Pepsi Cola business was established by Caleb Bradham, a pharmacist from New Bern, North Carolina, at the start of the century. He developed the formula for Pepsi Cola. Today, Pepsi Cola Company manufactures and promotes almost 200 refreshing drinks to retail, restaurant, and food service clients in over 190 countries and territories worldwide, generating revenue of over $18 billion. Despite expanding into various sectors like snacks and restaurants over the years, this portfolio will focus on Pepsi’s primary beverage business, which has been highly successful.
The soft drink industry has the widest and deepest customer base among various categories. According to Beverage Digest, soft drinks have a whopping 95% regular user base in the United States. This represents a significant potential customer pool for Pepsi Cola. However, rather than simply relying on the majority fallacy for marketing, Pepsi chooses to position itself as the preferred beverage of the “New Generation,” Generation Next, or the “Pepsi Generation.” These terms, used in Pepsi’s advertising campaigns, specifically target the Generation X market, which includes consumers aged 18 to 29. Generation X individuals are characterized as having high life expectations, being highly mobile and active, and focusing on living for the present without worrying about long-term goals. While Pepsi primarily emphasizes this segment, they also place importance on capturing the 12 to 18 year old market. Pepsi believes that if they can capture this market, they can establish loyal customers for life.
Pepsi Cola operates in an industry monopolized by two contenders – Coca-Cola and themselves. While both Pepsi and Coke target the entire consumer base of soft drink beverages, Coca-Cola aims its products specifically at the household heads. This is evident in their advertising campaigns, such as “Always Coca-Cola,” which emphasizes the traditional heritage of their beverage. Furthermore, they reinforce this focus with the name “Coca-Cola Classic,” which alludes to an older consumer demographic and conveys a perception of value, reliability, and traditional values.
Pepsi Cola has developed various strengths throughout its century of existence, including a robust franchise system and a strong entrepreneurial spirit. The franchise system, along with the determination of its distributors, played a crucial role in propelling Pepsi’s success. From selling 7,968 gallons of soda in 1903, Pepsi expanded its sales to nearly 5 billion gallons by 1997. Moreover, Pepsi boasts an impressive advertising budget of $225 million annually. This substantial budget enables the company to reinforce their products through reminder advertising and promotions, as well as swiftly introduce new products to consumers.
Pepsi has also made astute investments, particularly in acquiring prominent fast food restaurants and snack food companies like Frito Lay. These wise investments have contributed to Frito Lay’s status as the largest snack company globally. Furthermore, Pepsi’s beverage lineup is a key strength, with four of their soft drinks ranking among the top ten beverages worldwide: Pepsi, Mountain Dew, Diet Pepsi, and Caffeine Free Diet Pepsi. Additionally, Pepsi claims the top spot for tea sales in the United States with Lipton Tea. Other notable brands include All Sport, Slice, Tropicana, Starbucks, Aquafina, and their license agreement with Ocean Spray juices.
Pepsi Cola, like any company, has weaknesses. Ironically, the one strength that has been credited for most of its past success has now become a weakness for Pepsi. This former strength is the franchise system. In Pepsi Corporate’s view, the franchise system has become a liability. In today’s market, Pepsi must be able to act as one instead of several separate units. However, the franchise system has become a hurdle for Pepsi because many of these franchises have become very strong and are not willing to be dictated by PepsiCo on how to handle their operations. Some franchises are even producing their own private label products that directly compete with Pepsi products.
Moreover, Coca-Cola firmly believes in reinvesting in its own infrastructure, while the franchisees are unwilling to invest capital for maintaining their infrastructure. It should be emphasized that currently Coca-Cola does not possess a franchise bottling system.
Another weakness that Pepsi has is its inferiority in the fountain soft drink division. This has always been a problem for Pepsi because of their ownership in fast food restaurants. Coca Cola has been consistently leading in the top locations for fountain beverages, stating that Pepsi is their competition due to their ownership in Taco Bell, Pizza Hut, KFC, and others. Pepsi has attempted to resolve this issue by spinning off their interest in fast food restaurants, but they are still associated with many of the large fountain accounts. The franchise system has also affected fountain sales as franchisees are reluctant to invest in expensive fountain equipment for accounts because of the low profit margin, which could take years to recover their investment.
