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JESS: Article Reference: Yoffie D. & Kim R. 2011, 'Cola Wars Continue: Coke and Pepsi in 2010'
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- JAYNE: S Vignali, C ‘Virgin Cola’, Manchester, UK, pp: 133-143 available: http://www.emerald-library.com/ft
- HANNAH: Soft drinks in Australia Article Reference
- JEROME: add article reference here Add summary here COMPETITORS Asahi Group Holdings (Schweppes Australia)
- PepsiCo Inc
JESS: Article Reference: Yoffie D. & Kim R. 2011, 'Cola Wars Continue: Coke and Pepsi in 2010' Harvard Business School, 9-7-11-46, pp. 1 - 22 For more then a centaury Coca-Cola and Pepsi vied for ‘throat share’ of the worlds beverage market. Most competitive time spanned from 1975 – mid 1990’s, and was fought over the $74 billion carbonated soft drink (CSD) industry. Both coke and Pepsi achieved average annual revenue growth of around 10%, as both US and worldwide consumption rose steadily year after year. The competition between Pepsi and Coke fed each companies success, the more successful coke was the sharper Pepsi had to be and visa versa. Competitive relationship started to fray in 2000s, however as the US consumption started t decline by 2009 the average American drank 46gallos of CSD a year (lowest CSD consumption since 1989) Heading into 21st centaury coke and Pepsi faced new challenges:
ECONOMICS OF THE US CSD INSUSTRY Americans consumed 23 gallons of CSDs annually in 1970, and consumption grew by an average of 3% a year over the net three decades. Fuelling this growth inc. increased availability of CSD and the introduction of flavoured and diet varieties Alternatives to CSDs Inc beer, milk, bottled water, juice, tea, powdered drinks, wine, sports drinks, distilled spirits and tap water. Within the CSD category the cola segment maintained its dominance, although its market share dropped from 71% in 1990 to 55% in 2009.
Concentrate producers blend the raw ingredients, package the mixture in plastic canisters and ship canisters to be to the bottler. Most significant costs of the concentrate producers Inc: advertising, promotion, market research and bottler support.
Purchase the concentrate, add carbonated water and high fructose corn syrup bottle or can the CSD product and delivers it to consumer accounts. Franchise agreements both coke and Pepsi allow bottler to handle non-cola brands of other concentrate producers. Bottlers could choose whether to market new beverages introduced by a concentrate producer. Bottlers couldn’t carry directly competing brands RETAIL CHANNELS In 2009 the distribution of CSD in the United States took place through supermarkets (29%), fountain outlets (23.1%), vending machines (12.5%), mass merchandise (16.7%), convince stores and gas stations (10%) and other outlets (7.8%). Costs and profitability in each channel varied by delivery method and frequency, drop size advertising and marketing. CSDs accounted for $12 billion or 4% total store sales in the US and were also a big traffic draw for supermarkets. Historically Pepsi dominated sales through retail outlets, while coke commanded the lead in retail sales. In the 1990s competition for fountain accounts = intense, in 1999 burger king franchises believed to pay $6.20 per gallon of coke syrup (received substantial rebate on each gallon). After Pepsi entered the fast food restaurant business acquiring Pizza Hut (1978), Taco Bell (1986) and KFC (1986), coke perused competing chains such as Wendy’s and Burger King to switch to coke In the vending channel bottlers took charge of buying, installing and servicing machines (also negotiating contracts with the property owners typically received a sales commission in exchange for accommodating their machine) THE EVOLUTION OF US SDI (SOFT DRINK INDUSTRY) Coke was formulated in 1886, Pepsi invented in 1893. The cola war begins 1950 Alfred Steele, former Coke marketing executive became the CEO of Pepsi and made “beat coke” his motto. Pepsi growth began to follow the post-war growth in a number of supermarkets and convenience stores in the united states: there was about 10,000 supermarkets in 1945, 15,000 in 1955 and 32,000 in 1962 at the peak of its growth curve. The Pepsi Challenge 1974 Pepsi launched “the Pepsi challenge” in Dallas, Texas. Coke was the dominant branding that city and Pepsi ran a distant third behind Dr Pepper. Blind taste tests which where conducted by Pepsi’s small bottler, the company tried to demonstrate how consumers liked the taste of Pepsi better then that of Coke; after this it rolled out Nation wide. Coke countered with rebates, retail price cuts and a series of advertisements questioning the tests reliability/validity. Pepsi challenge successfully eroded the cokes market share, in 1994 Pepsi past coke in food store sales for the first time, opening up a 1.4 share lead. Cola war heats up 1985 coke announced it was changing its 99-year old formula, the radical break with tradition cited a sharp depreciation in the value of coca-cola as a brand/trademark. On that day Pepsi declared a holiday for its employees. Three months later the company brought back the original formula under the name of coca-cola classic. New CSD products proliferated in the 1980s; coke introduced 11 new products including caffeine free and cherry coke. Pepsi introduced 13 producers inc. lemon line slice and canine free Pepsi cola. 1980s the growth of Pepsi and coke put the squeeze on smaller concentrate prodycers as their shelf space declined, smaller products where shuffled from one owner to another.
