Coke and Pepsi in 2006
The two companies, Pepsi-Cola and Coca-Cola are faced with a strategic problem of reversing the fortunes of a stagnating carbonated soft drinks (CSD) market both in the United States and internationally and fighting off intense competition in making inroads into the emerging markets for non carbonated beverages both in the United States and internationally while at the same time maintaining a good and rewarding working relationships with bottlers and distributors of the companies’ products.
The market for carbonated soft drinks, which has been the core product for both companies has leveled off to a growth of about 1% per annum between 1998 and 2004, which greatly contrasts to the average of between 3% and 7% in the 1980’s and 1990’s. This has been due to the health concerns raised about the consumption of carbonated products and increased competition from non carbonated beverages. This market demand stagnation has forced the two companies to seek an increased share of the market for non carbonated beverages which has been recording growth over the years. The demand for bottled water grew by 6.6% from 2000 to 2004while the demand for other non carbonated beverages grew by 12.6% over the same period in the United States market (page 11).
The above shows the need to shift focus of the two companies from the production of carbonated soft drinks to non carbonated beverages. The rate of growth of this market segment already represents a greater part of the demand growth for their products. The companies should cultivate ways of cutting costs in production of these noncarbonated beverages and find means of improving their distribution channels to ensure they capture more of this high growth market.
The method used by the companies of bottler consolidation seems to have been effective in reducing costs and constraints in bottling (page 9). This would be the best method to adopt in increasing production of the non carbonated beverages. The consolidated bottling will enable the companies have more control on the pricing of their products and reduce any associated costs of independent bottlers such as price disagreements and advertising costs to bottlers.
The distribution channels that the companies can use to market their non carbonated beverages should have an emphasis on supermarkets and fountain and vending since these two retailing channels have the highest volume of sales with 31% and 34% of the industry volume respectively and would thus be more effective in ensuring that the highest volumes of the products are sold. Fountain and vending would be the most preferable choice of retailing channel since it not only offers a high volume of sales at 34% of the share of industry volume, but also a high profitability with an index of 1.48 of the net price and 1.80 of the variable profit (page 20). Convenience and gas should also be considered since it offers a relatively high volume of sales and profitability at an index of 1.00 of both net price and variable profit (exhibit 6).
The two companies are also faced with the need to diversify away from the United States to the international market in order to further consolidate their revenue streams. The growth in beverage industry is very high in some foreign markets, with Pakistan and Indonesia leading with growth rates of 11.7% and 11.4% respectively between 1999 and 2003 (exhibit 10) (page 22). This is inhibited by the problems particular to each part of the international market and ranges from political instability to intense competition from local industry players.
However, despite these problems, the international market presents a high demand growth potential both in sales and revenues and therefore it is advisable that the companies increase their global presence.
Careful considerations of the potential benefits should be made and then weighed against the potential risks before venturing in any foreign market. An evaluation of the expected profitability and growth potential of each market should be carried out to ensure that the companies venture into only those foreign markets which are profitable to them.
The strategies of the companies should focus on ways and means of shifting their production and marketing emphasis from the carbonated soft drinks to the non carbonated beverages. This can be attained by adopting the earlier mentioned options in bottling and distribution.
Strategies should also seek ways of making inroads to the international market for both carbonated and non carbonated beverages in an attempt to expand the revenue streams for the companies.
Yoffie, D. (2009). Cola Wars Continue: Coke and Pepsi in 2006. Boston, MA: Harvard Business School.