Pepsi faces a weakness in the global beverage market as they entered later compared to their competitor, Coke. In an attempt to catch up with Coke’s 50-year progress, Pepsi ambitiously aims to achieve in three years what took Coke decades. Given Coke’s dominant position and established relationships with markets and governments worldwide, Pepsi will require significant time for growth and development in this market.
Pepsi customers purchase approximately five billion gallons of soft drinks each year. Their buying choices are impacted by several factors including taste, price, packaging, promotions, and the wide selection of brands available. The accessibility of Pepsi products is vital as they are distributed to numerous outlets such as supermarkets, convenience stores, gas stations, delis, restaurants, movie theaters, and practically any imaginable location.
Pepsi has a competitive advantage over Coke by positioning itself as the preferred choice for the “New Generation”. To achieve this, Pepsi has implemented a significant marketing effort known as “Project Globe”, which involves an investment of 637 million dollars over five years. The main objective of this initiative is to introduce a new packaging color, a deep blue shade that symbolizes eternal youthfulness and open-mindedness. These strategies have successfully positioned Pepsi among the top five brands favored by teenagers, making it the exclusive beverage brand in this category.
Pepsi’s competitive advantage lies in their product, Mountain Dew, which has seen a remarkable growth of 74.1% over the past five years and currently holds a market share of 6.3%. It ranks as the fourth most popular soft drink in America and is expected to reach an impressive milestone of one billion gallons annually.
Besides their success with Mountain Dew, Pepsi is renowned for its industry innovation. They are on track to be the first soft drink company to introduce Pepsi-One, a groundbreaking one-calorie soda sweetened with Ace-K, an FDA-approved sweetener. This innovative product aims to eliminate the usual aftertaste associated with diet soda while providing a flavor more reminiscent of cola.
Pepsi has consistently emerged as a formidable competitor to Coke and has solidified its status as a global powerhouse. In terms of market share, Pepsi continues to maintain a robust position. The following statistics are noteworthy:
(FOUNTAIN SALES ACCOUNT FOR 27% OF SODA SALES)
Pepsi operates in a dynamic and ever-changing environment where it must be aware of changing consumer preferences and respond quickly to avoid losing market share. Furthermore, Pepsi needs strong financial stability to compete with industry leader Coca-Cola and effectively engage in the ongoing cola war. Additionally, Pepsi must adapt to diverse cultural landscapes in the global market while also facing environmental challenges, such as securing a steady supply of raw materials for manufacturing its products. In fact, during World War One, Pepsi almost faced bankruptcy due to a shortage of sugar. The range of issues that Pepsi faces includes concerns about recyclable materials, which is an increasingly important area for both major players in the industry. There are also considerations regarding unions, varying state and international laws, among other factors.
Regarding changes that Pepsi needs to address, I believe they are already taking action. Currently, the franchise system is being dismantled and replaced with one bottling unit across North America. Craig Weathrup, the Pepsi Chairmen and chief executive, will oversee this transition. Philip Marineau, the North American President, will be in charge of the concentrate (fountain) side for Pepsi. By restructuring in this way, Pepsi will be able to function as a unified entity and eliminate competition from private labels and uncooperative franchise bottlers. Additionally, Pepsi is making progress in expanding into foreign markets. They are beginning to withdraw from markets dominated by Coke and are venturing into emerging foreign markets such as India and China where Coke does not have a stronghold. The spin-off of the restaurant sector will also provide Pepsi with a better opportunity to secure larger fountain accounts. However, one area that I believe Pepsi is not addressing is the recent turnover in high-level management. Over the past year, they have experienced the departure of their marketing department head and several international managers. The internal conflict causing these departures needs to be acknowledged and resolved.