Cola Wars Continue: Coke and Pepsi in 2006 Essay

Coca-Cola and Pepsi-Cola have a long history of intense competition since 1950. Besides the CSD ( carbonated soft drink ) ingestion rise. it brought both Coke and Pepsi enjoyed important gross growing. In 2004. CSD has 52. 3 % of entire US Liquid Consumption. Coke and Pepsi had 22. 1 % and 14. 4 % in Net profit/sales severally.

There are four major participants involved in the production and distribution of CSDs: 1. Dressed ore Manufacturers ( Coke. Pepsi. and others ) ) . They blended natural stuff ingredients. packaged the mixture. and shipped to the bottlers. They have big figure of employees located in bottler site to back up gross revenues attempts. put criterions. and suggest operational betterments. They negotiated with the bottlers’ providers to accomplish dependable supply. fast bringing. and low monetary values. 2. Bottlers ( CCE. PBG. and others ) . They purchased dressed ore. added carbonated H2O and sweetening. bottled or canned the merchandise. and delivered it to clients. The figure of bottlers had fallen from more than 2000 in 1970 to fewer than 300 in 2004. particularly after Coke and Pepsi did bottler consolidation and by-product as portion of program to refranchise bottling operation. Coke built Coca-Cola Enterprise ( CCE ) and Pepsi formed Pepsi Bottling Group ( PBG ) as their chief bottlers.

3. Retail Channels. They consist of supermarket ( 32. 9 % ) . fountain machines ( 23. 4 % ) . peddling machines ( 14. 5 % ) . mass merchants ( 11. 8 % ) . convenience shops and gas Stationss ( 7. 9 % ) . and others ( 9. 5 % ) . Pepsi focused on gross revenues through retail mercantile establishments. and Coke dominated fountain gross revenues. Both Coke and Pepsi entered fast-food eating house concern in order to hold sole gross revenues district on the eating house ironss. 4. Suppliers. Concentrate manufacturers needs caramel colouring. phosphoric/citric acid. natural spirits. and caffeine from providers. Bottlers besides need to buy packaging ( tins. plastic bottles and glass bottles ) . and sweetenings. Coke and Pepsi set up stable long-run relationships with their providers and their bottlers’ providers.

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Chronology of the Cola Wars:

* 1950s: Pepsi introduced “Beat Coke” slogan. Pepsi introduced 26-ounce bottle. aiming household ingestion. Coke stayed with its 6. 5-ounce bottle. * 1960s: Pepsi launched new motto. “Pepsi Generation” . By concentrating on the younger population Pepsi narrowed Coke’s lead to a 2-to-1 border. Pepsi had larger and more modern bottling installations. Both groups started adding new soft drink trade names. * 1970s: Pepsi Challenge: Get downing in Texas. Pepsi’s bottlers had public blind gustatory sensation trials to turn out that Pepsi tasted better. This taging stunt increased gross revenues significantly. Pepsi gained a 1. 4 points lead in nutrient shop leads. Coke countered with discounts and renegotiations with franchise bottlers. Coke response by cutting costs ( used maize sirup alternatively of sugar ) . duplicating advertisement disbursement. and selling off most non-CSD concern.

Diet Coke was introduced to go a phenomenal success. Coke tried to be advanced by altering its expression. but that failed miserably. Coke introduced 11 new merchandises. Pepsi introduced 13 new merchandises. Pepsi emulated most of Coke’s strategic moves. * 1980s: Coke did refranchising bottling operation and created independent bottling subordinate. Coca-Cola Enterprise ( CCE ) . Pepsi implemented similar ground tackle bottler theoretical account by organizing its bottler. Pepsi Bottling Group ( PBG ) . * 1990s: Soft drink industry faced new challenge on dead demand. * 2000s: Although Coke and Pepsi encountered obstruction in international operations. including antimonopoly ordinance. monetary value controls. advertisement limitations. foreign exchange control. deficiency of substructure. cultural differences. political instability and local competition. Coke enjoyed a universe market portion of 51. 4 % and Pepsi 21. 8 % .

Coke and Pepsi have been really successful and profitable due to their laterality in the soft drink market. In 2004. the Herfindahl Index ( HHI ) for market concentration ratio is 0. 3130. H = ( Coke ) 2 + ( Pepsi ) 2 + ( Cadbury ) 2 + ( Cott ) 2 + ( Others ) 2

= ( . 431 ) 2 + ( . 317 ) 2 + ( . 145 ) 2 + ( . 55 ) 2 + ( . 52 ) 2
= 0. 3130

This index indicates high concentration with one or two strong participants merely. Soft drink industry has been so profitable because Americans drink more sodium carbonate than other drink. Tete-a-tete competition between both Coke and Pepsi reinforce trade name acknowledgment of each other. Coke and Pepsi devoted disbursement on selling. advertizement. invention. and market enlargement.

It is a alone industry where Concentrate Producers and Bottlers are two different entities. Concentrate fabrication procedure involved small capital investing in machinery. operating expense. and labour. Other important costs were for advertisement. publicity. market research. and bottler dealingss. One works could function full United States. In the other side. the bottling procedure was capital-intensive and involved high-velocity production line. Bottlers besides invested in trucks and distribution webs. Bottlers handled selling. Bottler’s could besides work with other non-cola trade names. From the fiscal information of Coke. Pepsi. CCE. and PBG. dressed ore manufacturers are far more profitable than their bottlers.

The prodigious war between Coke and Pepsi truly affected the soft drink industry. It shaped the industry into what it is now. The fact that those two major participants has involved in the competition since the really get downing ( 1950s ) is the advantage for them to maintain ruling the market and addition trade name popularity in US market and international market.

Since 1990s. Coke and Pepsi faced new challenge on flattening demand. banned the gross revenues in some US schools. and obstructions in their international operations ( regulative challenges. cultural and any bing competition ) . Popularity of non-carbonated drinks has besides increased. But Coke can Pepsi can prolong their net incomes in the industry because they are still dominant ( no new menaces from new competition. no new important rivals ) . they have been in the industry long plenty to put their trade name recognized globally ( easy to diversify new merchandise by leveraging their trade name ) . globalisation has opened chance for them to spread out their international market ( particularly in emerging economic systems ) . possible to growing is still high in the emerging market ( ingestion is still low ) . and they have diversified into non-carbonated drinks every bit good as “diet” drinks ( less sugar or nothing sugar drinks ) . In my sentiment. Coke and Pepsi need to concentrate on emerging international market and concentrate on the invention to make new merchandises as alternate ( non-carbonated. diet. and healthier ) .


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