Thursday, September 6, 2012

Cola Wars in Europe, Pepsi Vs. Coke and how David wins over Goliath!

Global Cola market is more or less an Oligopoly market with two major players, Coca Cola and the other Pepsi. Smaller players have either surrendered to these juggernauts or have been simply ousted from their respective markets.

But what happens when these  giants clash for defending their respective turfs from each other? Precisely that happened in a big way in Europe with some quirkiness beforehand in Latin America. Here our main focus would be the battle in Europe.

Pepsi's rising status in late 1970s and 1980s: 

By 1976 Coca Cola was faltering because of increased clout of Pepsi in US market when growth rate of Coke dropped from 13 percent to a meager 2 percent. Adding to Coca Cola's woes came the Pepsi challenge tests that showed a clear preference to Pepsi taste over Coke taste. Coca Cola in defense conducted it's own taste tests but alas it produced the same results of preference to Pepsi over Coke. By 1979, Pepsi was closing on the gaps faster by Coke leading with only 2.9 Percent over Pepsi whereas it was leading over Pepsi by 14 percent a decade before. What was baffling and worrisome to Coca Cola was it was outspending Pepsi in advertisement expenditures by $100 Million more while it's share was dwindling.
In this time of upheaval by 1980's Coca Cola was getting ready to welcome it's new head on board, Roberto Goizueta. Goizueta son a of a wealthy Cuban sugarcane plantation owner had studied at Yale university who mastered English by watching Hollywood movies in short span of time. With Fidel Castro seizing power in Cuba and advent of communism, Goizueta fled cuba with $20 in his pocket to the US in search of better fortune and found his niche in Coca Cola. He was to be the man who ushered in a new era for Coca Cola with his business acumen and proved a tough nut for Pepsi to deal with.

Introducing a New Flavor for Coke in 1980s: 

Despite superior advertising and distribution, Coca Cola's diminishing market share was intriguing. Taste was suspected to be the culprit and Coke was relaunched in the market in a much sweeter flavor to regain its hallowed lead over Pepsi. But such a desperate business decision backfired on Coca Cola with nationwide protests over such a Coca Cola decision with thousands of new protestors joining each day echoing similar sentiments of Coke ditching them and hurting the national sentiments with Coke sales plummeting further and cheering Pepsi all the way through. But Pepsi's gloat was short lived when Coca Cola alarmed with it's blunder made a smart turn around by launching the original Coke alongside the new flavour which helped it regain its popularity and it's sales soon soared! Coca Cola kept making heady progress till 1997 in international markets with Pepsi's market getting constantly eroded by a hard driving Coca Cola.

1998 and Troubling times for Coca Cola: 

By 1997 the era of legendary Goizuerta was over and new chairman Douglas Ivester had taken over. In June health scares started spreading after Belgian children became sick after consuming contaminated Coke. Soon after hundreds of sick people in France were blaming their illnesses on Coke consumption. France imposed ban on Coke cans from Dunkirk plant in Belgium. Soon Germany and Luxembourg also imposed selective bans on Coca Cola products in their countries until health scare subsided. Some 14 million cases of Coke products eventually were recalled in the five countries, and estimates were that Coke was losing $3.4 million per day in revenues.
Finally Coca Cola swung into action for an uphill task of clearing it's name of the contamination scares and rebuilding trust in European markets that involved a personal apology message from the new Chairman, a special consumer hotline, free 1.5 liter Coke distribution in 4.37 million households. By the time Coca Cola was getting over it's crisis a new problem started staring over it from Pepsi's side.

 Pepsi had less than 10 percent share whereas Coca Cola was omnipresent with more than 50 percent share in Europe with the rest 40 percent share fragmented among many smaller players. Coca Cola was anyways ahead of Pepsi across the globe, not just Europe but here the difference was phenomenal and most importantly due to Coca Cola's interference in twisting consumer's tastes with its tactics.

