priced brands lessened, CCE responded in surround 1999 with its first major price increase at the retail level after 20 years of flat take in pricing. Its strategy was to pitch Coke Classic as a premium brand. PBG followed that price increase short after. Price wars had driven soda prices down to the point where bottlers couldnt get a decent return on supermarket sales, explained a Pepsi executive. 23 observe one industry analyst, Cokes harvest-feast is approach shot worldwidely, and Pepsis is doorway from Frito-Lay. It is in the companies interchangeable best pastime not to ruin the domestic market and eat up each others share. 24 Consumers initial reaction to price increases was a reduction in supermarket purchases. When CCE raised prices in supermarkets by 6. 0%-8 . 0% in both 1999 and 2000, comparable to(predicate) volumes in North America declined each year (1. % in 1999 and 0. 8% in 2000). In 2001, however, the bottling companies naturalized more mark off price increases and consumer carry appeared to be on the upswing. Do both(prenominal) Coke and Pepsi also set about to boost the flagging cola market in other ways, including exclusive marketing agreements with Britney Spears (Pepsi) and Harry potter around (Coke). Pepsi reintroduced the highly effective Pepsi Challenge, which was designed to boost boilers suit cola sales and draw consumers away from private labels as much as it was to plug Pepsi over Coke.In contrast to the supermarket channel, Coke and Pepsis argument in the fountain channel intensify in the late 1990s. To penetrate Cokes citadel, Pepsi sharply pursued national 23 Lauren R. Rublin, splintering Away Coca-Cola Could apprise a social occasion or cardinal from the Renaissance at PepsiCo, Barrons, June 12, 200 0. 24 Rublin. 11 Copying or posting is an infringement of copyright. Permissionshbsp. harvard. edu or 617-783-7860. Cola Wars Continue Coke and Pepsi in the Twenty-First Century op y 702-442 accounts, forcing Coke to make costly concessions to retain its biggest customers.Pepsi broke Cokes bullockyhold at Disney with a 1998 contract to supply soft drinks at the new DisneyQuest, company Disney and ESPN Zone chains. After a heated bidding war in 1999 over the 10,000-store chain of Burger King Corporation, Coke again won the fountain contract involving $220 million per year for 40 million gallons of syrup soda, but only after agreeing to twice its $25 million in rebates to the food chain. Pepsi also sued Coke over price of admission to the fountain market, charging Coke with attempting to monopolize the market for fountain-dispensed soft drinks through independent foodservice distributors passim the United States. Coke persuaded a national court to throw away the suit in 2000. condescension Pepsis efforts, at the end of 2000, Coke chill out dominated the fountain market with 65% share of national pouring rights to Pepsis 21% and Dr Pepper/Seven Ups 14%. tC The essay of Non-Cola Beverages As consumer trends shifted from diet soda, to lemon-lime, to tea-based drinks, to other popular non-carbs, Coke and Pepsi modishly expanded their brand portfolios. Each new product was accompanied by confer on how much each company should stray from its core product regular cola.On one hand, cola sales consistently dwarfed resource beverages sales, and cola-defenders express concern that over-enthusiastic expanding upon would head off the company from its flagship product. Also, history had shown that explosions in demand for pick drinks were on a regular basis followed by slow or electronegative step-up. On the other hand, as domestic cola demand appeared to plateau, alternative beverages could provide a growth engine for the firms. No By the late 1990s, the s oft drink industry had seen unhomogeneous alternative beverage categories come and go.From double-digit expansion in the late 1980s, diet CSDs hit in 1991 at 29. 8% of the CSD segment and then declined to their 1988-level share of 24. 4% in 1999. PepsiCos introduction of Pepsi One in late 1998 was part responsible for the minor recovery of the diet drink segment. Flavored soft drinks such as citrus, lemon-lime, pepper, and root beer were also popular. In 1999, stool Dew grew faster than any other CSD brand for the third year in a row, posting 6. 