Industry analysis:Coca-Cola company VS. PepsiCo Inc.

Industry analysis:Coca-Cola company VS. PepsiCo Inc.

Introduction

The soft drink industry is largely dominated by two major companies namely, Coca-Cola and PepsiCo Company. Both companies produce carbonated soft drinks composed of several brands and a large number of varieties (Roignant & Trigeorgis, 2011). The two companies almost operates in a duopoly market structure. The duo are the greatest rivals to each other for decades and the competition is aggressive. Their rivalry is legendary and is often referred as the cola wars. In 2015, Coca-Cola was the leading producer of carbonated drinks in US while Pepsi was ranked the second largest producer of carbonated soft drinks based on the volume share. Coca-Cola led with a 42.2% while PepsiCo Inc. followed with 27%. According to the Beverage Digest both Coca-Cola and PepsiCo Inc. have a combined market share of 70% of all carbonated soft drinks produced in US (Cunningham & Harney, 2012).

Company Summary

Coca-Cola Company

Coca-Cola Company is an American international beverage corporation that was founded in 1892 by Asa Griggs Candler. It is headquartered in Atlanta Georgia and is led by Muhtar Kent as the Chief executive officer. The company is the largest producer of non-alcoholic beverages in the world and has more than 500 brands and a wide range of varieties that generate revenues for the company of over a billion dollars per year. It has 17 popular brands that contributes significantly to its market dominance and huge revenues (DLI Productions Inc., 2014). It is a multinational company with a large geographical presence in more than 200 countries in the world. To offset the challenging decline of the demand for soft drinks the company has recently made strategic deals to strengthen its distribution networks. An example in August 2014, Coca-Cola acquired 16.7% stake in Monster beverage Company. Hence both companies will be in a position to leverage their strengths, Coca-Cola has a strong bottling system while the Monster is a global energy player (DLI Productions Inc., 2014). In 2015 the company earned a revenue of $44.294 billion dollars and a profit of $7.351 billion dollars.

PepsiCo Inc.

PepsiCo Inc. is also an American international food, snacks and Beverage Corporation that was founded in 1898 and it was established after the merger between Frito-Lay and Pepsi-Cola. It produces snacks, food and beverages. The company is headquartered in Purchase New York and like Coca-Cola; it has a wide geographical presence in the world, which amounts to more than 200 countries (PepsiCo Inc., 2015). It is the second largest producer of carbonated soft drinks after Coca-Cola. It has several leading brands in its products among which 22 of them contribute immensely to its annual revenues that are in billions dollars per year (PepsiCo Inc., 2015). PepsiCo is the biggest competitor to Coca-Cola in the carbonated soft drinks. It has experienced bankruptcy twice; however, it managed to revive itself through various mergers up to the position they hold now as the second largest market shareholder in the soft drinks industry. To offset the challenging decline of the demand for soft drinks the company has recently made strategic deals to strengthen its distribution networks. An example in October 2014, PepsiCo Inc. entered into a short-term agreement with Soda stream international a company that makes home carbonations in order to test some of PepsiCo’s flavors (PepsiCo Inc., 2015). In 2015, the company earned a revenue of $63.056 billion dollars and a profit of $5.452 billion dollars.

 Company SWOT analysis

Coca-Cola Company SWOT analysis

Strengths

l Strong advertising and marketing capabilities

l Largest market share

l Strong fiscals and company valuation

l Strong bottling system

l Vast global brand presence and brand awareness

l Extensive global product diversification

l Extensive global distribution network

 

Weaknesses

l Foreign currency fluctuations

l Weak product diversification

l Lack of health beverages

l Water management

 

Opportunities

l Business diversification

l New packaging methods

l New recycling methods

l Packaged drinking water

l Marketing lesser selling products

Threats

l Aggressive competition from Pepsi

l Indirect competition/ substitutes

l Environmentalism & stricter legal framework

l Growing health conscious society

l Increasing consumer’s power .e.g. Walmart

 

Source: SWOT analysis review of Coca-Cola Company

PepsiCo Inc. SWOT analysis

Strengths

l Strong brand image and reputation

l Broad product mix

l Extensive global product network

l Extensive global distribution network

 

Weaknesses

l Low penetrations in other countries

l Limited business portfolio

l Weak marketing to the health- conscious consumers

 

Opportunities

l Business diversification

l Market penetration in the developing countries

l Global alliances with complementary businesses

Threats

l Aggressive competition

l Environmentalism

l the trending healthy lifestyles

 

Source: SWOT analysis review of PepsiCo Inc.

