Cola Wars Continue: Coke and Pepsi in 2010
Strategy
‘Cola Wars Continue: Coke and Pepsi in 2010’
Analysis of the US carbonated soft drinks (CSD) industry
(a) Strategic issues
The CSD market in the US (approx. $74 billion) is dominated by two concentrate manufacturers
– namely Coke and Pepsi –. Both companies have been competing intensely since the 1970s, yet have thrived from this competition and have grown the business very profitably, as both have benefitted from the CSD market growth rates of around 10% p.a. until the early 2000s, when domestic consumption started to decline and in 2009 fell back to levels of 19901:
U.S. Liquid consumption Trends (gallons/capita):
1970
Carbonated soft drinks
1990
2000
2009
22.7
46.9
53.0
46.0
U.S. Soft Drink Market Share (Unit Case Volume %):
1970
Coca-Cola Company
PepsiCo, Inc
1990
2000
2009e
34.7
19.8
41.1
32.4
44.1
31.4
41.9
29.9
In order to understand the strategic issues of the concentrate manufacturers in the US market, an analysis of the CSD industry structure appears necessary. A practical tool for assessing strategic issues is Porter’s Five Forces, as this tool supports analyses of competition, as strategy is fundamentally about competition2. The model of Porter is an outside-in business unit strategy tool that analyses the attractiveness (value) of an industry structure, capturing the key elements of industry competition.
1
2
Source: HBS case study ‘Cola Wars Continue: Coke and Pepsi in 2010’ May 26, 2011, Exhibit 1
Source: Porter, ‘Competitive Strategy’
1
Figure 1: Porter’s Five Forces Analysis
Summary on figure 1
Barriers to entry are very high due to the following key factors: (1) anybody trying to break into the CSD market must compete with Coke’s and Pepsi’s combined market share of >75%; (2) the market leaders have – over decades – built up strategically critical supply, production and sales channels, which would require enormous investments for followers to
‘Cola Wars Continue: Coke and Pepsi in 2010’
Analysis of the US carbonated soft drinks (CSD) industry
(a) Strategic issues
The CSD market in the US (approx. $74 billion) is dominated by two concentrate manufacturers
– namely Coke and Pepsi –. Both companies have been competing intensely since the 1970s, yet have thrived from this competition and have grown the business very profitably, as both have benefitted from the CSD market growth rates of around 10% p.a. until the early 2000s, when domestic consumption started to decline and in 2009 fell back to levels of 19901:
U.S. Liquid consumption Trends (gallons/capita):
1970
Carbonated soft drinks
1990
2000
2009
22.7
46.9
53.0
46.0
U.S. Soft Drink Market Share (Unit Case Volume %):
1970
Coca-Cola Company
PepsiCo, Inc
1990
2000
2009e
34.7
19.8
41.1
32.4
44.1
31.4
41.9
29.9
In order to understand the strategic issues of the concentrate manufacturers in the US market, an analysis of the CSD industry structure appears necessary. A practical tool for assessing strategic issues is Porter’s Five Forces, as this tool supports analyses of competition, as strategy is fundamentally about competition2. The model of Porter is an outside-in business unit strategy tool that analyses the attractiveness (value) of an industry structure, capturing the key elements of industry competition.
1
2
Source: HBS case study ‘Cola Wars Continue: Coke and Pepsi in 2010’ May 26, 2011, Exhibit 1
Source: Porter, ‘Competitive Strategy’
1
Figure 1: Porter’s Five Forces Analysis
Summary on figure 1
Barriers to entry are very high due to the following key factors: (1) anybody trying to break into the CSD market must compete with Coke’s and Pepsi’s combined market share of >75%; (2) the market leaders have – over decades – built up strategically critical supply, production and sales channels, which would require enormous investments for followers to