Coca Cola Wars

Cola Wars Continue:

Coke and Pepsi in the Twenty First Century

MNGT 5650 – Management and Strategy

Abstract

This case study will examine the industry structure of Coca-Cola and Pepsi as well as the competitive strategy and rivalry between the two over the past 100 years. As the world entered into the 21st century, Coca-Cola and Pepsi utilized various marketing tools such as increasing the sales of domestic cola and researching new revenue resources to stay competitive. The methods used by both firms were the modification of the bottling, pricing, and branding of its product. These changes not only helped emerge their product into the international markets, but fueled the growth of their brand portfolios and lead the way for the introduction of noncarbonated beverages such as tea, juices, sports drinks and bottled water. For over a century, the average person was consuming 53 gallons of carbonated soft drinks per year, yielding a $60 billion industry within the United States, thus creating the most intensive battle of what has been known as the Cola Wars. From 1975 to 1995, both companies achieved an annual average growth of 10% consumption of their carbonated product. Yet, despite these growths the industry was threatened in the late 1990's when the U.S. carbonated soft drink consumption dropped for two consecutive years, slowing down the worldwide shipments of both Coke and Pepsi (Yoffie, 2004).

Coke and Pepsi in the Twenty-First Century

For centuries Coca-Cola and Pepsi reigned as the kings of carbonated soft drinks within the United States and worldwide. During this time, the average person consumed over 53 gallons of these carbonated soft drinks each year. From 1975-1995, both experienced a 10% increase in consumption of their product, with sales averaging up to $60 billion dollars, thus creating the most intensive battle of what has been known as the Cola Wars. However, during the late 1990's, both experienced a devastating two year decrease in consumption of their carbonated soft drinks within the United States. This decrease created a drop in sales along with a slowing down of its worldwide shipments of products.

As the cola wars continued into the twenty-first century, the cola giants faced new challenges that contributed to their decrease in popularity. One challenge was the two year decrease in consumption of carbonated soft drink. However, was this apparent slowdown just another blip in the course of Coke's and Pepsi's enviable performance? (Yoffie, 2004). Or could Coca-Cola or Pepsi foresee the decrease or conduct a new revenue stream such as a boost in flagging domestic cola sales? Or was their era of sustained growth and profitability coming to a close simply due to the change in the times? Through the mid-1990s, the real price of carbonated soft drinks still existed and Americans drank more soda than any other beverage (Yoffie, 2004). However, the sale of beer, milk, coffee, bottled water, juices, tea, powered drinks, wine, sports drinks, distilled spirits, and tap water was on the rise. Unlike Coca-Cola and Pepsi, there were four major participants involved in the production and distribution of the new taste of carbonated soft drinks, 1) concentrate producers – that blended raw material ingredients (excluding sugar or high fructose corn syrup), packaged it in plastic canisters, and shipped the blended ingredients to the bottler 2) bottlers – purchased concentrate, added carbonated water and high fructose corn syrup, bottled or canned the carbonated soft drink, and delivered it to customer accounts 3) retail channels – the main distribution channel for soft drinks was the supermarkets and 4) suppliers – the can constituted about 40% of the total cost of a packaged beverage, bottlers and concentrate producers often maintained relationships with more than one supplier (Yoffie, 2004). The collaboration of the groups as well as the increased marketing of the product showed ingenuity and styles that could be mirrored in the 11 Step Strategic Model below.

The 11 Step Strategic Model

Top management has the responsibility for the major elements of strategic planning and management. They develop major portions of the strategic plan and reviews, and they evaluate and counsel on all other portions. General Managers typically have principal responsibilities for developing environmental analysis and forecasting, establishing business objectives, and developing business plans prepared by staff groups (Pearce & Robinson, 2005). Managers at