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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

  • Abhishek Singh

  • Efesa Origbo

  • ShenGe

  • UdayanSathe

Finding the next frontier


Outline

Outline

  • Background

    • Coca-Cola

    • Pepsi

  • Industry Analysis

  • SWOT Analysis

  • Competitive Dynamics

  • The Cola Wars (1953 – 2006)

  • The New Frontiers


Background coca cola

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


Evolution of coca cola

Evolution of Coca Cola


Carbonated soft drink csd coke brands

Carbonated Soft Drink (CSD) Coke Brands


Non csd coke brands

Non-CSD Coke Brands


Background pepsi

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


Evolution of pepsi

Evolution of Pepsi


Csd pepsi brands

CSD Pepsi Brands


Non csd pepsi brands

Non-CSD Pepsi Brands


Industry analysis

INDUSTRY ANALYSIS


Industry life cycle csd

Industry Life Cycle (CSD)

Source: IBISWorld


Industry overview csd

Industry Overview (CSD)

Source: IBISWorld


Porters 5 forces analysis

Porters 5-Forces Analysis

Potential Entrants

Suppliers

Inter-Firm

Rivalry

Buyers

Substitute Products


Profitability analysis

Profitability Analysis

Source: Beverage Digest Fact Book 2001 & 2005


Stock performance

Stock Performance

Source: Yahoo! Finance

S&P 500

Pepsi Co.

Coca-Cola


Swot analyses

SWOT ANALYSES


Strengths

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


Weaknesses

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


Opportunities

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


Threats

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


Competitive dynamics

Competitive Dynamics


Competitive rivalry model

Competitive Rivalry Model


Market commonality

Market Commonality

Product Market

Coke

Pepsi

CSD

Juice

Water

Geographic Market


Resource similarity

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


Drivers of competitive rivalry

Drivers of Competitive Rivalry


Likelihood of attack

Likelihood of Attack


Likelihood of response

Likelihood of Response


The cola wars

1953 - 2006

THE COLA WARS


The war fronts

The War Fronts

Riding consumer trends

Managing the Value Chain

High Performance Leadership

Brand Communications

Quest for Alternatives


Riding consumer trends

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


Competitive strategy

Competitive Strategy

Coke

Pepsi

Dominate the restaurants

Compete for fast-food fountains

  • Compete for restaurants

  • Dominate the fast-food ‘fountain’


Results 2004

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.


Managing the value chain

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.


Competitive strategy1

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.


Results

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


High performance leadership

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


Competitive strategy2

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


Results1

Results

Coke

Pepsi

Annual growth of net income: 17.6%

Shareholder Return: 46%

  • Annual growth of net income: 4.2%

  • Shareholder Return: -26%


Brand building activities

Brand Building Activities

High brand loyalty among CSD consumers

Increased use of advertising to differentiate product offerings


Competitive strategy3

Competitive Strategy

Coke

Pepsi

The Pepsi Generation

Godfather

‘Pepsi Challenge’

  • Coke refreshes best

  • Always Coca-Cola


Results 2010

Results (2010)

Coke

Pepsi

Interbrand ranking: #23

Brand value: $14.06b

  • Interbrand ranking: #1

  • Brand Value: $70.45b


Quest for alternatives

Quest for Alternatives

Demand for core product had leveled off.

Increasing consumers’ demand for alternative beverages

Cola was largely perceived as “too fattening”


Competitive strategy4

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


Result

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


The next frontier

THE NEXT FRONTIER


Where will it be

WHERE WILL IT BE?


Future battles

Future Battles

Emerging Markets

Brand Loyalty

Product Portfolio


Developed emerging markets

Developed/Emerging Markets

Source: Beverage Digest Fact Book 2001 & 2005


Brand loyalty

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


Product portfolio

Product Portfolio

New products must keep up with new demands of a health conscious society.

Consumer preferences vary across the globe.

No. 1 Coke Product in Japan?


Conclusion

Conclusion

  • There has been intense competition between Coke & Pepsi

  • Competition has occurred on different fronts:

    • Response to Consumer Trends

    • Distribution Network Consolidation

    • Leadership

    • Brand Communications

    • Alternatives to Core Product

  • Future battles fronts:

    • Emerging Markets

    • Brand Loyalty

    • Product Portfolio


Thank you

Thank You!

Questions?


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