 

What is each company’s current competitive strategy (be specific)?

PepsiCo Inc. is applying the generic strategy of cost leadership and product differentiation. To compete against the industry leader Coca-Cola Pepsi is reducing the prices of its products based on its low operating costs (Sood, 2010). Further it has been offering various special promotions at discounted prices to attract more customers (Roignant & Trigeorgis, 2011). Cost minimization is its key generic strategy for improving its financial performance and enhancing its competitiveness. Product differentiation is its secondary generic strategy. In 2015, the company invested $784M in research and development in order to promote product differentiation. Through its broad differentiation, company offers a variety of products that provide unique experiences to their customers and attracts more customers (Frankiewicz, & Churchill, 2013).

Coca-Cola Company is currently implementing the differentiation and merger and acquisition strategy. The company invests heavily on its advertising in order to create product differentiation from its competitors such as Pepsi whose products have similar tastes. The company currently spends about 20% of its revenues on advertisement in order to maintain its differentiation strategy. The company adds something to its existing products in order to create more value for its consumers (Roignant & Trigeorgis, 2011). It achieves this through developing well-designed advertising and marketing activities that enhance the brand image and recognition. In 2015, Coca-Cola spent 6.8 billion in marketing expenses, which was 15.4% of the total revenue. This improves the perception of the brand being of superior quality than those of the competitors. To enhance its differentiation strategy the company has been using different packaging methods on the bases of shapes to appeal to peoples mindsets (Roignant & Trigeorgis, 2011). The company is pursuing the merger and acquisition strategy to leverage its strengths and also to eliminate possible competitions. As noted earlier it acquired a stake at Monster Company in order to take advantage of the company’s strength as a global leader in the energy drinks market.

What are they doing to improve their current competitive position?

Coca-Cola is focusing investing billions of dollars in marketing and advertising activities in order to drive growth of the volumes of the carbonated drinks consumed in the emerging markets (Mayer, 2010). Through aggressive marketing and advertisement the company seeks to improve its brand value, awareness and image to ensure that it has more recognition than the products of competitors (Cunningham & Harney, 2012). The company is also investing in infrastructure programs in both developed and developing markets to ensure consumer access to its brands. This increases its global presence by making it available everywhere such that when consumers look for soft drinks they find the company’s products. This improves it current competitive position because most of its competitors have penetrated few markets giving Coca-Cola a vast market segments to dominate (Mayer, 2010).

PepsiCo Inc. focuses its investment in research and development to drive innovation and accelerate growth globally. The company continues to refine its beverage, snacks and food portfolio by diversifying its products choices in order to meet the changing demand of the consumers (Merchant, 2014). in 2015 alone the company invested $754m in research and development to change its competitive position by creating a variety of portfolio product choices that when consumers purchase one its product they feel compelled to purchase another product it produces.

 

What likely moves or strategy shifts will they make?

Coca-Cola Company will certainly continue with its aggressive international marketing strategies that have promoted global brand awareness and increment in the volume of sales. It will continue use its extensive advertising and marketing capabilities which no other competitor can match to influence consumer decisions on the best brands. Further, the company is shifting its focus to product differentiations for different markets through investing on innovations. It seeks to expand its brand portfolios to enhance its brand value and influence the consumer preferences (Merchant, 2014).

PepsiCo Inc. will continue investing on innovative activities to drive growth of its brands and revenues. Its investment in innovation and brand building has promoted success in development of new products in all its geographical presence (PepsiCo Inc., 2015). The company has a large global presence but not extensive like its rival Coca-Cola company. Therefore, the company may shift to more intensive growth strategies such as market penetration. This is suitable for the company since its investment in innovations has enabled it to continue developing new products, which helps it to attract new customers. As noted earlier the company invests heavily on research and development which goes along with product innovations (PepsiCo Inc., 2012).

Where is each of the company most vulnerable?

