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Beverage Industry: Coke & Pepsi
Term Paper ID:27705
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Essay Subject:
Provides beverage industry overview, with emphasis on market positions of Coca-Cola & Pepsi. Also examines future prospects of Coke & Pepsi.... More...
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Paper Abstract:
Provides beverage industry overview, with emphasis on market positions of Coca-Cola & Pepsi. Also examines future prospects of Coke & Pepsi.
Paper Introduction:
TABLE OF CONTENTS
Industry Overview 1
Coke and Pepsi as Industry Leaders 2
Future Prospects 5
Conclusion 9
Table 1: Top Ten Soft Drinks 12
Table 2: Domestic Soft Drink Market 13
Bibliography 14
The Beverage Industry: Coke vs. Pepsi
Industry Overview
Just before the turn of the century, prospective soft drinks were being formulated by southern pharmacists, with an eye towards relieving indigestion (Hoover's, 1995). From the first decade of the twentieth century until the 1960s, the competition in the beverage industry was primarily between equals; Coca Cola fought it out with Pepsi Cola for market share, and juice or coffee companies competed with each other.
In the 1960s, the competitive edge in the beverage industry went to Coca Cola, with its purchase of Minute Maid in 1960, the introduction of Sprite in 1961, and the introduction of Tab in 1963 (Hoover's, 1995). Peps
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This can be linked to the New Age and still beveragecraze, which Pepsi, Coke, and Quaker have now taken advantage of ("Coca-Cola's sweet...," 1995). Snapple, also owned by Quaker, helped spur the battle for the tea,flavored tea, and fruit drink market. The large increase in the number of New Age productsand private label colas took a bite out of normal sales of national brands. 46.Pepsi takes fresh angle in new ad effort. Market studies forCoke, in Spain, have led to changes in bottle size and flavors, whileflavor names aim for language that works cleverly in Spanish. Pepsi has also test marketedtheir Drenchers brand of fruit juices to counter Coca-Cola's highlyinnovative Fruitopia drinks ("Irascible cola...," 1995). Pepper/Seven-Up |11. (1995). p. shares are shown in percent)| | ||Coca-Cola |41.3 || | ||PepsiCo |3 .9 || | ||Dr. 28,46.Coca Cola's sweet return to glory days. Advertising Age. Diet Coke sought to address the change in who is perceived asdrinking diet drinks, emphasizing diet cola as an everyday drink, not justfor those seeking fewer calories. (1992) p. Distribution Journal, 1993). pp 1,24.U.S. The later is a flavored sparkling water, (U.S. In 1939 Pepsi introduced theworlds first radio jingle, "Pepsi-Cola hits the spot...," and in 1948 Pepsistarted to produce drinks in cans (Hoover's, 1995). Also, to counter Pepsi's purchase ofOcean Spray, Coke has launched their Fruitopia fruit drinks into thebeverage market (Hoover's, 1995). Coca Cola Classic alone, accounts for at least 2 % of market share ofall soft drinks purchased in the United States, from 1991 through 1994(Market Share Reporter, 1995). The consumer was clearlylooking to find a product that was less costly, that was different, and aproduct that quenched his or her thirst. 133.U.S. Advertizing Age.Gale Book of Averages. bottling operations intoCoca Cola Enterprises (CCE) and sold 51% to the public. Pepsi has followed up with a brand name of fruit drinks first testmarketed as Drenchers, now slated to mimic more precisely the success ofFruitopia, with the name Radical Fruit ("Irascible cola...," 1995). Advertizing Age. In late 1992 Coca-Colaintroduced a flavored sparkling water called Nordic Mist. 17). p. Pemberton in 1886, and in 1898 pharmacist Caleb D. of Commerce, 1993). Concerns about theeconomy caused the consumer to shop a bit more, for a lower price or even adifferent product. Inthe cola wars, Coke and Pepsi are trying to appeal to shiftingdemographics, as well as any perceived shifts in taste.Conclusion It is not difficult to understand why Coke and Pepsi dominate in thesoft drink and beverage industry. Often, store brands sell for up to 35 percent less than the nationalbrands, yet still return a profit margin of up to 3 percent, compared