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    Coca Cola Vs Pepsi in India: The

    Battle of Bottles Continues

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    Industry Background

    Pepsi introduced aerated drinks in India in 1956 and withdrew in

    1961

    Coca Cola entered in 1961 and withdrew in 1977

    Reduce its equity holding to 40%

    Share the secret behind the concentrate

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    Cola-Cola is a $19 billon US company based in Atlanta.

    The Coca-Cola trademark is considered to be one of the five best

    known trademarks in the work also considered the most admired

    trademark according to a survey in 1988.

    It was developed as a formulation in 1886 by Dr. John Pemberton, a

    pharmacist in Atlanta.

    In 1919, Ernest Woodruff purchased the Coca-Cola company and by

    1923 his son Robert Woodruff took the company to great heights.

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    Worldwide Coca-Cola has a market share of 70% in the Cola segment

    and about 40% of its market share comes from US alone.

    Worldwide 37% of Coca-Colas production was from independently

    owned bottlers; 57% from plants with non-controlling interests; and 13%

    from plants with controlling interests

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    Coca-Cola Brands in India

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    Profile

    Was formulated in 1893 in New Bern, North Carolina, by Caleb

    Bradham.

    Throughout 1950-60 Pepsi s competed on price and sold its

    concentrate to bottlers at a price 20% lower than Coca-Cola.

    By 1963 Pepsi under the leadership of Donald Kendell diversified

    into production of snacks (Frito-lay) and restaurants (Pizza-hut, Taco

    Bell, KFC).

    As a result of this diversification Pepsi-Cola was renamed PepsiCo.

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    The reason for diversification was that the management was of the

    opinion that there were synergies possible across these businesses:

    chips were supposed to go well with soft drinks, and new fountain

    outlets could be opened in restaurants.

    Pepsi has a number of powerful brands in its arsenal namely Slice,

    Diet Slice, Cherry Pepsi.

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    Pepsi Co. Brands in India

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    Parle Entered the Market

    Parle led by Ramesh Chauhan captured 60% of the market.

    Parle soft drinks products Thumps up, Gold Spot, Limca, Citra,

    Maaza and Frooti

    Competitors

    Pure Drinks Campa Cola and Campa Orange from regional

    vendors

    Dukes and Spencer

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    Post 1980 Era - Pepsi

    Decade of slow Liberalization

    Good Stage for MNCs

    Pepsi re-entered the market with tie ups with Punjab Agro andVoltas (Became fully owned subsidiary of PepsiCo in 1991)

    Obligations

    Agro research set ups

    Technology transfer in food and beverage processing

    Investments in processing vegetables and grains

    Export obligations and facilities for local manufacturers of colaand fruit juice concentrates

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    Post 1980 Era Coca Cola

    Coca Cola Re entered in 1993 after the liberalization.

    Captured 69% of market share after acquiring Parles soft drinks.

    Sore relationship between Coca Cola and Parle

    Coca cola promoted its own products

    Coca Cola was a new brand launch, not a relaunch

    Lost market share

    Parles market share captured by Pepsi and became the leader in

    Indian Market

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    Products

    In India CSDs were largely distributed in returnable glass bottles.This trend was different as in most of the other countries CANSwhere used to served them.

    Low economies of scale in Can manufacturing caused high prices for

    canned soft drinks almost double.

    Introduction of Fountains

    1998 Soft Drink Sales

    CSDS 61.3%

    NCSDs 19.5%

    NCSD Liquid and powder form10.4%

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    Market Share 1998

    Product Market Share(%)

    Coca Cola 18

    Limca 10

    Fanta 8

    Thums up 17

    TOTAL 55 Approx

    Product Market Share(%)

    Pepsi Cola 27

    Mirinda 10

    Teem 1.5

    TOTAL 40 Approx

    COCA COLA Pepsi CO

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    PRODUCT PORTFOLIO

    FLAVOR COCA-COLA PEPSI CO

    COLA COCA-COLA, THUMS UP* PEPSI COLA

    CLOUDED LIME FANTA , LIMCA* SEVEN UP

    CLEAR LIME CITRA TEEM

    ORANGE FANTA ,GOLD SPOT* MIRINDA

    MANGO NSCD MAAZA*

    SODA KINLEY EVERSAL

    * DENOTES PRODUCT TAKEN FROM PARLE.

