Cola Wars

Only available on StudyMode
  • Download(s) : 111
  • Published : September 16, 2011
Open Document
Text Preview
REV: APRIL 16, 2009


Cola Wars Continue: Coke and Pepsi in 2006
For more than a century, Coca-Cola and Pepsi-Cola vied for “throat share” of the world’s beverage market. The most intense battles in the so-called cola wars were fought over the $66 billion carbonated soft drink (CSD) industry in the United States.1 In a “carefully waged competitive struggle” that lasted from 1975 through the mid-1990s, both Coke and Pepsi achieved average annual revenue growth of around 10%, as both U.S. and worldwide CSD consumption rose steadily year after year.2 According to Roger Enrico, former CEO of Pepsi: The warfare must be perceived as a continuing battle without blood. Without Coke, Pepsi would have a tough time being an original and lively competitor. The more successful they are, the sharper we have to be. If the Coca-Cola company didn’t exist, we’d pray for someone to invent them. And on the other side of the fence, I’m sure the folks at Coke would say that nothing contributes as much to the present-day success of the Coca-Cola company than . . . Pepsi.3 That cozy relationship began to fray in the late 1990s, however, as U.S. per-capita CSD consumption declined slightly before reaching what appeared to be a plateau. In 2004, the average American drank a little more than 52 gallons of CSDs per year. At the same time, the two companies experienced their own distinct ups and downs, as Coke suffered several operational setbacks and as Pepsi charted a new, aggressive course in alternative beverages. Although their paths diverged, however, both companies began to modify their bottling, pricing, and brand strategies. As the cola wars continued into the 21st century, Coke and Pepsi faced new challenges: Could they boost flagging domestic CSD sales? Would newly popular beverages provide them with new (and profitable) revenue streams? Was their era of sustained growth and profitability coming to a close, or was this slowdown just another blip in the course of the cola giants’ long, enviable history?

Economics of the U.S. CSD Industry
Americans consumed 23 gallons of CSDs annually in 1970, and consumption grew by an average of 3% per year over the next three decades. (See Exhibit 1—U.S. Beverage Industry Consumption Statistics.) Fueling this growth were the increasing availability of CSDs and the introduction of diet and flavored varieties. Declining real (inflation-adjusted) prices played a large role as well.4 There were many alternatives to CSDs, including beer, milk, coffee, bottled water, juices, tea, powdered drinks, wine, sports drinks, distilled spirits, and tap water. Yet Americans drank more soda than any ____________________________________________________________

Professor David B. Yoffie and Research Associate Yusi Wang prepared the original version of this case, “Cola Wars Continue: Coke and Pepsi in the Twenty-First Century,” HBS No. 702-442, which derives from earlier cases by Professor David B. Yoffie (HBS No. 702-442 and 794-055) and Professor Michael E. Porter (HBS No. 391-179). This version was prepared by Professor David B. Yoffie and Research Associate Michael Slind 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. Copyright © 2006, 2007, 2009 President and Fellows of Harvard College. To order copies or request permission to reproduce materials, call 1-800545-7685, write Harvard Business School Publishing, Boston, MA 02163, or go to No part of this publication may be reproduced, stored in a retrieval system, used in a spreadsheet, or transmitted in any form or by any means—electronic, mechanical, photocopying, recording, or otherwise—without the permission of Harvard Business School.

This document is authorized for use by...
tracking img