toan estimated 21 percent on name brands (U.S. 38.Market Share Reporter. Although Pepsi-Cola has consistently been a player in the beverageindustry, always coming in as number two in essentially a two company race,their percentage of overall market share has begun to slip. However, as the beverage industry expands its product line, two thingsremain the same: Soft drinks still lead sales, and Coke still leads Pepsi("Irascible cola...," 1995).Coke and Pepsi as Industry Leaders Remarkably enough, the two leaders in market share and product line,started their climb towards market dominance within 12 years and 5 milesof each other. Pepsi-Cola's rise to prominence in the beverage industry has not beenso steady and straightforward as Coke. (1994, Jan. (1995, June 5). Bradham inventedPepsi Cola, in New Bern, North Carolina (Hoover's, 1995). 24.Coca Cola still No.1; Pepsi loses ground. Coke's Powerade, currently holds 1.7percent of the market, and Pepsi with All Sport holds 2.2% of the market(Market Share Reporter, 1995). of Commerce,1993), and the former is billed as a cola with a different taste than Pepsior Diet Pepsi ("Pepsi has problems...," 1993). Quaker, Cadbury,Schweppes, Royal Crown, and all others which comprise a formidable block of27.9% of the market share, (Market Share Reporter, 1995), are making use ofso called New Age beverages, and are making inroads at the expense of thecola and diet cola markets ("Bubbles burst in...," 1993) Pepsi and Coke,not short on resources or ingenuity, have begun their counter attack. Bureauof the Census, 1992). In the continuing battle between Coke and Pepsi for domination of thebeverage industry, the future is laden with microeconomic strategies. Advertizing Age. Fruitopia, launched in 1994, has been joined byOrchard's best, a line of non-citrus juices, in selected markets ("Coca-Cola still...," 1995). New products are largely thereason that the top 1 brands of soft drinks, all produced by Coke orPepsi, have grown from 68.8% of the market to 73.9% of the market ("Bubblesburst in..., 1993). The proof seems to be in PepsiCo's fast food purchases of thelast few decades. Their products are sold in over 195 countries (Hoover's, 1995).Pepsi markets and sells a combined total of 13 ready to consume beverages,ranging across the board from soft drinks, to sport drinks, to juices andteas. TABLE OF CONTENTSIndustry Overview 1Coke and Pepsi as Industry Leaders 2Future Prospects 5Conclusion 9Table 1: Top Ten Soft Drinks 12Table 2: Domestic Soft Drink Market 13Bibliography 14 The Beverage Industry: Coke vs. The businesses and the distribution processes aresimilar. Fruitopia was named by Time magazine,one of 1994s ten best products ("Coca-Cola's sweet..." 1995). Coke has kept pace at home with the introduction of Powerade, theirentry in the sports drink market. The 9 s has seenCoca Cola forming separate operations for Moscow, Africa, and India. Dept. Less powerful entrants in the beverage industry have had an effect ondefining exactly what a beverage company is. An interesting twist in the advertising campaigns of Coke and Pepsi,in regard to their new juice and tea products, has been the nearly completelack of the parent companies logo or brand name. (1993, Sept. In 1986 the company consolidated its U.S. (1995, Sept 6). Pepsi chose Spain as the site to test market their Fruitopiaspin-off, because Pepsi's experience in manufacture and distribution allowsfor tighter control over the end product ("Irascible cola...," 1995).Also, considering the international aspect of beverage sales, Spain was aprime launching spot to test market the product. The Loft Candy Company eventually took over Pepsiin the 3 s, and over the next two decades scored a number of marketingcoups. Advertizing Age.Diet Coke bubbles back with the basics. Dept. The addition of iced teas to the product lines of Coke, Pepsi, andCadbury, has redefined cola companies as total beverage companies ("Coladomination...," 1994). p. Between 1899 and 1929 Coca Cola had created over 1, bottlers. These were subsequently sold to Sony in1989. (1995, April 17). In the 196 s, the competitive edge in the beverage industry went toCoca Cola, with its purchase of Minute Maid in 196 , the introduction ofSprite in 