Essay/Term paper: Cola wars, international--coke v pepsi

Essay, term paper, research paper:  Management

Stephen Brennan
Accounting II
Tue/Thur. 3-4:30

The Wall Street Journal recently did an article on how the soft-drink battleground has now turned
toward new overseas markets. While once the United States, Australia, Japan, and Western
Europe were the dominant soft-drink markets, the growth has slowed down dramatically, but they
are still important markets for Coca-Cola and Pepsi. However, Eastern Europe, Mexico, China,
Saudi Arabia, and India have become the new "hot spots." Both Coca-Cola and Pepsi are forming
joint bottling ventures in these nations and in other areas where they see growth potential. As we
have seen, international marketing can be very complex. Many issues have to be resolved before
a company can even consider entering uncharted foreign waters. This becomes very evident as
one begins to study the international cola wars. The domestic cola war between Coca-Cola and
Pepsi is still raging. However, the two soft-drink giants also recognize that opportunities for
growth in many of the mature markets have slowed. Both Coca-Cola, which sold 10 billion cases
of soft-drinks in 1992, and Pepsi now find themselves asking, "Where will sales of the next 10
billion cases come from?" The answer lies in the developing world, where income levels and
appetites for Western products are at an all time high.
Often, the company that gets into a foreign market first usually dominates that country's market.
Coke patriarch Robert Woodruff realized this 50 years ago and unleashed a brilliant ploy to make
Coke the early bird in many of the major foreign markets. At the height of World War II,
Woodruff proclaimed that Awherever American boys were fighting, they'd be able to get a Coke.
By the time Pepsi tried to make its first international pitch in the 50s, Coke had already
established its brand name and a powerful distribution network.
In the intervening 40 years, many new markets have emerged. In order to profit from these
markets, both Coke and Pepsi need to find ways to cut through all of the red tape that initially
prevents them from conducting business in these markets. This paper seeks to examine these
markets and the opportunities and roadblocks that lie within each.
In 1972, Pepsi signed an agreement with the Soviet Union which made it the first Western
product to be sold to consumers in Russia. This was a landmark agreement and gave Pepsi the
first-mover advantage. Presently, Pepsi has 23 plants in the former Soviet Union and is the leader
in the soft-drink industry in Russia. Pepsi outsells Coca-Cola by 6 to 1 and is seen as a local
brand. Also, Pepsi must counter trade its concentrate with Russia's Stolichnaya vodka since
rubles are not tradable on the world market. However, Pepsi has also had some problems. There
has not been an increase in brand loyalty for Pepsi since its advertising blitz in Russia, even
though it has produced commercials tailored to the Russian market and has sponsored television
concerts. On the positive side, Pepsi may be leading Coca-Cola due to the big difference in price
between the two colas. While Pepsi sells for Rb250 (25 cents), Coca-Cola sells for Rb450. For
the economy size, Pepsi sells 2 liters for Rb1,300, but Coca-Cola sells 1.5 liters for Rb1,800.
Coca-Cola, on the other hand, only moved into Russia 2 years ago and is manufactured locally in
Moscow and St. Petersburg under a license. Despite investing $85 million in these two bottling
plants, they do not perceive Coca-Cola as a premium brand in the Russian market. Moreover,
they see it as a "foreign" brand in Russia. Lastly, while Coca-Cola's bottle and label give it a high-
class image, it is unable to capture market share.
Romania is the second largest central European market after Poland, and this makes it a hot
battleground for Coca-Cola and Pepsi. When Pepsi established a bottling plant in Romania in
1965, it became the first U.S. product produced and sold in the region. Pepsi began producing
locally during the communist period and has recently decided to reorganize and retrain its local
staff. Pepsi entered into a joint venture with a local firm, Flora and Quadrant, for its Bucharest
plant, and has 5 other factories in Romania. Quadrant leases Pepsi the equipment and handles
Pepsi's distribution. In addition, Pepsi bought 500 Romanian trucks which are also used for
distribution in other countries. Moreover, Pepsi produces its bottles locally through an investment
in the glass industry. While the price of Pepsi and Coca-Cola are the same (@15 cents/bottle),
some consumers drink Pepsi because Pepsi sent Michael Jackson to Romania for a concert.
Another reason for drinking Pepsi is that it is slightly sweeter than Coca-Cola and is more suited
for the sweet-toothed Romanians. Lastly, some drink Pepsi because, in the past, only top
officials were allowed to drink it, but now everyone can. Coca-Cola only began producing locally
in November 1991, but it is outselling all of its competitors. In 1992, Coca-Cola saw an increase
in Romania of sales by 99.2% and outsold Pepsi by 6 to 5. While Pepsi preferred to buy its
equipment from Romania, Coca-Cola preferred to bring equipment into Romania. Also, Coca-
Cola brought 2 bottlers to Romania. One is the Leventis Group, which is privately owned. Coca-
Cola has invested almost $25 million into 2 factories. These factories are double the size of the
factory Pepsi has in Bucharest. Moreover, Coca-Cola has a partnership with a local company,
Ci-Co, in Bucharest and Brasov. Ci-Co has planned an aggressive publicity campaign and has
sponsored local sporting and cultural events. Lastly, Romanians drink Coke because it is a
powerful western symbol which was once forbidden.
Both Coca-Cola and Pepsi are trying to have their colas available in as many locations in
Eastern Europe, but at a cost which consumers would be willing to pay. The concepts which are
becoming more important in Eastern Europe include color, product attractiveness visibility, and
display quality. In addition, availability (meeting local demand by increasing production locally),
acceptability (building brand equity), and afford ability (pricing higher than local brands, but
adapting to local conditions) are the key factors for Eastern Europe. Both companies hope that
their western images and brand products will help to boost their sales. Coca-Cola has a universal
message and campaign since it feels that Eastern Europe is part of the world and should not be
treated differently. Currently, it is difficult to say who is winning the cola wars since the data from
the relatively new market research firms focusses on major cities. Pepsi had a commanding 4 to
1 lead in 1992 in the former Soviet Union. Without this area, Coca-Cola has a 17% share versus
Pepsi's 12% share in the soft drink industry. While both companies have been in Eastern Europe
for many years, the main task now is to develop the market.