Having stated that, the question arises how did Coca Cola manage to pull off this behemoth task at all? Well the answer lies in Pepsi's business diversification into snacks along with it's beverages, something that would make Pepsi bleed in the hands of Coca Cola in future.

Big fast food chains such as McDonalds, Burger King and Dominos offer Coca Cola exclusively. Whereas Pepsi's strong hold lied with it's formerly owned companies Pizza Hut, Taco Bell and KFC.. Pepsi alleges that Coca Cola got Pepsi comletely eliminated through independent food service distributors to the former chains that by offering Pepsi they would only be helping their competitor. This gave Coca Cola unprecedented power to control prices and even eliminate competition all together.  In past Coca Cola hadn't enforced such exclusive contracts but in 1997 owing to increased competition from Pepsi it asked these distributors to adhere to its terms or else they would be entirely cut off from Coca Cola supply. By then Coca Cola had been such a success with cult following that not obliging to Coca Cola's conditions would have proved detrimental to these fast food chains business. So they relented.

This sent jitters in Pepsi's top level management. As 90% of fountain business came from dispensers in fast food business, loosing out entirely to Coke didn't make much of a sense. Apart from this in bottled Cola market, Coke was way ahead of Pepsi in all but most markets. Therefore loosing out to Coke in fountain dispensing business sounded like death knell to Pepsi. 

1999 and filing of Anti Trust Laws by Pepsi against Coca Cola in Europe:

In late July 1999, European Union officials raided offices of Coca-Cola and its bottlers in four countries in Europe—Germany, Austria, Denmark, and Britain—on suspicions that the company used its dominant market position to shut out competitors. According to Pepsi, Coca Cola had adopted unfair trade practices to restrict reach of Pepsi to consumers through soda fountains and food chains. 

This allegation from Pepsi came at a time when Coca-Cola was still trying to recover from the contamination problems, which was a cruel blow.

The major suspicion was that Coke was illegally using rebates to enhance its market share.

The several types of rebates under investigation were rebates on sales that boosted
Coke’s market share at the expense of rivals, and rebates given to distributors who
agreed to sell the full range of Coke products or to stop buying from competitors.
Coca-Cola’s huge market share in most countries of Europe fed the concern.

Pepsi also filed a complaint with Italian regulators who were soon to act and discovered Coca Cola had violated anti trust laws by abusing its dominant position through rebates, bonus and discounts with retailers to entirely get rid of Pepsi in Italian market.

Coke in the New Millennium:

Coke cheered with growth rate of 18 percent between 1990 and 1997 till its growth rate fell to just 4 percent while Pepsi outperformed its ace rival in overall growth if not in Cola business!
The following comparative statistics show the slipping performance of Coca-Cola to
PepsiCo over the five years to 2004.

With the dawn of the new century and increased health awareness, popularity of carbonated beverages were fizzling out. Pepsi so to say kept abreast with changing times with non carb drinks such as Tropicana juice, Gatorade sports drink, and Aquafina water which were billion-dollar beverage brands plus had its Frito-Lay Division with snack foods such as Lays, Doritos, and Baked Crunchy Cheetoswhile while Coca Cola was still firmly entrenched in Coke.

The following shows the breakdown of sales and profits for Pepsi’s four major businesses as of 2004:

October,2004 and Pepsi wins over: 

Finally after 5 years of probe the European Union arrived at a settlement that would result in Coca Cola change it's sales practices, end exlusivity agreements with food service distributors and allow competitors products in Coca Cola's refrigerators for up to 20% space, all of which had made  Coca Cola acquire 50% of the gigantic 17 Billion Euro carbonated drinks market in Europe.
Adherence to these reforms would spare Coca Cola of any fines and further legal wranglings, that Coca Cola willingly accepted.

And Finally David wins over Golliath!

I would also love to have my visitors in my facebook network. 
Here's my profile at



No comments:

Post a Comment