Analysis for Cola Wars Continue: Coke and Pepsi in 2010

Coke

Pepsi

Leaders

1886 – John Pemberton Founder

1891 – Asa Candler Leader/Business Developer

1923 – Robert Woodruff Leader

1979 – Brian Dyson President

1980 – Roberto Goizeta CEO

1893 – Caleb Bradham

1950 – Alfred Steele CEO (Former Coke marketing executive)

1963 – Donald Kendall CEO

Background

-1886 formulated by John Pemberton

-1891 Asa Candler began brand advertising under name ‘Merchandise 7x’ and MBC implemented

-1910 reached 370 franchised bottlers

-1916 alone, there were 153 imitations of Coca-cola due to the well-hidden secret in a vault

-1919 Coca-cola sold to investors and went public

1920-1930’s – Woodruff expanded availability in all channels, initiated ‘lifesyle’ advertising, expanded international business

-1900’s – adopted franchise system

Declared bankruptcy in 1923 and 1932

-During Great Depression priced its 12-oz bottle for 5 cents and business picked up

-1938 won suit from Coke about infringement

Franchises

1, Original Master Bottler Contract (MBC) written in 1897 – a fixed price contract

2, Although not obligated to, they provided $540 m in marketing support to its top bottler

3, 1970’s very fragmented with 800+ independent bottlers (mostly serving less than 50,000 cities)

4, 1978 - Renegotiated franchise bottling contract – flexibility in pricing concentrate and syrups. Increased concentrate price 15%

5, 1987 – Made the Final Master Bottler Contract

1, 1910 – had 270 bottlers (franchised)

Master Bottling Agreement (MBA) – granted the bottler perpetual rights to distribute Pepsi’s CSD products but required it to purchase raw materials from Pepsi at prices and on terms and conditions, determined by Pepsi.

2, Had to rely on small local bottlers but in 1940’s became the second largest CSD brand

3, 1970’s – Bottlers became generally larger than Coke’s. Matched their 20% lower price to Coke’s & promised to spend extra income on advertising and promotions

4, 1978 followed coke in 15% price increase in concentrate

Marketing

1, Although not obligated to, they provided $540 m in marketing support to its top bottler

2, 1916 – unique skirt design

3, 1919- Candler – ‘In arm’s reach of desire’

4, Late 1950’s – ‘Americans’ Preferred Taste’, ‘ No Wonder Coke Refreshes Best’ – messages that recognized the existence of competitors

5, In response to Pepsi’s 1974 ‘Pepsi challenge, Coke did rebates, retail price cuts, and ads. President violated ‘not-to-be-named’ competitor

6, In response to raised societal health issues, spent more on brand promotion and sponsorship and global marketing (World Cup 2010)

1, Mid 1930’s – ‘Twice as much for a nickel, too’

2, 1950 – ‘Beat Coke’ by Steele

3, 1974 – ‘Pepsi Challenge’ enabled 1.4 share-point market lead

4, In response to raised societal health issues, redesigned its logo, promoted overall portfolio – ‘Power of One’

1981-84 - Intensified marketing effort, more than doubled its advertising expenditure due to change in leadership and alongside the switch to high-fructose corn syrup

Competitors

-DPS acquired rights for McDonalds fountains

-1978 - Phillip Morris left CSD business after huge losses from acquiring 7-up.

-1990’s - Cadbury Schweppes had a hard time coming up as the 3rd largest CSD producer but bought Dr. Pepper, 7-up, Orangina, Nantucket Nectars. 2008 became Dr. Pepper Snapple Group

-1998 – DPS followed the anchor bottling method

Business contracts

Fountains

Burger king

Wendy’s

McDonalds

Subway

Pizza hut

Taco Bell

KFC

Quiznos

Late 1990’s – gained from its bottlers the right to sell fountain syrup via restaurant commissary companies

(DPS acquired rights for McDonalds)

Vending machines

2009 New innovation of ‘Freestyle soda machine’

Proliferations

CSD’s (developed)

Launched Fanta 1960

Sprite 1961

Cola tab 1963

Diet Coke 1982 (most successful launch of the 80’s, 3rd largest selling CSD)

1985 unsuccessful change in Coke formula

Caffeine free Coke 1983

Cherry Coke 1985

Teem 1960

Mountain Dew 1964

Diet Pepsi 1964

13 products intro in 1980’s -Lemon Lime Slice 1984

Caffeine free Pepsi Cola 1987

Non CSD’s (acquired)

Minute Maid

Duncan Foods

Belmont spring water

1980’s Sold off Duncan and Belmont

Frito-Lay 1965 (merged and formed PepsiCo)

Expansions/

Changes

Tricon – restaurant business

1950 – gained market share of 47%

Mid 1930’s – grew much due to lowered price of bottles

1950 - Gained market share of 10%. Due to take home sales targeting families and post war growth in number of supermarkets and convenience stores

1963 -

1960-1970 – Both took control of some part of can production but was unsuccessful so settled for being committed to stable long term relationships with suppliers (Ball, Rexam, Crown Cork and Seal)

1960’s – focused on global expansion/overseas market

1950’s to 60’s – Pepsi doubled its market share

1, 1980’s – Had bottler difficulties due to the 1978 contract changes. Bottlers had higher costs and lower profit margins. Refranchised by buying up poorly managed bottlers, infused them with capital and sold them to better performing bottlers. Bought 2 largest bottlers and 1/3 of production became under Coke’s operations. Created a subsidiary company Coca-Cola Enterprises (CCE) an anchor bottling model. Made huge changes (pg. 9, 1st para) and became largest bottler for Coke

2, Coke implemented incidence pricing – changing concentrate prices according to prices charged in diff channels and the different packaging.

3, 2010 – Followed Pepsi in buying out CCE, bringing 90% of North America Business under one roof

1, 1980’s – after trying acquiring bottling companies, they followed Coke and implemented PBG.

2, 2009 – bought two biggest bottlers, merging 80% of its bottling under one roof

Late 1980’s – each offered more than 10 major brands and 17 container types

2000’s Sought alternative sweeteners due to reduced demand. U.S. FDA approved Stevia-based (herbal 0-calorie sweetener) in 2008. New drinks followed (Trop 50, Coke’s sprite green)