Sofa Wars 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. Globalization has become an important word in the 90s and 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 in the Japanese video dealing with Cokes business in class, international marketing can be very complex. As I begin to examine the international soda wars this will become very evident. The domestic cola war between Coca-Cola and Pepsi is still raging, as we clearly know. However, these two soft-drink giants also recognize the opportunities for globalization in many of the international markets.
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 overseas, 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 or in a way a very simple global strategyto make Coke the early bird in many of the major foreign markets. At the height of World War II, Woodruff proclaimed that Wherever American boys were fighting, they’d be able to get a [email protected] 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. During the last 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. One key movement for the soda wars occurd in Europe 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 landmark agreement gave Pepsi the first 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, similar to Cokes reputation in Japan.
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) a bottle, Coca-Cola sells for Rb450. For the economy size, Pepsi sells 2 liters for Rb1,300, but Coca-Cola sells 1.5 liters fo! r 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. Another country in the hot battleground for Coca-Cola and Pepsi is Romania. When Pepsi established a bottling plant in Romania in 1965, it became the first US product produced and sold in the region.
Pepsi began producing locally during the communist period and has recently decided to reformat its organization structure 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 symb! ol which was once forbidden.
Finally as far as European markets are concerned there is Poland. Poland with a population of 38 million people, is the biggest consumer market in central and eastern Europe. Coca-Cola is closing in on Pepsi’s lead in this country with 1992 sales of 19.5 million cases versus Pepsi’s sales of 26.5 million cases. The main problems in this area are the centralized economy, the lack of modern production facilities, a non-convertible local currency, and poor distribution. However, since the Zloty is now convertible, Coca-Cola realizes the growth potential in Poland.
After a company called Fiat, Coca-Cola is now the second biggest investor in Poland. Coca-Cola has developed an investment plan which includes direct investment and joint ventures/investments with European bottling partners. Its investments may exceed $250 million, and it has completed the infrastructure building. Coca-Cola has divided Poland into 8 regions with strategic sites in each of these areas. It has o! rganized a distribution, which Coca-Cola has spent a lot of money organizing, extremely important to challenge Pepsi’s market share and to maintain a high level of customer service.
All of this has helped Coca-Cola to close in on Pepsi’s lead in Poland. 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, acceptability, and afford ability are the key factors for Eastern Europe. Basically if you think about it, the four bottom line practices of managers and companies are being practiced, Quality, Cost, Innovation, and Speed. 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. As for the rest of the world, Mexico is another large factor in the soda wars.
Mexican government recently freed the Mexican soft drink market from 40 years of price controls in return for a commitment from bottling companies to invest nearly $4.5 billion and create nearly 55,000 jobs over the next 7 years, which many feel was a result of NAFTA. Naturally, Mexico has become another battleground in the international cola wars. In Mexico, Coca-Cola and Pepsi command 50% and 21% of the market respectively. The cola war is especially hot here because the per capita consumption of Coca-Cola and Pepsi exceeds that of the United States (Murphy, 6). Mexico is the only soft-drink market in the world that can make this claim.
The face off in Mexico is between Gemex, the largest Pepsi bottler outside the United States, and Femsa, the beer and soft drink company that owns the largest Coca-Cola franchise in the world. Femsa, however, may be at a disadvantage. Despite being part of ! the conglomerate group Vista, Femsa lacks financial punch because it plays only a small part in the conglomerate’s overall interests. The challenge in Mexico is to win market share through distribution efficiency (Murphy, 6). Keeping this in mind, each company is undertaking strategic efforts desi …