Bus 497a Spring 2008 TEAM JUPITER Cola Wars Bus 497a Spring 2008 TEAM JUPITER

Background Coke: First formulated in 1886 Pepsi: Invented in 1893 “Cola War” began when Alfred Steele (of Pepsi) became Coke CEO 1980’s Bottler Consolidation began

Key Terms CSD – Carbonated Soft Drink CP – Concentrate Producers Blended raw materials and shipped to Bottlers Bottlers Manufacturing of beverages Distribution Retail Channels Supermarkets, Fountain Outlets, Vending Machines, Mass Merchandisers, CV, Gas Stations

Industry Pipeline Formulation Houses Concentration Suppliers Bottlers Distributors End Consumer ****Vertical Integration****

Corporate Level Strategies of the Past Coke and Pepsi Single Business Economies of Scope Market Power Multipoint Competition Vertical Integration Profitability ****Expansion and Development****

CL Strategies Con’t. Deployment Strategy Vertical Integration Internationalization Internal Growth

Business Level Strategies Differentiation, Initially (Uniqueness and Broad Target) Cost Leadership, Later On (Cost and Broad Target)

What are the key issues? Decline in overall sales of cola industry Emergence of New Age Beverages Coke vs. Pepsi Companies focused on rivalry rather than on the industry itself

Industry Issues Major bottlers have been consolidated which puts smaller bottlers at the mercy of Pepsi and Coca-Cola's distribution systems Bottlers' profitability is in danger with slim margins and declining growth CSDs made up a substantial share of US Liquid Consumption, but this doesn’t make them immune to risk (limited portfolio, non diversified) International markets are an important source of revenue and improvements in world economies are forecasted Growing health concerns for caffeine and sugar consumption threatens industry performance

Decline In CSD Consumption Consumption declines as consumers find healthier alternatives

Continued Growth Don’t be fooled; CSD industry continues to grow

Recommended Strategies to Follow (Corporate) Deployment Strategy Acquisition of Smaller Beverage Companies New Relations (contracts) w/ bottlers Directional Strategy = DEVELOPMENT Portfolio Strategy = DIVERSIFICATION Diversification Marketing Product Old Market, New Product

Recommended Strategies Business Level Integrated Cost Leadership Differentiation New Unique Products Marketed towards niche and board markets Most cost efficient as possible

Industry Recommendations Industry should be proactive about growing health concerns in US Market Companies need to refocus energies on advertising to rejuvenate industry and to fuel product demand both domestically and abroad Cola industry leaders, Coca-Cola and Pepsi, should take steps to better understand their competitive market environment

2008 Update (Recent Strategic Movies) Pepsi Acquisition of Naked Juice Acquisition of Fuze Expansion of existing product lines Coke $4.1 Billion acquisition of Glacaeu (Vitamin Water) Multiple New Age beverages ****PORTFOLIO DIVERSIFICATION****

2008 Update Con’t. Industry Strong Performance of New Products

2008 Update Con’t.

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