Cola War

The "cola wars," which describes the on-going battle between Coca-Cola and Pepsi for supremacy in the soft drink industry, is more than 100 years old since the inception of both companies. The most intense battle was started after the 1950's, both domestically and globally for market share and sales. With a tremendous amount at stake, Coke and Pepsi had a combined 73% of the U.S. soft drink market. Other soft drink companies like Dr. Pepper/Seven Up, Cadbury Schweppes, Royal Crown and A&W Brands have 16% of market share. Remaining 11% are with regional soft drink and private label brands.

Coca Cola is the biggest soft drink company on the planet. It has a 45% share of worldwide soft drink market and 80% of its profits come from outside of United States. During 1960's, Coke introduced some new brands like Sprite, Fanta and Tab. Also during the same period Coke purchased some non cola brands like Minute Maid, Duncan Foods and Belmont Springs Water. In 1982, Coca Cola introduced "Diet Coke" which was a phenomenal success and considered the most successful launch of eighties. Coke also introduced some new products like Cherry Coke & Caffeine Free Coke during 80's.

Pepsi is the second largest soft drink company in the world after Coca Cola. Its major market is USA from where it generates more than 80% of its revenues as Americans drink more soft drinks than any other beverage. Unlike Coke, Pepsi generates 15% of its revenues from outside of US. Pepsi's major brands include Mountain Dew, Marinda, Diet Pepsi, Caffeine Free Pepsi-Cola, Lemon Lime Slice and Cherry Pepsi.

Soft drinks consisted of three major ingredients i.e. flavor base, sweetener and carbonated water and so there are three major participants in the value chain of it like concentrate and syrup producer, bottlers and distributors. The concentrate producer (CP) blended the necessary raw material ingredients (excluding sugar or high fructose corn syrup), packaged it in plastic canisters and shipped the blended ingredients to the next participant i.e. bottler. CP suggests the operating procedure for bottlers and set standards for them too. Coca-Cola and Pepsi Cola are CP's as they've their own formulations of ingredients.

Bottlers purchased concentrate from CP and added carbonated water, sugar or high fructose corn syrup into it; bottled or canned the soft drink as per the requirement and send it to next participant. Both Coke and Pepsi offered "direct store door" delivery (DSD) service to its clients. Bottlers need heavy investment and also specialized, high-speed lines. The major portion of investment lies in bottling & canning lines, trucks, warehouses and distribution networks. Bottlers have an authority of final say in decisions concerning prices, new packaging, selling, advertising & promotions in its territory.

Bottlers send the newly made soft drinks to the next participant i.e. distributors. Distributors of soft drinks include food stores, fountains, vending machines, convenience stores and gas marts. Historically the maximum sales of soft drinks for Pepsi are retail outlets while Coke had always been dominant in fountain sales. Now both companies are focusing on fountain as it is extremely profitable for restaurants and also they are largest suppliers to vending channels as vending machines are purchased and installed by bottlers while CP's offers rebate to encourage them.

The cola wars were and still are fighting on many fronts such as advertising, packaging and new products. Still brand recognition is a competitive advantage that differentiated the soft drinks among consumers and in order to recognize their brands. Coke and Pepsi invested heavily in their trademark over time with their marketing campaigns recognized as among the most innovative, sophisticated and aggressive of all major advertisers.

As Coke and Pepsi's competition started heating up in the beginning of 1950's, Coca-Cola started using advertising that finally recognized the existence of competitors which was evidenced in its slogans. In the 1960's both companies started experimenting with flavors, packaging, advertising and segmentation strategies leading to new product & packaging introductions.