1961, and the introduction of Tab in 1963 (Hoover's, 1995).Pepsi Cola, with a similar stable of soft drinks, became a key player inthe fast food industry with the acquisition of Frito-Lay in 1965, Pizza Hutin 1977, Taco Bell in 1978, and Kentucky Fried Chicken in 1986 (Hoover's,1995). Current movement in the beverage industry is also tied to theintroduction of New Coke nearly a decade ago. Asof 1993, Crystal Pepsi barely held 1% of the soft local soft drink market("Pepsi has problems...", 1993).In the related powdered soft drink market,Pepsi's Crystal light owns 2 .7% of the market, while Gatorade only has5.4% of the market (Market Share Reporter, 1995). Beginning in the latter half of the lastcentury, both companies learned by trial and error, the proper marketingtechniques necessary to spread the sale of their product beyond the drugstore counter. Dept. p. (1995). In 1993, the figure hadfallen to 17.7 % and in 1994 had begun to recover to 17.8% of market share("Irascible cola...," 1995). Coca Cola was originally formulated by Atlanta pharmacistJohn S. In the case of both companies, their ability to market their product,and control the circumstances under which they launch a new product line,is paramount. 6 billion ("Irasciblecola...",1995). As early as 1993,an indifference to cola drinks began to be noticed within the beverageindustry ("Bubbles burst in...," 1993). PepsiIndustry Overview Just before the turn of the century, prospective soft drinks werebeing formulated by southern pharmacists, with an eye towards relievingindigestion (Hoover's, 1995). The struggle to maintain volume growth in the soft drink market easedsomewhat in 1994, evidenced by a soft drink unit volume growth of 3.8%accompanied by a 2% advance in retail sales to $5 . (1994, Sept. Soft drink volume has struggled in the 1%-2% growth range throughoutthe 9 s as consumers have increasingly turned to sports drinks, teas,juice, and various other New Age concoctions ("Irascible cola...,"1995).Bottlers, who used to live and die by colas, are now solidly into threemajor alternatives: still waters, sports drinks and iced teas ("Coladomination of..." 1994). While Pepsi and Coke fight for new markets, reversing the roles they oncetook as innovator and follower, their 1,2, positioning in the world marketas producers and distributors of soft drinks seems beyond approach ("Coca-Cola's sweet...," 1995). Plans are toadapt the drinks to local tastes in other countries (Pepsi, Coke,usher...," 1995). Coca-Cola'sNestea dropped from 32.8% of market share in 1994, to 21.7% of market share1995 ("Coca-Cola still...," 1995). Sprite has become the world's number onelemon-lime soft drink, and Tab, the original diet cola, is only one of anumber of popular diet drinks (Hoover's, 1995). In January of1993 Coke introduced Clear Tab, to counter Pepsi's Crystal and CrystalLight ("Bubbles burst in...' 1993). They acquired Minute Maid in 196 , and introduced Spriteand Tab in the next three years. The advent of New Age drinks has brought a dimensionalityto the soft drink industry that never existed before. Like Coke, Pepsi has extended its product line to meet consumerdemand. In the middle of the Depression, Pepsi doubled the size of itsbottles, while keeping the price the same. The reality of these two beverage giants may simply be that they aretwo different kinds of companies, heading in slightly different directions. Snapple fellsome 19.4%, from 44.1% of the market to 25.7% of the market. The original owner/operator ofPepsi-Cola, Caleb D. 29). In 1991, salesof regular Pepsi-Cola had 18.4% of the market share, by 1992 this figuredwas reduced to 18% ("Bubbles burst in...," 1993). New Age and so called "still water" beverages which consist of naturalflavored sodas, sweetened and unsweetened waters, ice teas and coffees, arethe products that the public is buying instead of colas. From the first decade of the twentiethcentury until the 196 s, the competition in the beverage industry wasprimarily between equals; Coca Cola fought it out with Pepsi Cola formarket share, and juice or coffee companies competed with each other. The rationale here is that fast food goes with ready todrink beverages. 