Pepsi/Coke Market Conditions

Current Market Conditions Paper

Productivity

Coca is always looking for ways to improve their productivity to stay a top notch competitive in the market of soft drinks. Currently Coca is introducing a new system call MC9000. Coca-Cola's deployment of Symbol's flagship MC9000 mobile computers across EMEA operations is part of a strategic initiative to improve the efficiency, productivity and customer service delivered by its mobile workforce. The Symbol mobility platform replaces a range of working practices that were based on paper, expensive laptops and delicate PDAs. The solution now helps support Coca-Cola HBC's mobile enterprise strategy of capturing and delivering accurate information while workers are on the road, such as inventory, delivery schedules and store set-up and displays to its mobile workforce, customers, partners and suppliers in a timely fashion.

This is a fine example of how leading companies are embracing mobile technology to drive change in business performance and productivity" said Todd Abbott, senior vice president of worldwide operations, Symbol Technologies. "By choosing a single mobility platform, Coca-Cola HBC is deriving significant value from its investment in modernizing the way it captures, moves and manages information across the organization."

http://www.rcgmarvel.com/modules.php?op=modload&name=News&file=article&sid=51

In addition to upgrading their system Coca Cola will replace and update several of its filling lines at US-based plants with Tetra Pak's new high speed machines. Tetra Pak will deliver an initial order of TBA/22 filling machines to Coca Cola's Paw Paw, Michigan facility by the end of this month, chief executive officer Dennis Jonsson.

Jonsson said Coca Cola will replace 24 lines in all throughout its plants in the US with the Tetra Brik. Tetra Pak has been supplying Coca Cola for the past 25 years.

The TBA/22 fills 20,000 packs per hour, making it the world's fastest aseptic carton filling line for portion packages, Tetra Pak claims. "It offers customers with long, high volume production runs lower operating costs, higher productivity and greater space efficiency compared to competitive speed filling machines," the company claimed.

Jonsson also disclosed that Tetra Pak has plans to further extend the machine's performance, providing even higher speeds while maintaining operational efficiency. "Cost-driven innovation -- which means lower operating costs for our customers -- is the name of the game," he said http://www.beveragedaily.com/news-by-product/news.asp?id=66918&idCat=75&k=coca-cola-switches

Cost Structure

In 2004, the people of Coca-Cola Enterprises worked through significant challenges to generate strong free cash flow and substantial operating and net income. Though results were below our initial targets for the year, we made important progress in strengthening our business for long-term profitability by continuing to execute against our four key strategic objectives:

* Strengthening our brand portfolio;

* Fully leveraging our revenue management capabilities;

* Continuing to build and improve our customer relationships;

* Continuing to increase efficiency and effectiveness in our operations.

The Company earlier this year announced a restructuring designed to improve the Company's North American operating cost structure. Management currently anticipates total charges associated with the restructuring to approximate $80 million. Approximately $41 million of these charges were recorded in the third quarter and the balance will occur in the fourth quarter. http://ir.cokecce.com/releaseDetail.cfm?ReleaseID=62004

Consolidated and North American bottle and can net pricing per case increased 1 percent in the third quarter, while consolidated bottle and can cost of goods per case increased 3Ð... percent. All per case comparisons are presented on a comparable basis excluding the effects of currency translations. For the first nine months, bottle can net pricing per case increased 1 percent for the total company. Bottle and can cost of goods sold per case increased 3 percent for the first nine months. http://ir.cokecce.com/releaseDetail.cfm?ReleaseID=62004

Price Elasticity

Strong brands such as Coca Cola always presume that they can resist price elasticity. This is true at reasonable price levels, but there is always a point of higher price when elasticity is triggered in. This price point is relative to the conditions of economy, as well as consumer value assessment. If the economy is bad or health hazards tarnish the esteem of the brand, this price point is lower than expected. Brand marketers have to be cautious about price inflation and its context.

Coca-Cola increased its prices 5% to 6% this year in order to recoup revenues lost in last year's price wars with PepsiCo. The company made its elasticity estimates based on brand strength and continued marketing promotion. A slightly lower volume at a higher price would produce better earnings than more volume at last year's price. The company, however, did not foresee a recall of 17 million cases in France and Belgium. Nor did it correctly foresee that consumers in stagnant economies like Germany, Japan and Brazil would turn so strongly to regional and private labels instead of paying higher prices for an American product. Their price increase was higher than these factors could absorb. They lost more volume than expected.

PepsiCo and Cadbury-Schweppes followed Coca-Cola's price increases and lost volume as well. The whole branded sector lost share to cheaper regional brands and private labels. Soft drinks are like breakfast cereals. People will either buy brands or private labels. Preference between brands is a function of differential marketing campaigns and sales promotions at reasonable prices. When the price of brands gets too high, people shift to private labels and there is very little that marketing can do to counter it. http://www.kotlermarketing.com/resources/miltonkotler/seeds.html

The Coca Cola Co. Shares the market with many competitors; however, the main competitor is Pepsi CO. Pharmacist Caleb Bradham invented Pepsi in 1898 in New Bern, North Carolina. He named his new drink Pepsi-Cola and registered the trademark in 1903.

Following Coca-Cola's example, Bradham developed