When two brands produce similar products, competition between them is inevitable. Coca-Cola and Pepsi conflict is a unique century-old struggle that continues today. This competitive confrontation began back in 1903: fifteen years after the existence of the Coca-Cola company, the Pepsi-Cola company was born, which released an almost identical product. This confrontation is possible due to to the peculiarities of the soft drinks industry: constantly changing and often short-lived trends.
Why, Historically, Has the Soft Drink Industry Been so Profitable?
The industry has been so profitable because of the marketing strategies, the value of their products/bottles, and constant competition. Coca-Cola became very popular during World War II, offering soft drinks to soldiers at lower prices (Decoding Coca-Cola, 2020). The soft drink industry is constantly adapting to changes in bottlers, competition, and different cultures worldwide. One of the main reasons for the profitability of the production of soft drinks lies in the popularity of the product in the market. Competent marketing companies make brands of non-alcoholic products recognizable in almost any country in the world. Non-alcoholic drinks have firmly entered the daily life of people. Almost every person tried soft drinks of famous brands and knows how easy it is to quench thirst with minimal costs.
The Difference in the Profitability of the Concentrate Business to the Bottling Business
Four main players are involved in the production and distribution of CSD: concentrate producers, bottlers, retail channels and suppliers. Concentrate manufacturers only mix the ingredients used to make carbonated drinks: the production requires only limited capital, labor, and minimal reinvestment. CP’s expenses include product planning, market research, advertising, promotion, and hiring support staff. Although the CP industry is not very capital intensive, there are other barriers that will prevent entry. At the same time, bottling will require significant capital investment, which will prevent companies from entering the industry. Entering this market was further complicated because existing bottlers had exclusive territories for distributing their products. The concentrate business is characterized by high margins, profitability, and cash generation. At the same time, the features of the bottling business are low margins, low profitability, capital intensification, and high debt generation. Bottlers are less profitable because CPs have more bargaining power through effective barriers to entry and effective price discrimination through various retail channels. These businesses are interdependent, and the profits of one business depend on the success of the other.
How Has the Competition between Coke and Pepsi Affected the Industry’s Profits?
The competition between Coke and Pepsi has affected industry profits as they have expanded into other markets. Due to high-quality products and the transition to the food industry, profits have increased significantly. Both companies have invested heavily in advertising to maintain brand loyalty and market share. The competition for market share intensified, and the level of retail price discounting increased greatly. Coke and Pepsi are now the two top competitors in the whole CSD industry. They expanded the company from predominantly non-alcoholic beverages to CSD-free products, including children’s fizzy drinks with less sugar and eventually snack foods. Pepsi has repeatedly mentioned that they would not have been as successful without Coca-Cola, and Coca-Cola, respectively, without Pepsi.
Can Coke and Pepsi Sustain their Profits in the Wake of Flattening Demand and the Growing Popularity of Non-CSDs?
The is no doubt that Coca-Cola and Pepsi will remain popular in the market, even in the face of declining demand and the growing popularity of non-CSD. At first, they can focus their efforts on the local market. They can improve the brand awareness of their products, pay attention to the significant managerial influence in the bottling and distribution network through the bottling model, deepen their traditional products, and introduce many new products. Secondly, overseas expansion is also important. Growth in global soft drink sales slowed in the 2000s, but emerging markets such as China and India continued to grow rapidly. Thus, the giants invest heavily overseas in developing new bottling plants, building more distribution channels, sales and marketing efforts, and product research and development. That is why they will maintain their popularity in the changing market conditions.
Brennan, L., Crawford, R., Khamis S. (Eds.) (2020). Decoding Coca-Cola: a biography of a global brand. Taylor & Francis