Coca-Cola Versus Pepsi

Introduction

There are few markets in the world as clearly dominated by two companies as it is the soft-drinks one. In this business, “The Coca-Cola Company” and “PepsiCo, Incorporated” hold most of the market share in virtually every region of the world. This is why a big rivalry between them has been growing throughout time. In the present essay I am going to develop the main characteristics of this global battle. For a better understanding, let's take first a look to the principal features of both companies.

The Coca-Cola Company dominates the market by owning four of the global top five soft-drink brands: Coca-Cola, Diet Coke, Fanta and Sprite. Its main activity consists on producing syrup concentrate which is then sold to various bottlers throughout the world who hold a Coca-Cola franchise. The firm makes or licenses more than 400 drink products in more than 200 nations. In 2006, sales hit $24,088 million and net income $5,080 million. 71,000 employees work in the company.

PepsiCo, Incorporated is the biggest snack maker and the second biggest soft-drinks maker in the world. The company manufactures, markets and sells beverages and snacks in approximately 200 countries. In 2006, sales hit $35,137 million and net income $5,642 million. 168,000 employees work in the company.

Historical rivalry

In a hypothetical 0% growth market with only two competitors, the only way to increase sales is to go after competitor's clients. Reality, although different, doesn't differ very much in some national soft-drinks markets (particularly the United States, Canada and the United Kingdom). This is the main cause of the rivalry between Coca-Cola and Pepsi: head-to-head battle is not only habitual in many markets, but also unavoidable in the desire for growth of the companies.

The term “cola wars” was first used to describe the mutually-targeted marketing campaigns in the 1980s and 1990s between Coca-Cola and Pepsi. One famous chapter of these campaigns was the “Pepsi Challenge”, that showed most of people choosing Pepsi over Coca-Cola in blind taste tests. The campaign, along with the unfortunate flavor change of Coca-Cola, led to a boom in Pepsi's market share of soft-drinks in the United States, from 6 to 14 percent (Hartley, 2004).

Another episode of direct confrontation action between the two rivals was a complaint of Pepsi against Coca-Cola, defending that “Coke was illegally trying to force competitors out of the market” in some European countries (Hartley, 2004). The European Competition Commission sentenced: “The company will be banned from offering volume-linked rebates as well as signing exclusivity deals with retailers. It will also have to hand over as much as 20% of the room in its coolers and vending machines to rivals such as PepsiCo, Inc. to stock their own brands” (Boles, 2005).

New battlegrounds

“A decade ago, the companies' lineups consisted primarily of their flagship drinks, diet colas, citrus drinks and a few flavored colas. A glance at the companies' product lines shows that the cola wars are not just about colas anymore” (Sanders, 2007).

The battle between Coca-Cola and Pepsi has not only spread out to virtually every territory in the world, but also to an appreciable variety of products. Apart from colas, both companies produce juices, ready-to-drink coffees, teas and green teas, milk-based drinks, energy drinks and bottled water.

Acquisitions have turned out to be a basic tool for fast growth in those new markets. Coca-Cola's acquisitions include Planet Java, Mad River Traders Inc. and Odwalla Inc. Pepsi's acquisitions include Tropicana, Quaker Oats Co. and South Beach Beverage Company.

The shift of consumers to healthier drinks has widened the scope of product lines to functional beverages as well. Aims include weight loss, mental acuity, clearer skin, physical strength or even sexual endurance (Lempert, 2007).

Different models

Despite direct competition of their products in many markets, Coca-Cola and Pepsi have very different business models, revenues sources and global presence.

The Coca-Cola Company is the largest manufacturer, distributor and marketer of nonalcoholic drinks in the world. It manufactures beverage concentrates, syrups and some finished beverages. It also produces, markets and distributes certain juices, juice drinks and certain water products. In addition, it has ownership interests in numerous bottling and canning operations. North American account for 28,9% of total revenues. European Union (29,4%) and Latin America (10,9%) are its biggest foreign markets (The Coca-Cola Company, 2007). An important asset of the company is its name: Coca-Cola is the most valuable brand name in the world (Businessweek/Interbrand annual ranking of the 100 best global brands, 2007).

PepsiCo is the first world maker of snacks and the second largest maker of soft-drinks. The company manufactures, markets and sells a variety of carbonated and non-carbonated beverages, as well as salty, sweet and grain-based snacks, and other foods. Its Frito-Lays snacks division accounts for about 60% of company's revenue. The United States account for 59% of total sales. The second and third biggest markets are Mexico (9%) and United Kingdom (5%).

To sum up: while Coca-Cola is centered in a soft-drink market spread all over the world, Pepsi's revenues come from both drinks and snacks and are mainly achieved in its home market.

Continued profitability

The long-term continued profitability of both companies is accomplished by competitive advantages over rivals.

The dominance of the global market gives the companies advantages such as purchasing power, managerial efficiency (by increasing the specialization of the managers), marketing reduction of costs and financial advantages. Furthermore, sometimes the companies “undoubtedly abuse their dominant position in developing countries. Local brands may just be up against superior products and distribution networks, but the lack of strong antitrust rules in some developing countries can make it even harder for local companies to compete” (Altman, 2006). Their well-known brand names (Coca-Cola and Pepsi are ranked 1st and 26th respectively in 2007) constitute another important advantage (Businessweek/Interbrand annual ranking of the 100 best global brands, 2007).

Moreover, both companies are likely to continue leading the soft-drinks

...