Cola War

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REV: SEPTEMBER 30, 2009

FRANK V. CESPEDES

Cola Wars: Goin Global
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By 2008, per capita consumption of carbonated soft drinks (CSDs) in the United States had declined in seven of the past ei ht years. Annual consumption of CSDs was 740 eight-ounce drinks ig
per person in the U.S. versus 288 in the rest of the developed world and 77 in developing countries.1 As a result, the Coca-Cola Co. (Coke) and PepsiCo (Pepsi) increasingly looked abroad for growth.

Coke and Pepsi approached international CSD markets from different positions and heritages. Coke was “global when global wasn’t cool,” noted a CEO of Coca-Cola.2 Coke’s global expansion began in 1906 when it entered Cuba, Panama, and Canada. The company proved adept at developing markets where CSD consumption was low but potential was large. For example, in 1993 a Coke executive noted that Indonesia had 200 million inhabitants, a median age of 18, annual per capita consumption of 9 eight-ounce cans of soda, and “they sit squarely on the equator. It’s soft drink heaven.”3 Ten years later, per capita consumption in Indonesia was up 55%, and Coke had 75% of the market versus 5% for Pepsi.4 B 2008, Coke was available in more than 200 countries, and non-U.S. By

volume accounted for more than 70% of Coke’s sales and profits.

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Pepsi, struggling financially in the first half of the 20th century, expanded beyond the U.S. more n
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slowly than Coke. Its periodic attempts to attack international Coke strongholds had met with relatively little success for decades. For some time, Pepsi pursued a strategy in its non-U.S. soft drink business that a former president of Pepsi International described in 1991 as “schizophrenic”;5 in many markets it focused on niche positions (for example, targeting big cities in Latin America) while movin more broadly into markets where Coke had been excluded by governments (e.g., Saudi ng

Arabia and the former Soviet Union). In the 1990s Pepsi pushed international expansion. By 2008, Pepsi had strong CSD market shares in countries like Egypt, India, Pakistan, Thailand, and Vietnam, y

but trailed Coke in most international markets. Pepsi’s CSD market share was less than one-third of Coke’s in Europe, less than one-quarter of Coke’s in Latin America, and half of Coke’s in the Asia Pacific region. (See Exhibit 1 for data on CSD consumption and share b country.) by

In 2008, industry observers wondered what steps Pepsi would take to improve its international CSD position—which markets it would target, and how it would compete in those markets. Analysts cited two reasons to be optimistic about Pepsi’s long-term prospects. First, Pepsi had rallied from a similarly weak position in the U.S. CSD market during the second half of the 20th century and had caught up with Coke in many segments.

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Second, Pepsi’s parent company, PepsiCo, had global leadership in the snack food business, with strong positions in both developed (over 40% dollar share in Australia, Holland, Spain, and the U.K.) and developing countries (over 50% dollar share in Egypt, India, Russia, Turkey, and over 20% dollar share in China and Thailand).6 For another example, while Coke had more than 90% of the CSD market in South Africa and Pepsi virtually nothing, PepsiCo had over 60% of the savory snacks ________________________________________________________________________________________________________________ Senior Lecturer Frank V. Cespedes prepared this case. This case was developed from published sources. HBS cases are developed solely as the basis for class discussion. Cases are not intended to serve as endorsements, sources of primary data, or illustrations of effective or ineffective management.

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