Starting late 1990w the soft drink industry (STI) encountered new challenges suggested possible long-term shift in the market place. Americans still drank CSDs (more then any other beverage) at US consumption started to fizzle that stood contrast to annual growth rates of 3% to 7% during the 1980s and early 1990s. The shift in consumption patterns evolved the linkage to growing health issues such as obesity. 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%
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-hoe cannels. 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.
Declining CSD sales, declining cola sales, rapid emergence of non-carbonated drinks appeared to be changing the game. JAYNE: S Vignali, C ‘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
The Australian Soft drink market grew by 3.3% in 2010 to reach a valye of $10,953 million Market value forecast In 2015, the Australian soft drinks market is forecast to have a value of $12,721.8 million, an increase of 16.1% since 2010 Market share Coke is the leading player in the Australian soft drinks market, generating a 39.4% share of the markets volume Five forces analysis The soft drinks market will be analyzed taking manufacturers of soft drinks as player. The key buys will be taken as distributors and retailers of soft drinks, and producers of packaging, soft drinks ingredients and other raw materials as the key suppliers. The top 3 players (Pepsi Co., Coca-Cola company and Asahi breweries) hold 54.9% of the total market volume. The buyer power of retailers in this market is moderate. Supplier power is not great, as most inputs are readily available commodities. New entrants must contend with the reach and strong brands of incumbents, although niche catergories such as smoothes present opportunities to new entrants. Not a great threat imposed by the soft drink substitues except from traditional coffee and tea or homemade juices, along with the tendancy of consumers switching towards the fruit juices. Although major players are fighting for the dominant position, the rivalty level is moderate and there is scope for growth in niche catergories. Buyer power: in Aus, the main distribution channels for the soft drinks market are supermarkets, which account for 48.5% of the total market volume, followed closely by on-trade retailers (32.5%) the leading players generate most of their revenue from the production of concentrates, which are sold to bottling companies. New entrants: players in the Australian soft drinks market try to distinguish their products to some extent by stressing their health benefits and taste. Although it would be difficult for a new entrant to compete with the brand strength and reach of existing players it may be possible to achieve small-scale success stressing a unique production method or nutritional benefits. However, niche catergories can be exploited by new entrants.
The Coca-Cola Company (TCCC) engages in the manufacture, distribution and marketing of non- alcoholic beverage concentrates and syrups. The company owns the world’s most valuable brand: Coca- Cola. Furthermore, TCCC markets four of the world's top five non-alcoholic sparkling brands, including Diet Coke, Fanta and Sprite. The company's finished beverage products are sold in more than 200 countries worldwide. TCCC is headquartered in Atlanta, US and employs around 139,600 people. Most of TCCC's products are manufactured and sold by bottling partners, who convert them into finished packaged products for sale to distributors and other customers. The company sells the concentrates and syrups for bottled and canned beverages to authorized bottling and canning operations. Authorized bottlers and canners either combine syrups with sparkling water or combine concentrates with sweeteners (depending on the product), still water and sparkling water to produce finished sparkling beverages. These sparkling beverages are packaged in cans, glass and plastic bottles, and sold to wholesalers and retailers.
The Coca-Cola Company generated revenues of $35.1 billion in the financial year (FY) ended December 2010, an increase of 13.3% over 2009. The company's net income totaled $11.8 billion in FY2010, an increase of 73.1% over FY2009. PEPSICO. PepsiCo is one of the leading global beverage, snack and food companies. It manufactures, markets, and sells a variety of salty, sweet and grain-based snacks; and carbonated and non-carbonated beverages in approximately 200 countries across the world. The company has its largest operation in North America (the US and Canada), Mexico and the UK. PepsiCo operates through four business units: PepsiCo Americas Foods (PAF); PepsiCo Americas Beverages (PAB); PepsiCo Europe, which includes all beverage, food and snack businesses in Europe; and PepsiCo Asia, Middle East and Africa (AMEA), which includes all beverage, food and snack businesses in AMEA. The company's four business units are further divided into six reportable segments: Frito-Lay North America (FLNA), Quaker Foods North America (QFNA), Latin America Foods (LAF), PepsiCo Americas Beverages (PAB), Europe, and Asia, Middle East and Africa (AMEA). PepsiCo AMEA manufactures and markets salty and sweet snack brands including Lay's, Kurkure, Chipsy, Red Rock Deli, Cheetos, Doritos, Ruffles and Smith’s. The division also manufactures, markets, and sells beverage concentrates, fountain syrups and finished goods under the brands Pepsi, 7UP, Mirinda and Mountain Dew. These brands are sold to authorized bottlers, independent distributors and retailers. PepsiCo AMEA owns or leases approximately 80 plants and 1,175 warehouses, distribution centers and offices. It also utilizes approximately 40 properties owned by contract manufacturers or co- packers. Key Metrics PepsiCo generated revenues of $57.8 billion in the financial year (FY) ended December 2010, an increase of 33.8% as compared to 2009. The company's net income totaled $6.3 billion in FY2010, an increase of 6.3% over 2009. MARKET DISTRIBUTION Supermarkets / hypermarkets form the leading distribution channel in the Australian soft drinks market, accounting for a 48.5% share of the total market's volume. On-trade accounts for a further 32.5% of the market. MARKET FORECASTS Market value forecast In 2015, the Australian soft drinks market is forecast to have a value of $12,721.8 million, an increase of 16.1% since 2010. The compound annual growth rate of the market in the period 2010–15 is predicted to be 3%. Market volume forecast In 2015, the Australian soft drinks market is forecast to have a volume of 5,308.1 million liters, an increase of 14.2% since 2010. The compound annual growth rate of the market in the period 2010–15 is predicted to be 2.7%.
