Pepsi and Coke fought over the 74 billion CSD (carbonated soft drinks) industry. --> Nothing contribute as much to the success of Pepsi than Coke and vice-versa What had to be done to ensure sustainable growth and profitability?
Economics of the U.S CSD Industry
1970 - consumption grew by an average of 3% per year
--> increasing availability of CSD + intro of new diet and flavoured variety + Declining real prices --> CSD more affordable
--> Americans drink more soda than any other beverage
The Production and Distribution of CSD involved 4 major players: Concentrate producers, bottlers, retail channels and suppliers
They blended raw material ingredients, packaged the mixture in plastic canisters, and shipped those containers to bottler --> Required little capital - cost for advertising, promotion, market research and bottler support ==> Once fragmented --> Consolidated with Coke and Pepsi (72% of market sales)
They purchased concentrate, added carbonated water and high fructose corn syrup, bottled or canned the resulting CSD product, and delivered it to customer account --> Capital Intensive + Involved high speed production lines
Coke built a nationwide franchised bottling network --> Pepsi and Doctor Pepper followed
Master Bottle Contract (Coke): Coke had the right to determine concentrate price and other terms of sale - no legal obligation to assist bottlers in ad but made huge investment to support them anyways
Pepsi's Master Bottling Agreement: bottler perpetual right to distribute Pepsi's CSD products but required it to purchase raw materials from Pepsi at prices, and on terms and conditions, determined by Pepsi.
==> Bottlers could carry non-competing brands + final say in retail pricing
- Fountain outlets ( war Pepsi acquired Pizza Hut taco bell etc. Coca Cola persuade Wendy’s and Burger King to switch to Coke...