28). Coca-Cola has taken the lead in the fruit drink division of thebeverage industry. p.4.Cola domination of the soft drink segment weakens. In this particular battle over the New Age drink market, Pepsi isgoing head to head with Coke and Quaker, all test marketing themicroecomics of the international beverage industry. pp.366-7, 864-865.Irascible cola giants nudge soft drinks forward (1995, Sept. (1993, Sept.15) p.22 Advertizing Age. In mid-1993, Coke introduced MelloYello, a mixture of sparkling water, high fructose corn syrup, citric acid,and one of five natural fruit flavors (U.S. The market share has been creeping at asteady rate from 2 % in 1991, to 2 .4 % in 1994 ("Coca Cola still..."1995). Over all, Coca Cola has captured 41.3% of the total soft drinkmarket for 1993, (Market Share Reporter, 1995), with total sales over $13million (Hoover's, 1995). It may simply be that PepsiCo is willing to let Coke dominate in thefield of beverages, while PepsiCo takes the lead in a slightly differentdirection. Currently Coca-Cola produces and markets upwards of 19different carbonated beverages, and 9 different fruit-based, or still waterdrinks. Gatorade, owned by Quaker, was the first serious entry into thecounter-cola revolution, and currently holds 88% of the sports drink market(Market Share Reporter, 1995). Not insignificantly, thepercentage on non-carbonated beverages sold over the same period rose byalmost 4% (U.S. Advertizing Age. The kind of flexibility considered here would have been unthinkableten years ago. Coke and Snapple arealso test marketing new product lines in Spain ("Pepsi, Coke usher...,"1995). Pepper |6.4 |6.1 || | | | ||5 |Diet Pepsi |5.7 |5.8 || | | | ||6 |Mountain Dew |4.7 |4.3 || | | | ||7 |Sprite |4.5 |4.2 || | | | ||8 |7Up |2.7 |2.7 || | | | ||9 |Caffeine Free Diet |2 |2.1 || |Coke | | || | | | ||1 |Caffeine Free Diet |1.2 |1.3 || |Pepsi | | |Source: Advertising Age (27 September 1995) Table 2: Domestic Soft Drink Market (U.S. The slump wasparticularly pronounced in the food store cola category, as the cola marketshare dropped to 6 .4 percent, an eight-year low. Pepsi has followed with its ownpackaging promotions, 24 can packaging (the cube) and freshness dating("Pepsi takes...," 1994). Cokehas also purchased 3 % of Femsa, Mexico's biggest soft drink company, andplans to reenter South Africa's soft drink market by buying NationalBeverage Service, which marketed Coke's products before (Hoover's, 1995). Pepsi and Coke began introducing cola alternatives fairly early in thebattle with New Age drinks. Quaker's Gatorade andSnapple, once the leaders in sports drinks and New Age drinks, haverecently been met by stiff competition from Coke and Pepsi, respectivelywith Powerade and Allsport, Fruitopia and Drenchers ("Irascible cola...,"1995). The summer of 1992, was particularly cool and wet, puttinga damper on even average sales of ready-to-drink beverages. Advertizing Age. For the 52 weeks ending March 26, 1995, Fruitopia'ssales totaled $2 .4 million in the U.S. Department of Commerce Industrial Outlook, (1993).U.S. 8 .Hoover's Handbook of American Business. of Commerce, 1993). Bradham lost control of his company in 1923, when theprice of sugar dropped. alone ("Pepsi, Coke usher ...,"1995). The combat for beverage dollars is bound to continue into the future,with Coca-Cola dominating, and PepsiCo bringing up the rear. They began their purchaseswith Frito-lay in 1965, continued with Pizza Hut in 1977, Taco Bell in1978, and have continued with Kentucky Fried Chicken in 1986. There seemsample room for both beverage giants in a world where competition keepschoice and price within reason. Marketingstrategies are taking all kinds of twists, from returning to the classicCoca-Cola bottle, to splitting ad campaigns up between more off offbeatagencies to obtain less monolithic campaign strategies ("Coca-Cola'ssweet...," 1995). Notcontent with new bottling which calls to mind the long neck beer bottles ofthe 5 s and 6 s, the ingredients are all natural, and seem to announce tothe beverage world, that even a small company like Royal Crown has joinedthe New Age craze ("Irascible cola...," 1995). Radical Fruit is geared to gaining ahigh percentage of the juice market (19% to 25%) and the promise to developflavor combinations to suit particular localities. p. Bureau of the Census, 112th Edition. 