“Asahi Group Holdings is engaged in the beer brewing business. It also produces and markets soft drinks and nutritional supplements.”104 Japanese company with a net profit of 587.6 million in FY2010. 105 Company operates primarily in Japan with operations spread across China, Europe, US and Asia. The four segments the company operates through: alcoholic beverages, soft drinks, food and others. The soft drink segment operates through Asahi Soft Drinks Company (includes manufacture and sale of coffee, carbonated beverages, tea-based drinks, water, fruit and vegetable drinks, and chilled beverages. 106 In 2009 Asahi acquired Australian beverage business owned and operated by Cadbury (Schweeps Australia). In July 2011, Asahi entered into a binding share purchase agreement to acquire 100% of the issued shares of P&N Beverages Australia, the third largest soft drink company by volume in Australia. 107. This acquisition will enhance Asahi’s position within the Australian beverage market by strengthening its product portfolio and providing efficiencies in supply chain management.108 Increasing health consciousness among the consumers would boost the sales of the company’s health and nutritional foods business.109 Major products and services include alcoholic beverages and food as well as logistics business and restaurants. Non- alcoholic beverages include: coffee, carbonated beverages, tea-based drinks, water, fruit and vegetable drinks, chilled beverages. 110 The company generates revenue through its four business segments, with soft drinks making up 26.3% of total revenues during FY2010. 111 The soft drinks segment recorded revenues of $4, 463.9 million in FY2010, an increase of 10.2% over FY2009.112 An opportunity for the Asahi Group Holding Ltd is the strategic acquisitions to expand business. 113 Companies vision: becoming a trusted company with global quality. To pursue customer satisfaction by leveraging our strong manufacturing capabilities that utilize natural ingredients, and to earn the trust of customers by striving to upgrade the quality of all products and activities to a world class level.114 Asahi aims to satisfy its customers with the highest levels of quality and integrity, while contributing to the promotion of healthy living and the enrichment of society worldwide.115
PepsiCo Inc: PepsiCo, Inc, is a global snack and beverage company. 117It manufacturers, markets and sells a variety of salty, sweet and grain-based snacks as well as carbonated and non-carbonated beverages.118 The company has 19 brands in in its portfolio, which generate over $1,000 million each in annual retail sales. Some of these include Pepsi-Cola, mountain dew, diet pepsi, Gatorade, Lay’s and Tropicana. The company recorded revenue of $57, 838 million during the financial year ending Dec 2010119 PepsiCo operates in over 200 countries and has large-scale operations in North America (Canada and the US), Mexico and the UK.120A segment of the PepsiCo business unit; FLNA, uses its own as well as third party manufacturing facilities to produce its snack products (including Lay’s potato chips, Dorito’s etc) which are then sold to independent distributors and retailers.121 Schweppes Australia was formed on 3 April 2009, when we became a wholly-owned subsidiary of Asahi Group Holdings, Ltd.122 Under license, Schweppes Australia manufactures and distributes Pepsi, Pepsi Max, Pepsi Light and Pepsi Light Caffeine Free within Australia.123
PepsiCo introduced the first caffeine-free colas in 1982 and was later restructured to focus on soft drinks, snack foods and restaurants.126 The company went global through joint ventures and later merged with Quaker Oats to create a $25 billion food and beverage company.127 The move not only expanded PepsiCo's position in the market but enhanced its distribution influence, giving it greater power to negotiate exclusive supply contracts.128 Cadbury Schweppes, the UK's chocolate and soft drinks group, has kept a low profile, but it voiced its concern when required to comment by the FTC.129 The company also formed a joint venture with Lipton to expand the marketing and distribution of Lipton’s range in select markets.130 Key acquisitions include Sakata, the Australian rice snacks manufacturer.131 2006: PepsiCo and the National Hockey League (NHL) signed a multiyear deal, under which PepsiCo was given exclusive North American rights, as well as select marketing and promotional rights in the beverage, sports beverage, bottled water and snack categories. PepsiCo replaced Coca-Cola, which had a similar deal with the NHL for 17 years. As part of the deal, Gatorade became the official sports drink of the NHL, replacing Coke’s Powerade, and Aquafina became the bottled water.132 The joint venture between PepsiCo and starbucks allowed Starbucks access to PepsiCo’s established distribution channels.133 2006 PepsiCo Australia acquired Bluebird Foods, New Zealand’s snack maker for NZ$245 million.134 Brand of PepsiCo; Aquafina launched a low calorie, vitimin enhanced water beverage in different flavour combinations. 