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    Products Category

    SSoft Drinks

    Aerated

    (CSDs)

    Non

    Aerated

    (NCSDs)

    Liquid Base Diluted Fruit Pulp

    Carbon dioxide Preservatives

    Bottled/Canned/

    Tetrapacked

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    Indian Soft Drink Market In 1996 Rs 32 Bn 60% CSDs and 20% NCSDs

    15% consumption in PET bottles, highest was the consumption in

    returnable glass bottles.

    Bottling plants were highly capital incentive and highly automated

    having the typical filling rate of 600-1200 bottles per minute.

    Margins

    Bottler 10%

    Retailers 20%

    Markup due to excise and taxes 40%

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    Shares of ThroatLIQUID SHARE OF THROAT(%)

    WATER 75

    TEA 13.3

    COFFEE 1.7

    MILK 4.8

    CSD 1.8

    NCSD .7

    SQUASH/POWDERS .7

    FRESH LIME JUICE .9

    ALCOHOL .3

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    Indian Soft Drink MarketMONTH INDEX

    January 100

    February 150

    March 170

    April 200

    May 220

    June 230

    July 220

    August 200

    September 170

    October 160

    November 150

    December 150

    Index : January=100

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    Supply Chain Structure

    Concentrate

    Manufacturer

    Retailers

    Bottler

    End Users

    Owned by

    ConcentrateManufacturer

    Franchisees

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    Competition

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    Competitors in India

    In India Coca-Cola held 54% of the market share while Pepsi Co.India had a market share of 40%.

    Since Coca-Cola had acquired Thumbs Up, Limca etc. from Parle its

    market share had shot up.

    Market share of soft drinks brands (as of Jan 1998)

    Brand Coca-Cola Brands Pepsi Brands

    Coal Segment (60%) Coca-Cola: 17.9%

    Thumbs Up: 17.5%

    Pepsi: 27.3%

    Orange Fanta: 7.9%

    Gold Spot: 1.0%

    Mirinda: 7.9%

    Clouded Lime Limca: 9.4% Teem: 1.5%

    Clear Lime Citra: 0.5% 7 Up: 2.5%

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    Marketing style of Pepsi Co. Pepsi from the beginning chose to adapt to Indian needs and preferences

    by associating itself with local festivals, events, and traditions.

    Its strategy was to introduce campaigns made in India and specific to

    Indian settings, people, and idioms.

    For example it adapted the famous US campaign line Youve got the Rightone baby, Uh-Huh to Yehi hai right choice baby, Aha.

    In Chennai it offered a bottle of Pepsi free with idlis, in Kolkata, it linked it

    with local cricket, and in Delhi with the festival of Holi.

    It adopted an aggressive marketing strategy and positioned itself as a

    thing for the youth.

    It was also agile in getting a number of events sponsored or in which it had

    major presence.

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    Cont

    It also associated itself with celebrities in its ad campaigns.

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    Marketing style of Coca-Cola Initially Coca-Cola campaigned its low key and less aggressive global

    ads in India.

    From mid 1997, they also started on similar platform as Pepsi andlaunched India specific ads.

    They ran a very successful campaign with the theme Eat, Sleep,Drink only Coca-Cola which increased its brand recall from 19.4%in August 1997 to 30.4 % in March 1998.

    Realizing the need of having celebrities endorsing its products,

    Coca-Cola signed cine stars Amir Khan, Karishma Kapoor and amongcricketers they signed Sourav Ganguly, Anil Kumble etc.

