Cola Wars Continue: Coke and Pepsi in 2006

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Case Memo 1
Cola Wars Continue: Coke and Pepsi in 2006

Coca-Cola and Pepsi-Cola have a long history of intense competition since 1950. Besides the CSD (carbonated soft drink) consumption rise, it brought both Coke and Pepsi enjoyed significant revenue growth. In 2004, CSD has 52.3% of total US Liquid Consumption. Coke and Pepsi had 22.1% and 14.4% in Net profit/sales respectively.

There are four major participants involved in the production and distribution of CSDs: 1. Concentrate Producers (Coke, Pepsi, and others)). They blended raw material ingredients, packaged the mixture, and shipped to the bottlers. They have large number of employees located in bottler site to support sales efforts, set standards, and suggest operational improvements. They negotiated with the bottlers’ suppliers to achieve reliable supply, fast delivery, and low prices. 2. Bottlers (CCE, PBG, and others). They purchased concentrate, added carbonated water and sweetener, bottled or canned the product, and delivered it to customers. The number of bottlers had fallen from more than 2000 in 1970 to fewer than 300 in 2004, especially after Coke and Pepsi did bottler consolidation and spin-off as part of plan to refranchise bottling operation. Coke built Coca-Cola Enterprise (CCE) and Pepsi formed Pepsi Bottling Group (PBG) as their main bottlers. 3. Retail Channels. They consist of supermarket (32.9%), fountain machines (23.4%), vending machines (14.5%), mass merchandisers (11.8%), convenience stores and gas stations (7.9%), and others (9.5%). Pepsi focused on sales through retail outlets, and Coke dominated fountain sales. Both Coke and Pepsi entered fast-food restaurant business in order to have exclusive sales territory on the restaurant chains. 4. Suppliers. Concentrate producers needs caramel coloring, phosphoric/citric acid, natural flavors, and caffeine from suppliers. Bottlers also need to purchase packaging (cans, plastic bottles and glass bottles), and...
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