Cola Wars

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9-706-447
REV: APRIL 16, 2009

DAVID B. YOFFIE

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

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