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A.11

THE QUEST FOR ALTERNATIVES:

Expanding the product mix offered other avenues for growth diet sodas rose to capture 30% of the CSD market in 2009 compared to 24% a decade ago. Coke zero became a successful new product.

Both coke and Pepsi intensified their efforts to use alternative sweeteners. Despite some success of diet drinks, coke and Pepsi realised that growth lied in ‘non crabs’, this category included juices, sport drinks, energy drinks and tea based drinks also bottled water.

Initially Pepsi was more aggressive in shifting into non-CSD products that outsold cokes rival products in several key categories including Lipton iced tea and Gatorade sports drink.

In 2007 77% of Pepsi’s new products released in the US where non carb, compared to Coke 56%

A.12

EVOLVING STRUCTURES AND STRATEGIES

Increasing popularity of CSD alternatives was brewing complications for CSD maker’s tradition production and distribution practices.

Concentrate companies become more directly involved with the manufacturing of non-CSD beverages such as Gatorade and Lipton iced tea. These finished goods required a smaller but specialized production process that was challenging for the bottlers to accommodate with the existing infrastructure.

Bottlers were becoming frustrated that they where not fully participating in the new growth businesses. Pepsi and Coke sold the finished goods to their bottlers, who distributed them alongside their own bottled products at a parentage mark-up.

In addition, coke and Pepsi distributed some non-CSD directly to retailer warehouses bypassing bottlers.

All CSD companies faced the challenge of achieving pricing power in the take-home channels. In particular the rapid growth of the mass-merchandisers, led by wall mart and other club stores which posed a threat to the profitability of Coke and Pepsi.

In addition bottlers had to manage an ever-rising number of stock-keeping units (SKU). Many non-CSD sold at a relatively low volume leading to an increase use of split pallets.

Bottlers incurred higher distribution and sales costs; some of Cokes biggest bottlers saw their costs of goods sold (inc operating expenses) reach 90% of their sales.

Not surprisingly bottlers complained over Coke’s charging a flat rate for its concentrate in the US market, cokes profits were tied to volume growth whilst the bottlers profits were drive by package types and where the drinks were sold.

A.13

FUTURE OF COLA WARS

Declining CSD sales, declining cola sales, rapid emergence of non-carbonated drinks appeared to be changing the game.

APPENDIX B

S. Vignali, Virgin Cola,

Manchester, UK, pp: 133-143.

Available: http://www.emerald-library.com/ft

Global position of Virgin Cola within soft drinks industry

Virgin brand successful for virgin cold regarding competitors

Service divisions operate autonomously

Brand is emotional association, with Branson as the brand’s most effective PR weapon

Virgin cola adopted strategy to culturally suit different markets

Soft drinks industry = promotion, brand image, packaging (even more so than actual product particularly in USA and UK)  promo type depends on target market, package for differentiation

Leading brands hold onto market via promo strategies and product diversification, innovation and brand image

Disadvantage = 2 market leaders (Pepsi and coke)  decrease market share and increase market growth = new product (requires increased funding through promo to increase market)

Launch of existing product in existing market requires increased recognition of brand and improved productivity

Constantly innovate to remain competitive (?)

Virgin cola must be competitively priced. Media and selling through distribution channels = virgin cola promo. Difficult to secure retail outlets

Advertising: coke focuses on product, Pepsi focuses on user, virgin focus on….???

Consumers are interested in brand name and image portrayed by drinking a brand. Pepsi and coke have merged to other snack food industries enabling them to achieve economies of scale in advertising, marketing and distribution

Important to continuously establish/implement strategic changes as means of creating competitive advantage in such a competitive industry

Product is less important compared to the importance of advertising/brand recognition. Create promo technique that appeals to the global consumer

Merge with complimentary business (diversify into new products in existing markets ) = cost saving/synergy

Coke and Pepsi have strong distribution (overcome by merging with a well established branded product) = ENABLE PRICE DISCOUNTING

Strengths = Virgin is branding and quality Brand, promo, innovative image and packaging. Product, package and tastes the same across competitors, it is brand recognition that is significant = virgin advantage with established brand

Weakness = global brand recognition and appeal to older generations (Richard as a brand), placing too much emphasis on brand name as promo weapon however he is a unique world wide image. WANT= image that a brand brings to consumer, quality and competitive price

Brand name dependence, incongruence between strategic/tactical levels, too reliant on to few distribution channels

Opportunities = diversification of range, increase soft drink consumption, ability to gain more market

Threats = intense competition, saturated market failure = domino effect