Cola Wars Continue: Coke and Pepsi in 2006 Essay

Coca-Cola and Pepsi-Cola have a long history of intense rivalry since 1950. Besides the CSD (carbonated yielding soak up) consumption rise, it brought both turn and Pepsi enjoyed signifi arseholet tax revenue growth. In 2004, CSD has 52.3% of total US Liquid Consumption. puff and Pepsi had 22.1% and 14.4% in give notice profit/ gross sales respectively.There are four major participants affect in the occupation and distribution of CSDs 1. subdue Producers ( gust, Pepsi, and new(prenominal)s)). They blended raw hearty ingredients, packaged the mixture, and shipped to the bottlers. They have large be of employees located in bottler turn up to support sales efforts, set standards, and suggest operational improvements. They negotiated with the bottlers suppliers to achieve dependable supply, fast delivery, and low prices. 2. Bottlers (CCE, PBG, and others). They purchased concentrate, added carbonated water and sweetener, bottled or canned the product, and delivered it to c ustomers. The number of bottlers had fallen from more than 2000 in 1970 to fewer than 300 in 2004, oddly after coulomb and Pepsi did bottler consolidation and spin-off as part of envision to refranchise bottling operation. change state built Coca-Cola Enterprise (CCE) and Pepsi formed Pepsi Bottling Group (PBG) as their principal(prenominal) bottlers.3. Retail Channels. They consist of supermarket (32.9%), fountain machines (23.4%), vending machines (14.5%), mass merchandisers (11.8%), convenience stores and accelerator stations (7.9%), and others (9.5%). Pepsi instructioned on sales through retail outlets, and speed of light dominated fountain sales. Both Coke and Pepsi entered fast-food eating place business in order to have exclusive sales territory on the restaurant chains. 4. Suppliers. Concentrate producers needs caramel coloring, phosphoric/citric acid, natural flavors, and caffeine from suppliers. Bottlers also need to purchase packaging (cans, plastic bottles and g lass bottles), and sweeteners. Coke and Pepsi establish stable long-term relationships with their suppliers and their bottlers suppliers.Chronology of the Cola Wars* 1950s Pepsi introduced Beat Coke motto. Pepsi introduced 26-ounce bottle, targeting family consumption. Coke stayed with its 6.5-ounce bottle. * 1960s Pepsi launched new slogan, Pepsi Generation. By focusing on the younger population Pepsi narrowed Cokes lead to a 2-to-1 margin. Pepsi had larger and more modern bottling facilities. Both groups started adding new soft drink brands. * 1970s Pepsi Challenge Starting in Texas, Pepsis bottlers had public art taste tests to prove that Pepsi tasted better. This marking stunt increased sales significantly. Pepsi gained a 1.4 points lead in food store leads. Coke countered with rebates and renegotiations with franchise bottlers. Coke response by cutting costs (used corn syrup quite of scar), doubling advertising spending, and selling off most non-CSD business.Diet Coke was in troduced to become a phenomenal success. Coke tried to be ripe by changing its formula, but that failed miserably. Coke introduced 11 new products. Pepsi introduced 13 new products. Pepsi emulated most of Cokes strategic moves. * 1980s Coke did refranchising bottling operation and created independent bottling subsidiary, Coca-Cola Enterprise (CCE). Pepsi implemented similar anchor bottler pose by forming its bottler, Pepsi Bottling Group (PBG). * 1990s Soft drink intentness set about new challenge on stagnant demand. * 2000s Although Coke and Pepsi encountered obstacle in global operations, including antitrust regulation, price controls, advertising restrictions, foreign exchange control, lack of infrastructure, ethnical differences, political instability and local competition, Coke enjoyed a realism market share of 51.4% and Pepsi 21.8%.Coke and Pepsi have been very successful and remunerative due to their dominance in the soft drink market. In 2004, the Herfindahl magnate (HHI) for market dumbness ratio is 0.3130. H = (Coke)2 + (Pepsi)2 + (Cadbury)2 + (Cott)2 + ( opposites)2= (.431)2 + (.317)2 + (.145)2 + (.55)2 + (.52)2= 0.3130This index indicates high concentration with one or two strong players only. Soft drink industry has been so lucrative because Americans drink more soda than other beverage. nip and tuck competition between both Coke and Pepsi reinforce brand cognizance of each other. Coke and Pepsi devoted spending on marketing, advertisement, fundament, and market expansion.It is a unique industry where Concentrate Producers and Bottlers are two different entities. Concentrate manufacturing process refer little capital investment in machinery, overhead, and labor. Other significant costs were for advertising, promotion, market research, and bottler relations. One plant could serve immaculate United States. In the other side, the bottling process was capital-intensive and involved high-speed production line. Bottlers also invested in trucks and distribution networks. Bottlers handled merchandising. Bottlers could also work with other non-cola brands. From the financial data of Coke, Pepsi, CCE, and PBG, concentrate producers are far more profitable than their bottlers.The colossal war between Coke and Pepsi really affected the soft drink industry. It shaped the industry into what it is now. The fact that those two major players has involved in the competition since the very beginning (1950s) is the advantage for them to keep ascensive the market and gain brand popularity in US market and international market.Since 1990s, Coke and Pepsi faced new challenge on flattening demand, banned the sales in some US schools, and obstacles in their international operations (regulatory challenges, cultural and any existing competition). Popularity of non-carbonated beverages has also increased. But Coke can Pepsi can sustain their profits in the industry because they are bland ascendent (no new threats from new competition , no new significant competitors), they have been in the industry long enough to place their brand recognized globally (easy to diversify new product by leveraging their brand), globalization has assailable opportunity for them to expand their international market (especially in emerging economies), potency to growth is still high in the emerging market (consumption is still low), and they have diversified into non-carbonated drinks as well as diet drinks (less sugar or zero sugar beverages). In my opinion, Coke and Pepsi need to focus on emerging international market and focus on the innovation to create new products as alternative (non-carbonated, diet, and healthier).