135 PepsiCo made official plan to invest $1 billion in China as part of the company’s strategy to expand in emerging markets and broaden its portfolio of locally-relevant products. 136 2010: PepsiCo completed the strategic acquisitions of its two largest bottlers and invested heavily in CSR and R&D. 137 The company begins to consider the environment with sustainable crop farming technology, and the health conscious consumer with investment in coconut water and decision to ensure their portfolio become more ‘natural ingredient based’. 138 2011: PepsiCo and Burger King signed multi-year agreement ensuring PepsiCo is the exclusive soft drink supplier.139 The company also launched eco-friendly, recyclable and compostable cups in the US.140 Beverages include: bottled water, carbonated soft drinks, chilled juices and juice drinks, powder drinks, ready-to-use tea, sports drinks.141 Brands include: Alegro, Amp Energy, Aquatina, Aunt Jemima, Cheetos, Cracker Jack, Pepsi, Doritos, Duyvis, Frito-Lay, Fritos, Fruktovy Sad, Frustyle, Gamesa, Gatorade, Izze, Lay’s, Life, Mirinda, Mountain Dew, Mug, Near East, Pasta Roni, Propel, Quaker, Rice-A-Roni, Rold Gold, Ruffles, Sabritas, Sakata, Sierra Mist, Simba, Smith’s, Snack a Jacks, SoBe, Sonric’s, Stacy’s, SunChips, Tonus, Tostitos, Tropicana, V Water, Walkers, Ya. 142 The company recorded revenues of $57, 838 million during financial year ended Dec 2010, an increase of 33.8% over 2009.143All other countries (including Australia) accounted for 27.4% of total revenues in FY2010. Revenues from these countries totalled $15, 830 million, an increase of 24.2% over 2009.144 PepsiCo holds significant market share in the snack and beverage industry with worldwide brands. The complimentary combination of snack and beverage business imparts unique competitive advantages to PepsiCo. However, the carbonated drinks market in the US has witnessed a slow but steady switching trend to low sugar and sodium products, thereby signalling a negative growth trend of carbonated soft drinks product.145 SWOT146 
Strengths: 1. 2. Combination imparts unique competitive advantage allowing PepsiCo to leverage existing distribution system with the size of its infrastructure providing a barrier to entry for new entrants and competitors since such a model is costly to replicate147 3. Successful launch of product extensions creating additional revenue streams and growth avenues148 4. Reaches bigger retail and wholesalers through customer warehouse channel by delivering its products directly from manufacturing plants and warehouses to customer warehouses/retail stores.149 The diversified product base and multi-channel distribution system protect it from a downturn specific to a market or business line or distribution network, thus reducing business volatility.150 5. PepsiCo has established presence in both developed and emerging markets, internationally and domestic. Large international presence allows the company to expand its markets to high growth economies, derive the related synergies of expanded operations and also reduce the business risk.151
Acquisitions broaden the company portfolio and also strengthen its geographical reach with international expansion likely to provide long term growth opportunities.152 Datamonitor estimates, the soft drinks market in Asia-Pacific grew by 4.1% in 2010 reaching a value of $111, 023.6 million. In 2015 the Asia Pacific soft drinks market is forecast to have a value of $143, 597.2 million, an increase of 29.3% since 2010.153
Coca-Cola has strong brand recognition across the globe with key brands such as Diet Coke, Sprite and Fanta. Coke has a wide geographical reach and widespread popularity. One of the contributing factors for PepsiCo’s decline in beverage industry post 90’s has been its late entry in international markets where Coke already had established distributor and consumer space. PepsiCo also lagged behind in the potential growth market of low or no sugar based beverages.154 Company focus on brand building, increasing global presence, R&D, emerging markets infrastructure, sustainable growth.155 Focus also on good-for-you portfolio of products.156
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