Cola Wars

Topics: Coca-Cola, Pepsi, Soft drink Pages: 6 (1440 words) Published: October 12, 2013
http://www.dea.unipi.it/staff/e.giuliani/downloads/CocaPepsi.pdf

Cola wars continue: coke and pepsi in 2012
$74B carbonated soft drink industry in the US
1975-1990s, coke and pepsi both earned average annual revanue growth of around 10%. In 2000, us per capita CSD consumption declined.
2009, average American drank 46 gallons of CSD per year, loest since 1989. Coke suffered from operational setbacks
Pepsi charterd new, aggressive course in altnerative beverage and snack Challenges
Boost domestic CSD sales?
Compete how in growing non CSD category that demanded bottling, pricing, and brad strategies What has to be doen to ensure sustainable growth and profitability? Economies of the US CSD Industry
Consumed 23 gallons of CSD annually in 1970, consumption grew by 3% per year over next 3 decades. Availability of CSD
Diet and flavored varieties
Declining prices made CSD more affordable
Americans drank more soda than any other beverage.
Within the CSD category, cola segment maintined dominance, although market share dropped from 71% in 1990 to 55% in 2009. Production of CSD involved 4 major participants: concentrate producers, bottlers, retail channels, suppliers

1) Concentrate Producers
Blends RM, packaged, shipped containers to bottler.
Diet, added artifical sweetner
Regular, added sugar or corn syrup
Manufacturing little capital investment in machinery, OH, or labor Costs $50M to $100M to build
Significant costs from ad, promo, marketing research, bottler support. Negotiating “customer development agreements” with nationwide retailers like walmart. Took lead. Offered funds for marketing in exchange for shelf space.

Negotiated with suppliers to achieve supply, fast delivery, low prices Coke and pepsi claimed 72% of the us CSD market sales volume in 2009, following by Dr.Pepper Snapple Group and Cott Corporation, and prive label manufacturers and regional producers.

2) Bottlers
Purchase concentrate, added water and corn syrup, bottled or canned the resulting CSD product, delivered to customer accounts Metal cans 56%, plastic 42%, glass 2%.
“direct store door” delivery, secures shelf space, stacking CSD products, positioning the brands trademarked label, and setting up point of purchase or end of aisle displays. Cooperative merchandising agreements, ratiled agreed to promo activity and discount levels in exchange for a payment form bottler. Capital-intensive and involved high speed production lines

Interchangable only for produches similar type and packages of similar size Costs $4M to $10M
Multiple mines and automated warehousing was way more.
CPS product facility in CA, 40M cases cost of $120M. Could serve the entire US. Main costs were concentrate and syrup, other was packaging, labor, overhead. Capital in trucks and disribution networks. Bottlers gross profits exceed 40%, operating margins were around 8%, which is a third of concentrate produces operationg margins # US soft drink bottlers fallen steadily, 2000 in 1970 to less than 300 in 2009. Coke was first to build nationwide franchise bottling network, pepsi and DPS followed. Coke: agreement was fixed prices contract, territorial rights did not extend to national fountain accounts. Amended contract several times.

1987 contract, coke had right to determine concetrate price and other terms of sale. Coke had no legal obligation to assist bottlers with ad or marketing. Coke had to make huge investments to match pepsi to support bottling network. 2009, coke made $540M in marketing support payments to its top bottler. 1987 contract didn’t give complete pricing control to coke, but a formula w max price and adjugted prices according to price change in sweetner. Differed from Pepsis master bottleing agreement with its top bottler: granted bottler perpetual rights to distribute pepsis CSD products, but required purchase RM from pepsi at prices determined by pepsi. Based price increases on CPI

Retail channels
Supermarkets 29.1%
Fountain...
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