Cola Wars

Executive Summary- The Cola wars are about a hundred years old but they are still continuing either in form of bottling strategy, or in form of new product mix or in terms of expanding in new markets. This 100-year ‘war’ has changed as per the market conditions, consumer demand and strategy of each company. Both Companies have benefitted out of this rivalry and the competition between the two companies has made both the firms more efficient and has effectively made the cola market a two-horse race.

The concentrate producers have been so profitable because making the concentrate required little investment in machinery, overhead or labor. A typical concentrate manufacturing plant serving the whole of US would only cost between $50-100 million to build. While the bottlers had to pay a high cost for concentrate, syrup, labor, packaging and overhead costs. They also had to invest capital in distribution network and trucks. The Concentrate producers sold the concentrate at high prices to the bottlers earning enormous profits while the bottlers had to contribute 50% of the marketing and sales spend.

• Starting in the 1980s, why did Coke and Pepsi buy up their bottler networks? Why grant exclusivity?

Coke and Pepsi bought their bottlers because they could not convince the bottlers to become more efficient and invest more in their outdated machinery and support new product lines.

• What should Pepsi do next, and how might Coke respond?

Pepsi should try and gain market share in the fountain vending channel. Also it must try and further consolidate its non-CSD portfolio. Pepsi must also make sure that it expands in the international market since those markets are still growing at 10% while the CSD market in the US is experiencing negative growth.

• Which strategies should the smaller competitors follow?

Also smaller firms must try and diversify their product offering as per the changing taste of the consumers in the developed markets. They must begin to offer healthier drinks (including water) and try to develop and market niche drinks(sports, tea, etc.).

Coke and Pepsi must also aggressively explore emerging markets since these markets are still growing while the developed markets have become saturated and are even showing negative growth in the CSD segment.

Analysis- Due to the shift of the consumer away from CSD drinks due to health concerns, smaller competitors in the market should try and market a new range of products that are healthier and alleviate consumer concerns about CSDs. They must also target the packaged water space by using their distribution center since it does not require any specific expertise or concentrate to make. Also there is little differentiation created for packaged drinking water through advertisement and brand creation. Although the profits in this space are lesser