Cola Wars Spring2008 Tigers
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Transcript of Cola Wars Spring2008 Tigers
Cola Wars Continue:Coke and Pepsi in 2006
Presented by:
Tigers TeamSpring 2008
Overview History
Historical Industry Profitability
Concentrate vs. Bottler Profitability
Competition between Coke and Pepsi
Sustaining Profits
History of Pepsi Pepsi was created in 1893 in North Carolina by
Pharmacist Caleb Bradham. By 1910 Pepsi had built a network of 270
bottlers. Pepsi struggled and declared bankruptcy twice During Great Depression grew in popularity due
to price decrease to a nickel. In 1938, Coke sued Pepsi-Cola brand for
infringement on Coca-Cola’s trademark.
History of Coca-ColaCoca-Cola was formulated in 1886 by pharmacist John Pemperton who sold the product at drug stores as “potion for mental and physical disorders.” In 1891, Asa Candler acquired the formula, established a sales force and began brand advertising of Coca-Cola.In 1919, went public under control of Robert Woodruff expanded and developed in national and international markets.Successful during WWII with the high CSD consumption from the U.S soldiers.
Industry Profitability: Porter’s Five Forces Rivalry
Coke
Pepsi
Cadbury
Substitutes
Alliances
Acquisitions
Product Innovation
Porter’s Five Forces (Cont.) Barriers to Entry
Exclusive Territories
Substantial Investment
Current Market Presence
Power of Suppliers
Sugar
Packaging
Porter’s Five Forces (Cont.) Power of Buyers
Super Markets
Convenience and Gas
Mass Merchandisers
Fountain
Vending Fast Food
Profitability of the CSD Industry
Concentrate Business vs. Bottling BusinessConcentrate Producers
Blend raw material ingredients Packaged Mixture in plastic canisters Shipped to bottlers
Diet CSDs Added artificial sweeteners
Concentrate Business vs. Bottling BusinessBottlers
Purchased Concentrate Added carbonated water and high fructose
corn syrup Bottled CSD product Delivered to customers accounts
Diet CSDs Added sugar or high-fructose corn syrup
Concentrate Business vs. Bottling Business Concentrate
Producer Little Capital
Investment Cost of $25 million -
$50 million One plant to serve US Significant cost-
advertising, promotion, market research and bottler support
Bottlers Capital Intensive High-speed
production lines Bottling costs $4
million to $10 million Capacity of $40
million warehouse cost $75 million
Coke and Pepsi each require 100 plants
Pressure from Coke/Pepsi
Bottler Consolidation
Bottler plants decreased in the US2000 plants to 300 from 1970-2004Coke’s re franchising bottling operationsBuying Poor managed bottlersInfusing with capitalSelling to large bottling plants
•In 1985, Coke purchased two of the largest bottling companies
Vertical integration
Affects on Industry’s Profits Coke was the first concentrate producer to build a
nationwide franchise bottling network, that Pepsi and Cadbury Schweppes followed suit.
Franchise agreements with both Coke and Pepsi allowed bottlers to handle the non-cola brands of other concentrate producers.
Bottlers could not carry directly competing brands.
Affects on Industry’s Profits (Cont.) Throughout the 1980s, the growth of Coke and
Pepsi put a squeeze on smaller concentrate producers
Shelf space for small brands declined and were shuffled from one own to another.
Affects on Industry’s Profits (Cont.) In a five year span, Dr Pepper was sold several
times, Canada Dry twice, Sunkist once, Shasta one, and A&W once.
Phillip Morris acquired Seven-UP in 1978 for a big premium, but racked up huge losses in the early 1980s, and then left the CSD business in 1985.
Affects on Industry’s Profits (Cont.) In 1990s, through a series of strategic
acquisitions, Cadbury Schweppes became the third-largest concentrate product.
Coke has a world market share of 51.4%, Pepsi has 21.8% and Cadbury Schweppes has 6%
Sustaining Profits Shift to non-carbonated beverages
(keep up with demand of health conscious society)
Continue on current path and see where it leads
U.S. Liquid Consumption Trends
0
10
20
30
40
50
60
1970 1981 1990 1996 2000 2003
CSDAlcoholMilk NCSD