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Cola Wars Essay

937 words - 4 pages

An inexorably changing climate toward a more health conscious consumer has created a strategic quandary for the carbonated soft drink (CSD) giants, Coke and Pepsi: how to regain lost market share of their premier products and return to high annual growth rates seen previously?
Although consumer craving for CSDs is not to be underestimated, the growing market demand for alternatives must not be ignored. The strategy going forward should be multifold.
1. Both Coke and Pepsi must actively try to capture market share in the non-carb drinks market. In order to remain nimble and respond expeditiously and with agility to changing market demands, both firms must continue to reconsolidate their ...view middle of the document...

Their rivalry has been somewhat mutually beneficial, as it has eliminated complacency by driving constant and consistent innovation (in both product and strategy). Coke and Pepsi have used their experience to achieve economies of scale. Competitive strategy between them has been chiefly limited to differentiation by taste and by brand association. Hence, both companies have invested heavily in their products and brand marketing efforts. Threat from new entrants is negligible while that from suppliers is non-existent. And by co-opting the bottling business, the companies have ensured no disruption in the operations of their complementors. Coke and Pepsi have a dedicated customer base that is brand loyal; however, long-term stability of the CSD customer base is a concerning issue. CSD consumption has dropped significant since 2005, as a consequence of both the recession and greater consumer awareness of health concerns.
Concentrate Producers: Franchised concentrate producers enjoyed high profit margins (32%) because production was neither capital nor labor intensive. Ingredients used to make the concentrate were inexpensive commodities and could be obtained through favorable agreements negotiated by the parent company. Furthermore, unlike bottlers, concentrate producers required limited infrastructure (automated bottling plants) or labor (distribution, delivery, trucks etc.). Their only major investment came in the form of marketing support and brand management.
Bottlers: Bottlers faced the exact opposite situation. Margins were narrow (300%), overall market share (4%) is still quite small (Appendix 2). However, Energy and Sports drinks have by far the highest profit margins (Appendix 3), on par with CSDs, making this a highly attractive market targeting the health conscious consumer. Pepsi has been winning the battle of sports drinks (Market share: Gatorade 3.9%; Powerade, 0.9%) and must endeavor to expand that lead. Continuing reconsolidation of their bottling network will be an integral...

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