359,377.Pepsi, Coke usher in New Age in Spain. Coca-Cola spurred growth in its product line throughinnovative packaging, aggressive pricing, and wave after wave ofadvertising. Coca Cola continued its growth through the 3 s and 4 s with cleveradvertising slogans and expansion of its bottling plants overseas duringWorld War II. Based on these past developments, the future for Coke and Pepsi, asfar as market share in the beverage industry goes, is being determined moreby the shear volume of different products being produced, and whatevermarketing spin can put on these products. Pepsiis currently test marketing Radical Fruit in Spain, with three existingflavors, and four more in development. They are also a leader in snack and fast foods, including Frito-Lay,Sun Chips, Kentucky Fried Chicken, Taco Bell, and Pizza Hit (Hoover's,1995). Numbers 3 and 4 on the world market respectively,Cadbury/A&W and Dr. Pepper/7 Up, are far from being strong competitors("Irascible cola...," 1995). (1994, April 4). pp. Still, Pepsi's entire soft drink and beverageline captured 3 .9% of the market in 1993 (Market Share Reporter, 1995).PepsiCo's total sales for 1993 topped $25, 21 million (Hoover's, 1995).Only Pepsi's Mountain Dew, which grew 75% in total volume from 1988 to1994, is on a track to eclipse any similar product that Coke has to offer("Coca Cola still..." 1995).Future Prospects Telling the future of the beverage industry, and the direction thatCoke and Pepsi will take, can best be told by first looking at the past.In the years 197 through 199 , the average per capita consumption of softdrinks increased by over 1 %. || | ||Cadbury Schweppes |3.3 || | ||Royal Crown |2.3 || | ||A&W |1.7 || | ||All Other |9.6 | BibliographyBubbles burst in soft-drink category. In this regard, economiesof scale are what count. cans in the Cube ("Coca-Cola'ssweet...," 1995). In the 198 s, the company acquired Columbia pictures, and severalother entertainment companies. From 1991 to 1992, the percentage of carbonated drinks sold inconvenience store dropped from 74.9% to 71.3%. Again in 1991, the per capita consumption of softdrinks increased to 47.2 (U.S. In 1995, PepsiCo's Lipton brandheld an edge of 31.4% of market share, up some 13% from 1994. In 1991 Pepsi formed a venture with Lipton, to produce ice teas,as Coke had done with Nestle (Hoover's, 1995). (1995, June 5). In essence the per capita consumption ofsoft drinks in fluids rose from 2 .8 gallons to 42.5 gallons (U.S. of Commerce, 1993). 27). Consider thelaunching of Royal Crown Cola's Draft cola, in the fall of 1995. Beginning in the mid 6 s Pepsi began to diversify, by buying upsuccessful players in the fast food industry. Early in 1992, Pepsi introduced Crystal Pepsiand H2OH! Several reasons for this have beenput forth. Teas and juices have softened theover all dominance of cola and diet cola sales, from 63.6% in 1984 to 58.3%in 1994 ("Coca-Cola's sweet...," 1995). Table 1: Top Ten Soft Drinks| | | | ||Rank |Brand |Percent Share of | || | |Market | || | | | || | |1994 |1993 || | | | ||1 |Coke Classic |2 .4 |2 .1 || | | | ||2 |Pepsi |17.8 |17.7 || | | | ||3 |Diet Coke |8.8 |8.9 || | | | ||4 |Dr. Dept. The strategy seems to be,that presenting distinct brand names to the public will counter the movetowards New Age products ("Coca-Cola's sweet...," 1995). p.8Pepsi has Problems that go way beyond Michael. In order to strengthen their portion in themarket, Coke has released Classic Coke in vintage contour bottles at thesame time that Pepsi is selling their 12 oz. The real growth of both Coke and Pepsi, from soda fountain drinks tonationally known brands came with the development of the regional franchisebottling system. The New Coke fiasco broughtthe industry in contact with a tremendous demand for new flavors in ready-to-drink beverages. Distribution Journal. By World War I, Pepsi Cola had created over 3 bottlers(Hoover's, 1995). Advertizing Age. With new advertising campaigns beginning in 1994, Cokeattempted to aim Diet Coke at a different market segment, in an effort todispel the lose in volume to New Age beverages ("Diet Coke bubbles...,"1994).
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