Coke Pepsi War

Coke has been leading the competition from 1998-2002 in terms of higher market capitalization, gross margin and net income. However, Pepsi was leading the fight in terms of growth in revenue and net income. However, Pepsi’s stock performed 45% better than Coke’s stock. Overall, Pepsi was a smaller company but it was growing faster than Coke. Coke had a strong foundation, however, their revenue during this period increased due to summer months artificially increasing the demand. Pepsi, on the other hand, had consistent growth. The market for carbonated beverages was slowing down and other newer segments were growing. Water and Sports beverages grew at 26% and 15%. Pepsi’s growth was largely due to acquisitions that it had made and new product introductions. Pepsi acquired Gatorade and gained 81% market share in sports beverage segment. Pepsi’s Lipton was outperforming Coke’s Nestea. Pepsi’s Tropicana defeated Coke’s Minute Maid in every market. Pepsi also targeted the profitable segments such as convenience stores and youth market (with new youth sports beverage, Mountain Dew). Pepsi was focusing on domestic market, while coke was targeting international growth. Despite Coke’s attempt to leverage on its competencies, it faced scams and negative publicity. In our view, Pepsi is performing better than Coke in this battle as they are concentrating on building their brand. Pepsi’s focus on domestic market will result in opportunities in future to grow internationally better. On the other hand, Coke is capitalizing on its huge brand image, tarnishing it and changing it (to be a local brand over an American icon).

Coke was facing a difficult situation due to some risky decisions it took to enter new international markets and the management wasn’t able to handle to growth. Coke had stable leadership for initial founding years but lately it was encountering problems. Coke’s empire was built by Robert Guizueta, who served the company for 17 years. He shaped the company and focused on fewer businesses that resulted in revenue increase from $4 billion to $18 billion. He improved the distribution system, bottling operations, non-soft drink businesses and developed a unified global strategy. Following him, there were 3 changes in leadership. Ivester headed Coke for 2 years and company’s performance declined under his leadership. A renowned investor and a powerful shareholder, Warren Buffet finally had to intervene to get Iverson to resign. Ivester was succeeded by Daft who was partially successful with his attempts to revive Coke. He was abruptly and shortly changed with Isdell. However, Pepsi had a fairly stable leadership. Enrico had risen from bottom-up in the organization. Under Enrico, Pepsi focused on food as well as drinks segment and acquired SoBe and Tropicana. Enrico focused on market dominance and sales. Reinemund, an 8-year veteran from Pepsi’s Frito-Lays, succeeded Enrico. He appointed Indra Nooyi as President and CFO, who was complementary to Reinemund. She was a marketing genius - creative and tough, whereas Reinemund was analytical. They worked together as a team. Undoubtedly, Pepsi was in safer hands.

In the international market, Coke was dominating in sales. Though US was the largest market, growth was seen in global markets such as Asia/Australia. Despite having largest operations in Mexico and UK, Pepsi had only 31% revenues coming from international markets compared to 68% at Coke. Pepsi’s international sales were flat. In Latin America, its contract with Cisneros Bottling Company shifting to Coke resulted in loss of 85% market share. In all the international markets, Coke was leading over Pepsi. However, Coke was also into different allegations