FREE ESSAY ON SOFT DRINK INDUSTRY

SOFT DRINK INDUSTRY

The Soft Drink Industry
When there is industry there is competition. The bigger the player, the harder they can
play. The big players always try to consume many of the small competitors. When they do
this they can expand their market share. A perfect example of this is the soft drink
industry; Pepsi and Coke have always been archrivals. They are always trying to gain
market share, by absorbing many smaller beverage companies to appeal to the public. This
paper will discuss the history between these two industry giants and how they financially
stand at this point, plus how supply and demand effects this industry.
Coca Cola was invented by an Atlanta pharmacist John Pemberton in 1886. His bookkeeper,
Frank Robinson, named the product after two ingredients, coca leaves and Kola Nuts. By
1895 the product was available in all 50 states. By 1916 the Company was sold twice, had
over 1000 bottlers, and was publicly traded (Dow Jones, Coke). During World War II, the
president of Coke Woodruff said, every soldier will have access to a 5 cent bottle of
coke(Dow Jones, Coke). The company received government aid to build 64 overseas bottling
plants during that time. This is how Coke began its ties with many foreign markets. 
Caleb Bradham, a Pharmacist from North Carolina, invented Pepsi. He Called it Pepsi Cola
because, he claimed it cured Dyspepsia or more commonly known as indigestion. He
registered the trademark in 1903. Pepsi tried to follow the same root as Coke by signing
up bottlers, by 1923 Pepsi was on its last leg until Loft Candy Company bought it in
1931. It increased its bottle size but kept its 5-cent price. In 1939 it introduced its
first radio jingle (Dow Jones, Pepsi).
Pepsi had a rough start compared to Coke, and always tried to rise out of the shadow of
this industry giant. According to Coca-Cola Company, the two most famous expressions in
the world are ok and Coca-Cola (Dow Jones, Coke). The world's largest soft drink Company,
Coke has more than 160 brands of beverages including carbonated, sports, and milk based
drinks, as well as Juices, teas, and, coffees. These products are sold in almost 200
countries (Dow Jones, Coke). Coca Cola has two of the three top selling soft drinks
(#1Coca Cola classic and #3 Diet Coke, #2 is Pepsi Cola) and 44% of the U.S. market
share. Sprite is the US's fastest growing major soft drink and Coke classic is king with
a 20% share of the market (Dow Jones, Coke).
The way these two giants battle is by trying to pull consumers back and forth between
them by releasing new products. Brand Identity is a very strong force in this industry;
it takes a long time to develop brand recognition and customer loyalty. Good recognition
is opportunity for market share growth. In 1964 Pepsi Acquired Mountain Dew as a new
product to attract more consumers. 
On April 23,1985 Pepsi blew its own horn by stating they won the Cola War. Pepsi felt
they won the war because Coke changed its original formula to be more like their drink.
Roger Enrico President of Pepsi Said, It gives 
me great pleasure to offer Each of you my heartiest congratulations. After 87 years of
going eyeball To eyeball, the other guy just blinked. Coca-Cola is withdrawing their
product From the market place, and 
is reformulating Coke to more like Pepsi(Enrico, 200).
The whole Cola war started on Nov 11, 1983 when Coke held a taste test and Pepsi won.
This began a huge ad war; the two companies had some real heat going. They had to out do
one another. They came out with catchy jingles and celebrities to indorse their products.
Coke figured changing the formula would give them a new edge on the war with something
new and exciting.
Changing the original formula was a huge mistake by Coke because, number one, Pepsi said
Coke did this to make their product more like Pepsi. Number 2; new the Coke was not
welcomed with open arms by the public. This was a change and it scared the public,
because they felt it was a different product and there was no consumer loyalty to it.
Coke recognized this very quickly and reintroduced Coca-Cola classic, the original
recipe. In 1990 coke introduced PowerAde, to enter the rapidly growing sports drink
market, and them introduced Fruitopia in 1994. In 1995 coke acquired Barq's, a root beer
Maker. All these new brands were acquired after the so-called war was over. In this
Industry there will always be competition, the war was always there, and it just had a
couple of more logs on the fire.
One of the biggest mistakes Pepsi ever made was in 1983, when they ignored the pleas by
nutrasweet for them to buy their newly approved aspartame sweetener to use in Diet Pepsi.
Coca-Cola beat Pepsi to the punch and organized a deal with nutrasweet. This left Pepsi
up in the air, while diet Coke pushed their new and better tasting product and gaining
market share. After this happened Mr. Enrico Said, I vow that I will never hang back like
that again (Deogun).
Earlier this year Coke made a proposal to purchase the European based Orangina. This
proposal would help coke capture more than 50% of the French soft drink market. This was
help 
Coca-Cola be the dominant force in the beverage market in Europe. Coca-Cola was prepared
to pay Orangina 840 Million dollars, which surprised Wall Street. Pepsi immediately tried
to prevent this from happening, they said this was against American anti-trust laws. This
is because Coca-Cola would be creating a Monopoly. This Proposal was shot down the French
government.
