Pepsi’s Strategy in the Carbonated Soft Drinks Market

Term Project
MAN 385 Prof. Preston McAfee

Prepared by: Valentin Angelkov Tray Black Angie Green Jerry James Erin Lutz April 30, 2003

Introduction The following paper analyzes how PepsiCo can increase profitability in the carbonated soft drink (CSD) industry. The industry is a tight oligopoly with Pepsi and its chief competitor, Coca Cola, comprising 70% of the total market. 1 Global beverage sales for PepsiCo in 2000 were $7.6 billion; however, sales growth has averaged only three to four percent in mature markets such as North America2. PepsiCo and Coke have expanded into other ready to drink beverages such as bottled water, tea, and juices in order to counter this low growth in the CSD industry; for the purpose of this paper, however, we will focus on how to affect profitability in the CSD industry. In particular, the paper will examine how current actions by PepsiCo regarding differentiation, pricing, cooperation, and complements have affected their profitability in the CSD industry. Furthermore, the paper will give specific recommendations, with an emphasis on cooperation tactics and complements. Industry Overview The industry for carbonated soft drinks is characterized by the following five forces: Threat of New Entrants – Currently, the biggest threat of entry faced by the majors is from private label manufacturers such as Cott Corporation. Private labels now hold an 8.1% share in the CSD market, the majority of which is held by Cott. The challenge to both Coke and

Pepsi is to further build brand loyalty in their core cola products so that consumers will not be swayed by the cheaper, private label imitations products. More importantly, retailers, finding far more attractive margins with private labels, may choose to push these products instead of the majors. Given that access to distribution