PepsiCo Inc. has penetrated few markets and about 70% of its revenue is derived from the South American and North American markets. If these markets were to plummet or when they reach saturation due to aggressive competitions, the company will be at risk of earning low revenues. Additionally, the increasing health conscious consumers is exposing the company’s vulnerability of inability to market its products to such consumers effectively (Frankiewicz & Churchill, 2013).

Coca-Cola Company is most vulnerable on the issue of water management where many concerns have been raised regarding its massive consumption of water even in water scarce areas (Cunningham & Harney, 2012). Various environmental groups complaining about its vast usage of water have filed several lawsuits. Other consumers have accused the company of using pesticides to decontaminate the water. The company is most vulnerable in this area because such accusations, lawsuits and consumer discontentment with the company’s environmental negligibility may destroy its brand image and reputation that the company has invested billions of dollars per year to build across the globe (Cunningham & Harney, 2012).

What competitive moves will provoke the greatest and most effective retaliation by each company?

The growing health conscious society is posing a threat to the volume of sales each gains each year, which is in billions. Carbonated soft drinks contain sugar that health specialists has associated with illnesses such as obesity. Both companies have invested heavily innovation and manufacturing of carbonated drinks such as soda, flavored water and juices. If one of the company decided to adopt a sustainability strategy focusing on production of sugarless soft drinks it would provoke the greatest and most effective retaliation by the other company. This is because the two companies have had competitive rivalries over the best-carbonated brands that offer consumers the best experience. Hence, such a shift of strategy may result to the other losing the market share of the health conscious consumers that it holds which may lead to huge losses in revenues. If Coca-Cola adopted such a strategy, Pepsi would immediately counteract in order not to lose its market share.

Would you recommend the continuation or modification of each company’s current strategy (support your rationale with specifics)?

Coca-Cola Company has an extensive market penetration, extensive global networks and strong brand awareness globally of about 94% (Form 10-k: Coca Cola Company, 2015). The company needs to maintain such brand recognition and image all over the world hence it should continue with its differentiated international marketing strategies. This will promote brand loyalty as consumers are continually reminded of the value they get from consuming Coca-Cola products. Additionally, this strategy has been effective in promoting its brand values and enhanced the consumer perception that they are of superior quality than those of its competitors Form 10-k: Coca Cola Company, 2015).

PepsiCo Inc. investments in expanding its portfolio products is its greatest competitive advantage over Coca-Cola that has limited product diversification. The firm’s diversified portfolio contributes significantly to its annual revenues hence it should continue pursuing investments in brand building and innovations (PepsiCo Inc., 2012). Additionally, the strategy has proven effective because it has enabled Pepsi to develop and introduce new products in the markets successfully.

References

Chevalier-Roignant, B., & Trigeorgis, L. (2011). Strategic Management and Competitive Advantage. Competitive Strategy, 47-74. doi:10.7551/mitpress/9780262015998.003.0002

Cunningham, J., & Harney, B. (2012). Strategy & strategists. Oxford: Oxford University Press.

DLI Productions Inc. (2014). The Coca Cola Conquest – Part III: Cola-Colonization. Montreal: Author.

Frankiewicz, C., & Churchill, C. (2013). Product Portfolio Management. Making Microfinance Work: Managing product diversification, 539-566. doi:10.5848/ilo.978-9-221247-85-2_25

Merchant, H. (2014). Configurations of governance structure, generic strategy, and firm size. Global Strategy Journal4(4), 292-309.

Mayer, J. M. (2010). The Coca-Cola Center for Marketing Studies: A Model for Marketing Research and Education. SSRN Electronic Journal. doi:10.2139/ssrn.2564666

PepsiCo Inc. (2012). PepsiCo Announces Strategic Investments to Drive Growth.

PepsiCo Inc. (2015). Annual final report [Online] Available at: https://www.pepsico.com/docs/album/annual-reports/pepsico-2015-annual-report_final_s57dqszgmy22ggn.pdf?sfvrsn=0. [Accessed on 14th December, 2016]

Sood, A. (2010). Product Diversification. Wiley International Encyclopedia of Marketing. doi:10.1002/9781444316568.wiem05051

United States Security Exchange commission. (2015). Form 10-k: The Coca Cola Company. [Online] Available at: https://www.sec.gov/Archives/edgar/data/21344/000002134416000050/a2015123110-k.htm [Accessed on 14th December, 2016]

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