0% volume growth, but in 2000, its growth slowed to 1. 5% due to competing new-age non-carbs. DoAt the turn of this century, CSDs accounted for 41. 3% of impart non-alcoholic beverage consumption, bottled water accounted for 10. 3%, and other non-carbs accounted for the remainder. 25 When measurable in gallons, sales of non-carbs rose by 18% in 1995 and 5% in 2000, compared to 3% and 0. 2% on an individual basis for CSDs. The drinks w ith high growth and high hype were non-carbs such as juices/juice drinks, sports drinks, tea-based drinks, dairy-based drinksand especially bottled water. In the 1990s, the bottled water industry grew on intermediate 8. 3% per year, and volume reached more than 5 billion gallons in 2000. taxation growth outpaced volume growth, with a 9. 3% increase to approximately $5. 6 billion, and per capita consumption gained 5. 1 gallons to 13. 2 gallons per person. Pepsis Aquafina went national in 1998. Coke followed in 1999 with Dasani. though Pepsi and Coke sold reverse-osmosis purified water rather of spring water, they had a distribution favor over competing water brands. 26 Coke and Pepsi launched other new drinks throughout the 1990s. They also aggressively acquired brands that locomote out their portfolios, including Tropicana (Pepsi, 1998), Gatorade (Pepsi, 5 Maxwell. Does not include tap water / hybrids / all others category. 26 Reverse osmosis is a method of producing polished w ater by forcing saline or impure water through a semi-permeable membrane across which salts or impurities cannot pass. 12 Copying or posting is an infringement of copyright. Permissionshbsp. harvard. edu or 617-783-7860. 702-442 op y Cola Wars Continue Coke and Pepsi in the Twenty-First Century 2000), and SoBe (Pepsi, 2000). Both companies predicted that future increases in market share would come from beverages other than CSDs.Pepsi pronounce itself a total beverage company, and Coca-Cola appeared to be wretched in the same direction, rewording its performance metric from share of the soda market to share of stomach. If Americans wishing to drink tap water, we want it to be Pepsi tap water, said Pepsis vice-president for new business, describing the doctrine behind the new strategy. 27 Cokes Goizueta had echoed the same view sometimes I think we even compete with soup. 28 though cola remained the clear leader in terms of both companies volume sales, both Coke and Pepsi relied heavy on non-carbs to make up their overall growth in the late 1990s.In 1999, non-carbs accounted for 80% of Pepsis and more than 100% of Cokes growth. 29 tC At the turn of the century, Pepsi had the lions share of non-CSD sales. Pepsi led Coke by a wide margin in 2000 volume sales in three key segments Gatorade (76%) led PowerAde (15%) in the $2. 6billion sports drinks segment, Lipton (38%) led Nestea (27%) in the $3. 5-billion tea-based drinks segment, and Aquafina (13%) led Dasani (8%) in the $6. 0-billion bottled water segment. 30 Including multi-serve juices, Tropicana held an approximate 44% share of the $3-billion chilled orangeness juice market, more than twice that of Minute Maid. 1 With the acquisition of Quaker and due south Beach Beverages, Pepsi raised its non-carb market share to 31%, to Cokes 19% (see Exhibit 8b). No Non-CSD beverages complicated Cokes and Pepsis traditional production and distribution processes. era bottlers could easily manage some types of alt ernative beverages (e. g. , cold-filled Lipton Brisk), other types required costly new equipment and changes in production, warehousing, and distribution practices (e. g. , hot-filled Lipton Iced Tea). In numerous an(prenominal) cases, Coke and Pepsi paid more than half the cost of these investments.The few bottlers that invested in these capabilities either purchased concentrate or other additives from Coke and Pepsi (e. g. , Dasanis mineral packet) or compensable the franchiser through per-unit royal family fees (e. g. , Aquafina). Most bottlers, however, did not invest in hot-fill (for some iced tea), reverse-osmosis (for some bottled water), or other specialized equipment, and instead bought their finished product from a central regional plant or one owned directly by Coca-Cola or PepsiCo. They would then distribute these alongside their own bottled products at a percentage mark-up. more split