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REV: MAY 26, 2011

DAVID B. YOFFIE
RENEE KIM

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Cola Wars Continue: Coke and Pepsi in 2010

For more than a century, Coke and Pepsi vied for “th roat share” of the world’s beverage market. The most intense battles in the so-called cola wars were fought over the $74 billion carbonated soft e

drink (CSD) industry in the United States.1 In a “carefu lly waged competitive struggle” that lasted u
from 1975 through the mid-1990s, both Coke and Pepsi a chieved average annual revenue growth of h
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around 10%, as both U.S. and worldwide CSD consumpt ion rose stead y year after year.2 According to Roger Enrico, former CEO of Pepsi:

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The warfare must be perceived as a continuing ba ttle without blood. Without Coke, Pepsi would have a tough time being an original and lively c ompetitor. 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 succ ess of the Coca-Cola company than . . . Pepsi.3

That relationship began to fray in the early 2000s, ho wever, as U.S. per-capita CSD consumption started to decline. By 2009, the average American drank 4 6 gallons of CSDs per year, the lowest CSD consumption level since 1989.4 At the same time, the tw o companies experienced their own distinct w

ups and downs; Coke suffered several operational setba cks while Pepsi charted a new, aggressive course in alternative beverages and snack acquisitions.

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As the cola wars continued into the 21st century, Co ke and Pepsi faced new challenges: Could they boost flagging domestic CSD sales? How could they compete in the growing non-CSD category that demanded different bottling, pricing, and brand s trategies? What had to be done to ensure sustainable growth and profitability?

Economics of the U.S. CSD Industry

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Americans consumed 23 gallons of CSDs annually in 1970, and consumption grew by an average o
of 3% per year over the next three decades (see Exhibit 1). Fueling this growth were the increasing availability of CSDs and the introduction of diet and f lavored varieties. Declining real (inflationadjusted) prices that made CSDs more affordable played a significant role as well.5 There were many ________________________________________________________________ ______________ __________________________________ _

Professor David B. Yoffie and Research Associate Michael Slind prepared the orig inal version of this case, “Cola Wars Continue: Coke and Pepsi in 2006,” HBS No. 706-447. This version was prepared by Professor David B. Yoffi and Research As sociate Renee Kim. This case was developed fie

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 © 2010, 2011 President and Fellows of Harvard College. To order copi es or request perm ission to reproduce materials, call 1-800-5457685, write Harvard Business School Publishing, Boston, MA 02163, or go to ww w.hbsp.harvard.e du/educators. This publication may not be digitized, photocopied, or otherwise reproduced, posted, or transmitted, without t he permission of H arvard Business School.

This document is authorized for use only by Soo Ra Kwon until January 2013. Copying or posting is an infringement of copyright. Permissions@hbsp.harvard.edu or 617.783.7860.

Cola Wars Continue: Coke and Pepsi in 2010

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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 other beverage. Within the CSD category, the cola segment maintained its dominance, although its market share dropped from 71% in 1990 to...
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