    It also positioned its other brands like Thumps Up with a machoimage, Fanta as fun drink, and Limca for anyone taking a breather

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    Key Differences

    Category Pepsi Co. Coca-Cola

    Advertisement

    They worked primarily with ad

    agency and they went fornational and regional promotion

    They worked with 4 to 5 ad

    agencies and most of there adsand they went for national

    promotion

    Distribution and

    Logistics

    It operated smaller trucks which

    covered shorter routes and they

    used half depth crates

    It operated large trucks on

    longer routes and used full depth

    crates.Bottling Plants It owned and operated a

    number of bottling plants thus

    providing a control over bottling

    operations

    They initially had very little

    bottling plants and later followed

    the footsteps of Pepsi

    Quality Pepsis quality standard were

    not as stringent and world class

    compared to Coca-Cola

    They quality checks were very

    stringent and world class

    Management Very thin head office and much

    of the initiatives were left to the

    people at regional level

    Coca-Cola had most of its

    decisions taken at head office in

    New Delhi, even Atlanta office

    kept it on a tight leash

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    QUES AND ANS

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    Threat of New Entrants

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    Threat of New

    Entrants

    Degree of Threat Rating Action Required

    CapitalRequirement High capitalrequirement for

    initial setting up of

    bottling plants and

    distributions.

    High New entrantslooked far fetched

    dreams. The

    existing rivalry

    between the two

    giants has already

    sore the marginDistribution System Need to be robust

    to meet ever

    increasing demand

    as the market is on

    rise

    High Try to get more

    franchise under the

    belt and try to

    improve the

    logistics.

    Economies of Scale Coca Cola stands

    way ahead ,the

    benefit of bulk sale

    and distribution

    cannot be fetched

    by other

    High Concentrate more

    on bulk sale,

    production and

    distribution. Can

    use its network to

    get full benefits

    Threat of New Entrants

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    Threat of New

    Entrants

    Degree of Threat Rating Action Required

    Government Polices High restrictions onentry ,high amount

    of quality check up

    of products.

    High Because of hugerestriction posed by

    the government it

    helps Coca Cola to

    sustain as market

    leader as the entry

    threat becomeminimum

    Overall Strong Entry

    Barriers, High

    Capital Investment,

    Government

    Obligations make it

    difficult for new

    entrant to enter

    High Practically only few

    companies have

    tried to enter in this

    segment. Threat

    from the new

    entrant other than

    the new innovative

    product is minusule

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    Threat of

    Substitutes

    Degree of Threat Rating Action Required

    Relative

    Performanceof Substitutes

    Almost all Cola drinks are sold

    at the same price, othersubstitutes sold at much

    cheaper rate but end benefit

    is differentiable

    High It needs to continue to introduce

    value for money combination tomake its brand cheaper yet

    powerful.

    Switching Cost No Switching cost practically.

    Buyers can any time switch to

    different product category.

    High Brand Promotion is important.

    Distribution plays an important role

    in making its product available everytime at all places

    Buyer

    Propensity to

    Consume

    Consumption of Cola drinks is

    influenced by the climate.

    People might opt for other

    substitutes like tea,coffee,etc.

    High Take advantage of the summer heat

    in India. Capture the tea and coffee

    drinker who might like to prefer cold

    drink to quench themselves in thescorching summer.

    Overall Pepsi is one of the main

    substitute threats of Coca

    Cola. Other substitutes like

    tea,coffee,etc influence the

    buyers but its hardly Coca

    Medium India is a tea drinking society but

    coca cola has been to able to

    influence to a great extent. Rural

    population is the key to increase

    and spread its influence.

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    Q2. Identify the Strategic questions facing Coca

    Cola?

    Expanding market share in non carbonated drinks category.

    Expanding in bottled and packaged mineral water segment.

    Severe water shortages in India.

    Environmental issues, labor rights issue, food and quality measure.

    Decision making, managing logistics and distribution of products.

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    Q4.Set of recommendation for coca Cola by taking into

    account the offensive and defensive strategies of Pepsi

    Coca-cola India needs to establish more number of fountains and it

    has to built a good number of high image clients as compared to

    Pepsi (having 1st mover advantage) .

    Acquire more bottling plants under his own leadership.

    Decentralize the decision making process and give freedom at

    regional level to take initiatives.

    It should focus on vertical expansion as within the product in

    pepsico. Only 37% product are beverage CocaCola should focus on

    beverages business and related businesses, e.g. bottling, sugar

    plantation, or even tin can and glass recycling business.

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    If Coca-Cola focuses only on the carbonated soft drink sector

    competitively, it will weaken or make Coca-Cola lose the

    market leader in beverage industry. Coca-Cola can focus more

    on bottled water, noncarbonated drinks, and especially

    energy drinks.