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
 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  Alliances

 Pepsi  Acquisitions

 Cadbury  Product Innovation

Porter’s Five Forces (Cont.)
 Barriers to Entry  Power of Suppliers

 Exclusive Territories  Sugar

 Substantial Investment  Packaging

 Current Market
Presence
Porter’s Five Forces (Cont.)
 Power of Buyers

 Super Markets
Vending

 Convenience and Gas

Fast Food

 Mass Merchandisers
 Profitability of the
 Fountain CSD Industry
Concentrate Business vs.
Bottling Business
Concentrate Producers
 Blend raw material ingredients
 Packaged Mixture in plastic canisters
 Shipped to bottlers

Diet CSDs
 Added artificial sweeteners
Concentrate Business vs.
Bottling Business
Bottlers
 Purchased Concentrate
 Added carbonated water and high fructose corn
syrup
 Bottled CSD product
 Delivered to customers accounts

Diet CSDs
 Added sugar or high-fructose corn syrup
Concentrate Business vs.
Bottling Business
 Concentrate Producer
 Little Capital Investment
 Cost of $25 million - $50
million
 One plant to serve US
 Significant cost-
advertising, promotion,
market research and
bottler support
 Bottlers
 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.

 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.

 Coke has a world market share of 51.4%, Pepsi

has 21.8% and Cadbury Schweppes has 6%
Sustaining Profits
 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
Milk
0
1970 1981 1990 1996 2000 2003 NCSD