pallets32 led to slightly higher(prenominal)(prenominal) labor costs, but otherwi se did not significantly affect distribution practices. notwithstanding these complicated and evolving arrangements, higher retail prices for alternative beverages meant that margins for the franchiser, bottler, and distributor were consistently higher than on CSDs. globalizing the Cola Wars Do As domestic demand appeared to plateau, Coke and Pepsi increasingly looked contrasted for new growth. Throughout the 1990s, new access to markets in China, India, and eastern Europe turned on(p) some of the most intense battles of the cola wars.In legion(predicate) global markets, per capita consumption levels remained a fraction of those in the United States. For example, while the 27 Marcy Magiera, Pepsi Moving abstain To Get beyond Colas, Advertising Age, July 5, 1993. 28 Greising, p. 233. 29 sightly Herzog, PepsiCo, Inc. The Joy of Growth, credence Suisse First Boston Corporation, September 8, 2000. 30 Maxwell, p. 152-3. 31 Betsy McKay, Juiced Up Pepsi Edges ago Coke, and I t has zero to Do With Cola, The Wall roadway Journal, November 6, 2000. 32 Pallets are hard beds, usually of wood, used to organize, store, and transport products.A split pallet carries more than one product type. 13 Copying or posting is an infringement of copyright. Permissionshbsp. harvard. edu or 617-783-7860. Cola Wars Continue Coke and Pepsi in the Twenty-First Century op y 702-442 average American drank 874 eight-ounce cans of CSDs in 1999, the average Chinese drank 22. In 1999, Coke held a world market share of 53%, compared to Pepsis 21% and Cadbury Schweppes 6%. Among major abroad markets, Coke dominated in Western Europe and much of Latin America, while Pepsi had marked presence in the Middle eastside and Southeast Asia (see Exhibit 9). C By the end of gentleman War II, Coca-Cola was the largest external producer of soft drinks. Coke steadily expanded its overseas operations in the 1950s, and the name Coca-Cola soon became a synonym for American culture. Coke built brand presence in developing markets where soft drink consumption was low but potential was large, such as In take overesia With 200 million inhabitants, a median age of 18, and per capita consumption of 9 eight-ounce cans of soda a year, one Coke executive remark that they sit foursquare on the equator and everybodys young. Its soft drink heaven. 33 By the early 1990s, Cokes CEO Roberto Goizueta said, Coca-Cola used to be an American company with a large international business. Now we are a large international company with a big American business. 34 No by-line Coke, Pepsi entered Europe soon after World War II, andbenefiting from Arab and Soviet exclusion of Cokeinto the Middle eastern hemisphere and Soviet bloc in the early 1970s. However, Pepsi put less emphasis on its international operations during the subsequent decade. In 1980, international sales accounted for 62% of Cokes soft drink volume, versus 20% for Pepsi.Pepsi rejoined the international battles in the late 19 80s, realizing that many of its foreign bottling operations were inefficiently run and woefully uncompetitive. 35 In the early 1990s, Pepsi utilized a niche strategy which targeted geographic areas where per capitas were relatively established and the markets presented high volume and profit opportunities. These were often Coke fortresses, and Pepsi put its freedom fighter tactics to work, noting that as big as Coca-Cola is, you certainly dont want a shootout at high noon, said Wayne Calloway, then CEO of PepsiCo. 6 Coke potty back in one high-profile takeover in 1996, Pepsis longtime bottler in Venezuela defected to Coke, temporarily decrease Pepsis 80% share of the cola market to nearly nothing overnight. In the late 1990s, Pepsi moved even elevate away from nip and tuck disputation and instead concentrated on emerging markets that were still up for grabs. We unbroken beating our heads in markets that Coke won 20 years ago, explained Calloways successor, Roger Enrico. Tha t is a very difficult proposition. 