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Cola Wars Case Study Harvard Business School

Case | HBS Case Collection | May 2006 (Revised April 2009)

Cola Wars Continue: Coke and Pepsi in 2006

David B. Yoffie and Michael Slind

Examines the industry structure and competitive strategy of Coca-Cola and Pepsi over 100 years of rivalry. New challenges in 2006 include boosting flagging carbonated soft drink (CSD) sales and finding new revenue streams. Both firms also began to modify their bottling, pricing, and brand strategies. They looked to emerging international markets to fuel growth and broaden their portfolios of alternate beverages like tea, juice, sports drinks, energy drinks, and bottled water. Coca-Cola and Pepsi-Cola had vied for the "throat share" of the world's beverage market. The most intense battles of the cola wars were fought over the $66 billion CSD industry in the United States, where the average American consumes 52 gallons of CSD per year. In a "carefully waged competitive struggle," from 1975 to 1995, both Coke and Pepsi had achieved average annual growth of around 10%, as both U.S. and worldwide CSD consumption consistently rose. This cozy situation was threatened in the late 1990s, however, when U.S. CSD consumption declined slightly before reaching what appeared to be a plateau. Considers whether Coke's and Pepsi's era of sustained growth and profitability was coming to a close or whether this apparent slowdown was just another blip in the course of a century of enviable performance. A rewritten version of an earlier case.

Keywords: History; Competitive Strategy; Industry Structures; Growth and Development Strategy; Food and Beverage Industry; United States;

This Is A Five Forces Analysis For The "Cola Wars" Harvard Business School Case

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5) The Cola Wars have been raging for many years, mainly between Pepsi and Coca-Cola. There have been, and are, minor players in the game, who are able to exist, but none of these have a share of the carbonated soft drink (CSD) market that comes close to equaling Pepsi or Coke. To evaluate the CSD industry, I will use Porter's Five Forces Model.

First, one must look at the center of the model, which talks about the competitors and their rivalry. Pepsi and Coke essentially have a duopoly over the CSD industry. They are tough competition for each other. For example, there have been many years where both Coke and Pepsi had dueling commercials playing during the Super Bowl. This aggressive competition has undoubtedly hurt both of their profitability at different levels, over the years.

Next, we look at the substitute products. Since we are looking at the CSD industry, we are looking for substitutes for CSDs. These substitutes include, but are not limited to tea, coffee, juice, milk, sports drinks, and bottled water. To another degree, we can include alcoholic drinks like beer, wine, and liquor. The number of substitute products, as well as producers, have increased over the years, due to declining prices in both categories. As these substitute products have become more popular, they've become more of threat to the CSD industry.

The next part of the Five Forces Model looks at the barriers to entry. The first, and possibly biggest, barrier to entry is branding. Worldwide, everyone knows Coke and Pepsi. Everyone knows their taste, their slogans, and their symbols. For a new entrant to make a dent in this duopoly, they would have to be extremely bold. Another barrier is the distribution relationship with retailers. Coke and Pepsi are wanted in every convenience store, super...

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