Case Study Cola Wars

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Coca-Cola was first formulates in 1886 by a pharmacist. it was firs bottled in 1899 and by 1910nthey had reached 370 franchisees. Pepsi, was invented in 1893. it also adopted a franchise bottling system. However, it struggled to survive during 20-30s. In 1938, Coke filed against Pepsi but court ruled in Pepsis’s favor and by that time Pepsi expanded its bottling network.

1950 was an important date since the new CEO of Pepsi changed the motto of the firm to “Beat Coke”. Through this period Pepsi sold concentrate to his bottlers at 20% lower price than Coke. An in 1970s Pepsi increased concentrate prices and matched. In 1960, Coca-cola and Pepsi began to experiment with new cola and non-cola flavors, new packaging and introduced non-returnable glass bottles.

It is remarkable that in 1974 Pepsi launched the “Pepsi Challenge” were they tried to demonstrate that consumers preferred Pepsi to Coke. The campaign was really successful and in 1979 Pepsi passed Coke in food store sales.

In 1980 Cola war heated up since a new Coke’s CEO switched sugar to a lower-priced alternative and intensified its marketing advertisement. And Pepsi reacted to this by doubling its marketing efforts. Diet coke was also introduced in this decade, 1982. It was a huge success (become the most popular diet soft drink in the U.S).

1985 was a critical year for Coke. It announced that it had changed its 99-year old-formula. But they realized it was a mistake and six months later it went back to the classic one.

1980 was also a very important year for Coke. In that year, a plan to refranchise bottling operations was announced since relations between coke an its franchised bottlers had been previously strained. Refranchising allowed Coke’s largest bottlers to expand outside their graphic territories. 5 years after, two of its largest bottling companies came up for sale. Together with other recently purchased bottlers, this made Coca-Cola control 1/3 of their operations.

According to Pepsi, in the late 1980s, it acquired MEI Bottling, Grand Metropolitan’s bottling and General Cinema’s bottling. And after 5 years, they swift to adapt Coke’s Model.

ADAPTING TO TIMES

During the late 1990s the soft drink industry encountered new challenges. Demand for its core products seemed to leveled off. Volume of sells seemed almost flat during past 3 years. Annual growth rates decreased 4% and worldwide annual per-capita decline. In respond to all this changes, both Pepsi and Coca-Cola had to adapt to recapture their historically high growth and profitability. However, while Coke struggled, Pepsi flourished. Between 1996-2004 Coke underwent financial shocks, a contamination scare, non-execution of several initiatives, SEC launched investigations of Coke’s accounting practices etc. In contrast, Pepsi, expanded to other beverage categories and saw its income rise by 17,6% in that same period.

In 2005, Pepsi announced that they were going to start treating Diet Pepsi as the “flagship brand” since nutrition guidelines issued identified regular CSDs as the largest cause of obesity. In such a climate, diet sodas were the ones who offered a path to revive sales. Pepsi CEO of that year, Reinemund, saw that announcement as a huge opportunity to build new brands and products. Pepsi developed a portfolio of non CSD products and outsold Coke’s rival product in each key category. Market share situation in 2004 was as follows: Coke (20%), Pepsi (47,3%).