Market and Competition in U.S
% of U.S soft drink volume
% of Pepsi in that channel
% of Coke in that channel
Supermarkets in U.S. were diversified.
Large chain controlled less than 2% of U.S. volume.
No regional chain had more than 25% market share in a major trading area.
Soft drinks provided 20% margin.
Bottlers provided vending machines; producers offered rebates.
Significant higher margin than in food stores.
Coca-Cola bottlers had 675,000 machines, Pepsi bottlers 450,000.
60% of Coca-Cola bottlers’ revenue came from Vending machines.
Coca-Cola dominated sales to large chain restaurants.
Bottlers often provided dispensing machines.
Fountain owners earned 70% to 80% of the margins.
Other channels included mass merchandisers, restaurants, and caterers.
As franchise systems are used by both Coca-Cola and Pepsi-Cola, the cooperation between bottlers and producers are extremely important. Bottlers have the exclusive right to bottle, distribute, price, and sell producers product in a designated area when they can meet producers’ quality standard. The advertising costs of the product are split half and half, while bottlers usually take two-thirds of the development of trade and consumer promotions expenses.
The Pepsi Challenge starting from 1977 to 1983 had elevated Pepsi to surpass Coca-Cola in share leadership in food store sales for the first time in history. This flagship of Pepsi also led Coca-Cola to change its philosophy to “all out attack”. Under new leadership in management level, in August 1982, Coca-Cola introduced the diet Coke.
Diet Cola Competition in U.S. between Pepsi and Coca-Cola
Before the introduction of diet Coke, the diet cola segment market had been growing rapidly with big players such as Tab from Coca-Cola and Diet Pepsi from Pepsi. Tab and Diet Pepsi had the similar market share in food stores sales, however, Tab showed stronger growing trend from 1980 to 1982.
In August 1982, Coca-Cola launched the Diet Coke, whose formula were considered by consumers far superior than Tab, and achieved great success. At the same time, Coca-Cola still continued full support for Tab, maintaining the market share of Tab in a desirable level. With the success in targeted areas, Coca-Cola would achieve nearly full national distribution by summer 1983. The introduction of Diet Coke had made huge problem for Pepsi in U.S. market.
Pepsi-Cola in the United Kingdom
As Diet Pepsi continued its venture outside of the United States and Canada, there were many things that needed to be considered. When entering an international market there are cultural barriers that need to be addressed before success can be achieved. With the expansion of “diet” products one needs to consider how the term is perceived in other countries, the popularity of other beverages containing zero calories and the approval of the ingredient aspartame and other sweeteners required in those countries. On the brighter side, the availability of a diet drink had potential to expand the soft drink market on an international level.
Entry into the Market
Pepsi decided to market its product through Schweppes, a multinational food and beverage company based in London. Through marketing strategies like the Pepsi Challenge, Pepsi was able to build its volume and share on an international level by using an already known company to market its products. However, with new markets come already popular products and competition. The United Kingdom already had six major chains that accounted for 53% of the grocery volume. This allowed the major chains to sell private label brands that had lower retail prices. With the UK soft drink market being more price sensitive, the discounted prices are