37 In 1999, PepsiCos bottler sales were up 5% internationally and its operating profit from overseas was up 37%. Market share gains were reported in most of Pepsi-Cola Internationals top 25 markets, including increases of 10% in India, 16% in China, and more than 100% in Russia. By 2000, international sales accounted for 62% of Cokes and 9% of Pepsis revenues. Do Concentrate producers encountered various obstacles in international operations, including ethnical differences, political instability, regulations, price controls, advertising restrictions, foreign exchange controls, and lack of infrastructure.When Coke assay to acquire Cadbury Schweppes international practice, for example, it ran into regulatory roadblocks in Europe and in Mexico and Australia, where Cokes market shares exceed 50%. On the other hand, japanese domestic-protection price controls in the 1950s grease the skids for Cokes high concentrate prices and high profitability, and i n India, mandatory franchise for bottled drinking water caused several local brands to fold. 33 rear Huey, The Worlds Best Brand, Fortune, whitethorn 31, 1993. 34 tail end Huey, The Worlds Best Brand, Fortune, may 31, 1993. 5 Larry Jabbonsky, populate to Run, Beverage World, princely 1993. 36The Wall Street Journal, June 13, 1991. 37 John Byrne, PepsiCos New Formula How Roger Enrico is remake the Company and Himself, BusinessWeek, April 10, 2000. 14 Copying or posting is an infringement of copyright. Permissionshbsp. harvard. edu or 617-783-7860. 702-442 op y Cola Wars Continue Coke and Pepsi in the Twenty-First Century To cope with immature distribution networks, Coke and Pepsi created their own ground-up, and often novel, systems.Coke introduced vending machines to Japan, a channel that eventually accounted for more than half of Cokes Japanese sales. 38 In India, Pepsi found the most prominent businessman in township and gave him exclusive distribution rights, tapping his connections to drive growth. Significantly, both Coke and Pepsi recognized local-market demands for non-cola products. In 2000, Coke carried more than 200 brands in Japan alone, most of which were teas, coffees, juices, and flavored water.In brazil nut, Coke offered two brands of guarana, a popular caffeinated carbonated berry drink accounting for one-quarter of that orbits CSD sales, despite equalizes TV ads ridiculing gringo guarana. tC When the economy foundered in certain parts of the world during the late 1990s, annual consumption declined in many regions. major(ip) financial quakes in East Asia in 1997, Russia in 1998 and Brazil in 1999 agitate the cola giants, who had invested intemperately in bottler infrastructure. From 1995 to 2000, Cokes top line slowed to an average annual growth of less than 3%.Profits actually fell from $3. 0 billion in 1995 to $2. 2 billion in 2000. In Russia, where Coke invested more than $700 million from 1991 to 1999, the dispel of the economy caused sales to drop by as much as 60% and left Cokes seven bottling plants operating at 50% capacity. In Brazil, its third-largest market, Coke befogged more than 10% of its 54% market share to inexpensive local drinks produced by family-owned bottlers exempt from that countrys correctional soft-drink taxes. In 1998, Coke estimated that a strong dollar cut into net sales by 9%.Pepsi, with its relatively lower overseas presence, was less affected by the crises. Nonetheless, Pepsi also support its bottlers while experiencing a drop in sales. No Despite these financial setbacks, both Coke and Pepsi expressed confidence in the future growth of international consumption and used the downturn as an prospect to snatch up bottlers, distribution, and even rival brands. To increase sales, they tried to make their products more affordable through measures such as refundable glass packaging (instead of plastic) and cheaper 6. ounce bottles. The abate of an Era? At the turn of the centu ry, growth of cola sales in the United States appeared to have plateaued. Coke and Pepsi were investing hundreds of millions of dollars to strand up international bottlers operating at low capacity. The companies overall growth in soft drink sales were move short of precedent and of investors expectations. Was the fundamental reputation of the cola wars ever-changing? Would the parameters of this new contender include reduced profitability and dead(prenominal) growth unsufferable under the old form of challenger? DoOr, were the troubles of the late 1990s just another step in the organic evolution of two of Americas most successful companies? In 2001, non-cola, non-carbs, and even wash room foods offered diversification and growth potential. Low international per capita soft drink consumption figures hinted at tremendous hazard in the competition for worldwide throat share. Noted a Coke executive in 2000, the cola wars are handout to be played now across a lot of different battlefields. 