On July 20, Pepsi announced that they would be purchasing Tropicana juice business from
the Seagram's company for 3.3 billion dollars. Tropicana dominates the American chilled
orange juice market, holding 42 percent of the market share. They did this to gain
positioning in the orange juice market, They will now double the amount a market share
captured by Minute Maid. Minute Maid who is owned by the Coca-Cola only holds 19 percent
of the market (hays).
Tropicana pure premium has made investment overseas, they purchased orange groves in
places like China to help them better improve their market position. Andrew Conway an
analyst for Morgan Stanley said, Pepsi is getting very powerful brand equity in a growing
category (Hays). Tropicana has a hold on the not from concentrate business. This means
that the company packages the orange juice with out concentrating it. Minute Maid
abandoned this and went to concentrate last year (Hays). Coke was worried that they might
lose market share because of this move, but it is a cheaper way to produce orange juice.
President of Minute Maid Ralph H. Cooper said, We want to own breakfast everyday, we want
to own the lunch box everyday, and own the point of purchase everyday (Hays). There is
still a very competitive attitude between these industry giants. 
Pepsi has also taken aim at coke with a new drink. This drink is called Pepsi One; the
drink using a new sugar substitute contains one calorie. The substitute is supposed to
taste more like a real sugar drink. After only one hour of the approval of the new
substitute Sulfame Potassium, Pepsi announced that it was releasing a new drink. This was
a big risk for Pepsi since so many people are now drinking bottled water instead of soda.
Pepsi One hit store shelves on Oct. 17, with a 100 million-dollar launch. 
The battle plan to push the new beverage is to avoid the word diet in the add campaigns
and on the can. Heavily target the middle aged mail population, hoping they accept the
new product. Acquire a celebrity as spokesperson, Cuba Gooding Jr. is the pitchman for
the Pepsi One commercials. Have a catchy slogan, Only one has it all. Pepsi is predicting
to earn one billion dollars in annual sales (Deogun).
Coke is a larger corporation than Pepsi and it always has been, but we the public do not
realize this. Coke has so many more overseas holding than Pepsi does, in some foreign
market they have over 75% of the market share. This in the last two quarters, being such
an overseas company has financially hurt them. There is an economic crisis effecting
Asia, Russia, and Latin America, which has had a devastating effect on sales. Coke is now
beginning to question if they are going to be able to be profitable abroad. 
Coke called an analyst meeting on September 22 to look at their position, the analyst
predict earnings to drop. The price of a share has fallen from July high of $88.93 to $58
and lower. Last year Coke earned two thirds of its profits from overseas. The only upper
hand Coke has overseas is they can withstand a hit longer than their smaller foreign
competitors, so it can help them create market share. Coke has proven itself many times
in that they can operate their business to be profitable in economic hard times.
Coca-Colas chairman M. Douglas Ivester said, we will strengthen our system through this
difficult time and make the right decisions for the long term(Deogun). 
Cokes main worries overseas are Japan and Germany. Japan is suffering one of its worst
economic declines; Japan accounts for 17% of Coke's profits. Germany accounts for about
9% of Cokes earning, so this is also a very sensitive area. Coke game plan to compete
with this economic slump would be cutting prices in many markets and increasing marketing
in others. 
The last two quarters have been a rocky road for Coke; their net income fell 12%, While
Pepsi's profit rose 38% in the third Quarter. Pepsi is protected of foreign economic
troubles because they only receive 15% of profits from abroad; Coke receives more than
that from Japan alone. Pepsi is also profiting more from their new products (Deogun).
The soda industry revenue average is up 2.2% from last Quarter, Pepsi is Up 3.4% and Coke
is down 4.2%. On the flip side, in share holdings, Coke holds $170,092,000 in market
value, and Pepsi has only $58,210,000 (Dow Jones,Pepsi&Coke). 
Even though Coke earnings are dropping it is not scaring away investors, last weeks
shares traded were 13,192,700 and, Pepsi traded 23,332,900 shares. Coke almost doubled
Pepsi's net income in the last fiscal year. Pepsi with an income of 2,142.0 million up
almost 1,000.0 million since last year was not comparable to Coke's net income of 4,129.0
million, but Pepsi's growth rate was greater than Cokes(Dow Jones, Pepsi&Coke).
Supply and demand can tie into how these companies are performing. Pricing strategies and
advertisements mostly effects this out come. Coke overseas is having a hard times because
due to economic factors demand is down. So supply is large and they are forced to drum up
business by dropping prices to get rid of the excess supply. 
Soft drinks are especially sensitive to supplies; they are produced with harvested crops.
Orange Juice for example needs oranges to be made. If the product is hit by a bad harvest
of oranges than the supply of juice drops dramatically. This creates a demand and allows
the producer to charge a lot more for it.
This industry also takes place in price wars to win market share, lowing the price
creates an increase in demand and an increase in supply needed. This is because the lower
the price more beverages are sold and that means more demand is put on producers. This is
odd because producers would prefer to sell their products at a high price and produce
less when the retail price is lower.
Business without competition would not offer the public a fair price, because monopolies
would become dominate. If there was only one company than they could set a price and
people would not have a choice but to pay that price to buy their product.