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Finding the next frontier

Abhishek Singh. Efesa Origbo. Shen Ge. Udayan Sathe. Finding the next frontier. Outline. Background Coca-Cola Pepsi Industry Analysis SWOT Analysis Competitive Dynamics The Cola Wars (1953 – 2006) The New Frontiers. Background: Coca-Cola.

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Finding the next frontier

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  1. Abhishek Singh • Efesa Origbo • ShenGe • UdayanSathe Finding the next frontier

  2. Outline • Background • Coca-Cola • Pepsi • Industry Analysis • SWOT Analysis • Competitive Dynamics • The Cola Wars (1953 – 2006) • The New Frontiers

  3. Background: Coca-Cola Owns or licenses more than 500 brands including carbonated soft drinks (CSDs), waters, juices, teas, coffees, and energy drinks. Owns four of the world’s top five nonalcoholic beverages including Coca-Cola, Diet Coke, Sprite, and Fanta. Operates in more than 200 countries. Headquarters in Atlanta, Georgia 2009 Revenue: $30,990 million

  4. Evolution of Coca Cola

  5. Carbonated Soft Drink (CSD) Coke Brands

  6. Non-CSD Coke Brands

  7. Background: Pepsi Owns 18 brands in its portfolio including snacks, carbonated soft drinks (CSDs), waters, juices, and energy drinks. Holds 40% of market share of total US savory snacks market Holds 22.9% of US liquid beverage market 2009 Revenue: $43,232 million

  8. Evolution of Pepsi

  9. CSD Pepsi Brands

  10. Non-CSD Pepsi Brands

  11. INDUSTRY ANALYSIS

  12. Industry Life Cycle (CSD) Source: IBISWorld

  13. Industry Overview (CSD) Source: IBISWorld

  14. Porters 5-Forces Analysis Potential Entrants Suppliers Inter-Firm Rivalry Buyers Substitute Products

  15. Profitability Analysis Source: Beverage Digest Fact Book 2001 & 2005

  16. Stock Performance Source: Yahoo! Finance S&P 500 Pepsi Co. Coca-Cola

  17. SWOT ANALYSES

  18. Strengths Coke Pepsi Diversified product base and distribution channel Leadership in snack business segment Bottler consolidation to monitor consumer trends and experiment with niche products and packaging • Robust manufacturing and distribution capabilities • Strong global footprint emphasizing emerging countries • Leading market presence built on strong brand portfolio

  19. Weaknesses Coke Pepsi Limited geographic expansion (Overdependence on US markets) Lower operating margins Product recalls damage brand image • Destocking of products as the customer preference shifts to value products • Product recalls tarnishing brand image

  20. Opportunities Coke Pepsi Broadening product portfolio to penetrate new markets International expansion for long term growth opportunities for snacks and beverages Growing per capita consumption in emerging markets • Shifting focus from volume to volume/price/mix • Acquisition of its major bottler in North America • Growing per capita consumption in developing economies

  21. Threats Coke Pepsi Competition from Coke Slow growth of CSD in US Government regulations could affect sales and profitability Exposure to currency and geopolitical risks in countries • Health hazard awareness and thus evolving consumer preferences • Water scarcity and poor quality impacts production costs and capacity

  22. Competitive Dynamics

  23. Competitive Rivalry Model

  24. Market Commonality Product Market Coke Pepsi CSD Juice Water Geographic Market

  25. Resource Similarity Coke Pepsi Operational Bottler’s Support Suppliers Network Retail Channels Organizational Marketing Focus Product market diversity • Operational • Bottler’s Support • Suppliers Network • Retail Channels • Organizational • Marketing Focus • Geographic market diversity • Be anywhere and everywhere

  26. Drivers of Competitive Rivalry

  27. Likelihood of Attack

  28. Likelihood of Response

  29. 1953 - 2006 THE COLA WARS

  30. The War Fronts Riding consumer trends Managing the Value Chain High Performance Leadership Brand Communications Quest for Alternatives

  31. Riding Consumer Trends • Post World War II • Alfred Steele became CEO of Pepsi • Motto: “Beat Coke” • Rapid growth in supermarkets & convenience stores • Rapid growth in fast-food restaurants

  32. Competitive Strategy Coke Pepsi Dominate the restaurants Compete for fast-food fountains • Compete for restaurants • Dominate the fast-food ‘fountain’

  33. Results (2004) Coke Pepsi 22% of fountain national pouring rights Increased pressure from Wal-Mart: source of 14% of total net revenue. • 68% of fountain national pouring rights. • Less dependence on Wal-Mart.

  34. Managing the Value Chain Fragmented CSD Distribution network. Smaller bottlers weakened by high operating costs and low profit margins. Strained relationships between Coke and franchised bottlers.

  35. Competitive Strategy Coke Pepsi Effectively manage independent bottler network through acquisitions MEI Grand Metropolitan General Cinema • Consolidate bottlers using the ‘anchor-bottler’ model • Created Coca-Cola Enterprises as largest bottler. • Leveraged economies of scale in factory production.

  36. Results Coke Pepsi Eventually copied Coke 87.2% of domestic volume from top 10 bottlers • Most consolidated bottler network • 94.7% of domestic volume from top 10 bottlers

  37. High Performance Leadership • Demand for core product had leveled off domestically • Global demand was also flat • Effective leadership was needed to decide business level strategies: • Who • What • How

  38. Competitive Strategy Coke Pepsi Stable and coherent leadership Effective execution of business level strategy “Grow the core and add some more” • Unstable leadership • Layoff of 7000 employees • Clumsy execution (or non-execution) of business level strategy • Missed strategic acquisitions

  39. Results Coke Pepsi Annual growth of net income: 17.6% Shareholder Return: 46% • Annual growth of net income: 4.2% • Shareholder Return: -26%

  40. Brand Building Activities High brand loyalty among CSD consumers Increased use of advertising to differentiate product offerings

  41. Competitive Strategy Coke Pepsi The Pepsi Generation Godfather ‘Pepsi Challenge’ • Coke refreshes best • Always Coca-Cola

  42. Results (2010) Coke Pepsi Interbrand ranking: #23 Brand value: $14.06b • Interbrand ranking: #1 • Brand Value: $70.45b

  43. Quest for Alternatives Demand for core product had leveled off. Increasing consumers’ demand for alternative beverages Cola was largely perceived as “too fattening”

  44. Competitive Strategy Coke Pepsi Aggressive shift into non-CSDs through new product launches & strategic acquisitions “Smart Spot” program for marketing diet sodas and non-carbs • New Coke • Shift into non-CSDs through new product launches, and a series of acquisitions and divestitures

  45. Result Coke Pepsi Leader in all key non-CSD categories Gatorade(80.4%) Lipton(35.2%) Tropicana(26.8%) Aquafina (13.6%) • Follower in all key non-CSD categories • PowerAde(18.1%) • Nestea(23.9%) • Minute Maid(14.8%) • Dasani(12.1%) • New Coke fiasco

  46. THE NEXT FRONTIER

  47. WHERE WILL IT BE?

  48. Future Battles Emerging Markets Brand Loyalty Product Portfolio

  49. Developed/Emerging Markets Source: Beverage Digest Fact Book 2001 & 2005

  50. Brand Loyalty “do you want to sell sugar water for the rest of your life or come with me and change the world?“ - Steve Jobs to John Sculley But for brand loyalty, carbonated soft drinks are a commodity Future emphasis would be on brand building activities in traditional and emerging media channels

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