39 38 June Preston, Things May Go get around for Coke amid Asia Crisis, capital of Singapore Bottler Says, Journal of Commerce, June 29, 1998, . A3. 39 Betsy McKay, Juiced Up Pepsi Edges Past Coke, and It has Nothing to Do With Cola, The Wall Street Journal, November 6, 2000. 15 Copying or posting is an infringement of copyright. Permissionshbsp. harvard. edu or 617-783-7860. Do Exhibit 1 702-442 Copying or posting is an infringement of copyright. Permissionshbsp. harvard. edu or 617-783-7860. No U. S. Industry employment Statistics 1970 1975 1981 1985 1990 1992 1994 1995 1996 1998 1999 2000 Historical Carbonated Soft Drink ingestion Cases (millions) Gallons/capita As a % of total beverage consumption 3,090 22. 7 2. 4 3,780 26. 3 14. 4 5,180 34. 2 18. 7 6,500 40. 3 22. 4 7,914 46. 9 26. 1 8,160 47. 2 26. 3 8,608 50. 0 27. 2 8,952 50. 9 28. 1 9,489 52. 0 28. 8 9,880 54. 0 30. 0 9,930 53. 6 29. 4 9,950 53. 0 29. 0 22. 7 22. 8 18. 5 35. 7 6. 5 5. 2 1. 3 1. 8 26. 3 21. 8 21. 6 33 1. 2 6. 8 7. 3 4. 8 1. 7 2 34. 2 20. 6 24. 3 27. 2 2. 7 6. 9 7. 3 6 2. 1 2 40. 3 24. 0 25. 0 26. 9 4. 5 7. 8 7. 3 6. 2 2. 4 1. 8 46. 9 24. 3 24. 2 26. 2 8. 1 8. 8 7. 0 5. 4 2. 0 1. 5 47. 2 23. 3 23. 8 26. 5 8. 2 9. 1 6. 8 5. 4 2. 0 0. 6 1. 4 50. 0 22. 8 23. 2 23. 3 9. 6 9. 4 7. 1 4. 8 1. 7 0. 9 1. 3 50. 9 22. 3 22. 8 1. 3 10. 1 9. 5 6. 8 4. 9 1. 8 1. 1 1. 2 52. 0 22. 3 22. 7 20. 2 11. 0 9. 7 6. 9 4. 8 1. 8 1. 1 1. 2 54. 0 22. 1 22. 0 18. 0 11. 8 10. 0 6. 9 4. 7 2. 0 1. 3 1. 3 53. 6 22. 2 21. 9 17. 2 12. 6 10. 2 7. 0 4. 6 2. 0 1. 4 1. 3 53. 0 22. 2 21. 7 16. 8 13. 2 10. 4 7. 0 4. 6 2. 0 1. 5 1. 2 114. 5 126. 5 133. 3 146. 2 154. 4 154. 3 154. 0 152. 6 153. 6 154. 1 153. 8 153. 6 68 56 49. 2 36. 3 28. 1 28. 2 28. 5 29. 9 28. 9 28. 4 28. 7 28. 9 182. 5 182. 5 182. 5 182. 5 182. 5 182. 5 182. 5 182. 5 182. 5 182. 5 182. 5 182. 5 U. S. Liquid Consumption Trends (gallons/capita) Carbonated soft drinksBeer Milk Coffeea Bottled Waterb Juices Teaa powderize drinks Wine Sports Dr inksc Distilled spirits Subtotal Tap water/hybrids/all others Totald tC opy come John C. Maxwell, Beverage back Fact Book 2001, and The Maxwell Consumer Report, Feb. 3, 1994 Adams booze Handbook, casewriter estimates. aFrom 1985, coffee and tea data are based on a three-year moving average to counter-balance enrolment swings, thereby picture consumption more realistically. bBottled water includes all packages, single-serve, and bulk. cSports drinks included in Tap water/hybids/all others pre-1992. This abbreviation assumes that each person consumes on average one-half gallon of liquid per day. -16- Cola Wars Continue Coke and Pepsi in the Twenty-First Century advert Spending for the natural elevation 10 CSD Brands ($ millions) op y Exhibit 2 Share of market 2000 Total market 20. 4 13. 6 8. 7 7. 2 6. 6 6. 3 5. 3 2. 0 1. 7 1. 1 1999 20. 3 13. 8 8. 5 7. 1 6. 8 3. 6 5. 1 2. 1 1. 8 1. 1 Advertisement Spendinga per 2000 2000 1999 share point 207. 3 130. 0 1. 2 50. 5 84. 0 83. 6 0. 5 44. 5 NA 2. 7 148. 9 91. 1 25. 5 37. 1 68. 4 71. 3 0. 8 39. 2 NA 2. 9 tC Coke ClassicPepsi-Cola Diet Coke Mountain Dew Sprite Dr Pepper Diet Pepsi 7UP Caffeine Free Diet Coke Barqs root beer Total top 10 702-442 72. 9 72. 9 10. 2 9. 6 0. 1 7. 0 12. 7 13. 3 0. 1 22. 3 NA 2. 4 604. 2 485. 2 8. 3 707. 6 650. 0 NA Source Top 10 Soft-Drink Brands, Advertising Age, September 24, 2001 casewriter estimates. aAdvertisement spending measured in 11 media channels from CMR. Brands and total market in 192-oz cases from Do No Beverage boil down/Maxwell. Case volume from all channels. 17 Copying or posting is an infringement of copyright. Permissionshbsp. arvard. edu or 617-783-7860. 702-442 Cola Wars Continue Coke and Pepsi in the Twenty-First Century U. S. Soft Drink Market Share by Case tawdriness (percent) 1966 op y Exhibit 3 1970 1975 1980 1985 1990 1995 1998 2000E 27. 7 1. 5 1. 4 2. 8 33. 4 28. 4 1. 8 1. 3 3. 2 34. 7 26. 2 2. 6 2. 6 3. 9 35. 3 2