Cola Cola Wars

Topics: Soft drink, Coca-Cola, Pepsi Pages: 7 (1778 words) Published: August 27, 2013
Cola Wars Continue: Coke and Pepsi in 2006

other beverage. Within the CSD category, the cola segment maintained its dominance, alihough its market share dropped from 71% n 1990 to 60% in 2004.5 Non-cola CSDs included lemon/lime, citrus, pepper-type, olange, root beer, and other flavors. CSDs consisted of a flavor base (called

"concentrate"), a sweetener, and carbonated water. The production and distribution of CSDs involved four major participants: concentrate producers, bottlers, retail drannels, and suppliers.6 Concentrate Producers The concentrate producer blended raw material ingredients, packaged the mixfure

in

plastic

canisters, and shipped those containers to the bottler. To make concentrate for diet CSDs, concentrate makers often added artificial sweetener; with regular CSDs, bottlers added sugar or high-fructose corn syrup themselves. The concentrate manufacturing process involved little capital investment in machinery, overhead, or labor. A typical concentrate mariu{acturing plant cost about $25 million to $50 million to build, and one plant could serve the entire United States.T

A concentrate producer's most significant costs were for advertising, Promotion, market research, and bottler support. Using innovative and sophisticated campaigns, they invested heavily in iheir trademarks over time. While concentrate producers implemented and financed marketing Programs jointly with bottlers, they usually took the lead in developing those programs, particularly when it came to product development, market research, and advertising. They also took charge of negotiating "customer development agreements" (CDAs) with nationwide retailers such as Wal-Mart. Under a CDA, Coke or Pepsi offered ftrnds for marketing and other pu{poses in exchange for shelf space. With smaller regional accounts, bottlers assumed a key role in developing such relationships, and paid an agreed-upon percentage*typically 50% or more-of promotional and advertising costs. Concentrate producers employed a large staff of people who worked with bottlers by supporting saies efforts, setting standards, and suggesting operational improvements. They also negotiated directly with their bottlers' major suppliers (especiaily sweetener and packaging makers) to achieve reliable supply, fast delivery, and low prices.s

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Once a fragmented business that featured hundreds of local manufacturers, the U.S. soft drink industry had changed dramaticaliy over time. Among national concentrate producers, Coca-Cola and

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volume in 2004, followed by Cadbury Schweppes and Cott Corporation. (See Exhibit 2-U.S. Soft Drink Market Share by Case Volume. See also Exhibit 3-Financial Data for Coca-Cola, Pepsi-Cola, and Their Major Bottlers.) In addition, there were privaie-label manufacturers and several dozen other national and regional producers.

Pepsi-Coia (the soft drink unit of PepsiCo) claimed a combined 74.8% of the U.S. CSD market in sales

)

Bottlers
Bottlers purchased concentrate, added carbonated water and high-fructose com syrup, bottled or canned the resulting CSD product, and delivered it to customer accou,nts. Coke and Pepsi bottlers

offered "direct store door;' (DSD) delivery, an arrangement whereby route delivery salespeople rnanaged the CSD brand in stores by securing shelf space, stacking CSD products, positioning the brand;s trademarked label, and setting up point-of-purchase or end-of-aisle displays. (Srnaller national brands, such as Shasta and Faygo, distributed through food store warehouses.) Cooperative merchandising agreements, in lvhich retailers agreed to specific promotional activity and discouni leyels in exchange for a payment from a botiler, were another key ingredient of soft drink sales. Tl're bottling process was capital-intensive and involved high-speed production lines that were interchangeable only for products of similar type and packages of similar size. Bottling and canning

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