The soft drink industry has been dominantly occupied by two companies, Coca Cola and PepsiCo. These two companies have in competition for over a century. They both exhibit a high sense of brand consciousness that they enjoy throughout the world. This research paper will carry out a comparative evaluation of these two giants in the sector of soft drink.
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The company was founded in 1965 in New York and deals with the production of non-alcoholic beverages and food processing items. It is the leading global producer of snacks and beverages.
It trades in light foods and operates in the US and Canada. Initially, PepsiCo used to run its businesses through two units, the PepsiCo North America and PepsiCo International. In order to grow, the company needed to explore other markets; this led to the creation of three branches.
The first branch is PepsiCo which mainly operates in the Latin America while the second branch which is the PepsiCo international has a wider geographical operation. The third branch is the PepsiCo Americas Beverages that runs its operations in North America, Tropicana, Gatorade, and the Latin America. PepsiCo therefore, has a decentralized structure (Banks, 2001).
Quality is one of the aspects that PepsiCo has prioritized in its values. It is committed to protecting its customers by winning their trust and confidence. In order to keep consumers informed, all PepsiCo products have quality assurance seals on them. It also adheres to environmental regulations to avoid rubbing shoulders with the laws of respective countries in wrong ways.
PepsiCo challenges Coca-Cola through its promotions. It communicates to its customers through celebrity figures, through music to attract the young generation, and also through games. It also uses the internet, media and sponsorships.
Coca-Cola is a very huge company trading mainly in soft beverages. It is the world’s largest company in this sector. Apart from manufacturing and distributing beverage concentrates and syrups, the company also owns interest in many canning and bottling companies. Coca-Cola has grouped its products into eight regional units: “the European Union, Africa, North America, Latin America, Pacific, Eurasia, Bottling investments and the Corporate” (WetFeet 1).
Just like PepsiCo, Coca-Cola also sales its finished products in more than 200 nations globally. Coca-Cola’s corporate structure is broken into six segments of operations. The first five units are regarded as the company’s strategic business units.
The internal financial reports of Coca-Cola are based on this structure. Each strategic unit has a head who reports to a chief operating officer. The Chief operating officers from each strategic unit are obligated to report to the Chief Executive Officer and to the chairman of the Board of Directors of the company. Just like PepsiCo, Coca-Cola also has a decentralized structure although it has a central authority to which all units report (WetFeet, 2008).
Coca-Cola’s mission, vision and values when put together simply show that the company is looking to the future and beyond. It intends to forge ahead while exploring the forces and trends that will shape its future image. Its vision calls on stakeholders to be prepared for any occurrence in the future.
This is the company’s roadmap that is aimed at making the company and its bottling partners win together. Just like PepsiCo, Coca-Cola is also conscious of the environment. It makes sure that it follows environmental regulations, although this has been one of the issues that have disturbed its operations in some countries, but swiftly moved in to rectify it (Girard, 2005).
These two companies have struggled for many years each trying to be on top of the market. Both companies have their own problems in their struggle to maintain their reputation and serve their customers well. They have faced almost the same problems, for instance, the issue of inappropriate ingredients. Some ingredients are said to be unsuitable in some countries because of the cultural differences.
This has seen these companies make compromises in order to grow and take the top spot in this sector. This has sometimes brought confusion to consumers as the companies keep up the competition. For the first time in years, PepsiCo managed to surpass Coca-Cola in its earnings in 2005. This meant that Coca-Cola needed to make thorough strategic study in order to improve its performance in the market.
The Coca-Cola brand is deeply rooted among the Americans. Unlike the Pepsi brand which cone in a little later. Many people are therefore sentimental about the image Coca-Cola products and therefore, they have grown used to it; it is part of their lives. Coca-Cola image is usually found on hats, T-shirts and many other public spheres. This branding is a major strength to Coca-Cola that is enjoyed more than 600 million times in a day.
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The bottling system used by Coca-Cola is strength. The bottling system that the company uses is of a great advantage from the point that the companies that make the bottles are owned by different companies which gives the Coke Company enough time to concentrate on the drink. This makes the local people have a sense of ownership of the company (SWOT analysis, n.d).
The Coca-Cola businesses can be seen to be doing well both domestically and international, but this is just the face of it. There have been reported cases about declining volumes in some markets because of a reduction in purchasing power of consumers. For instance, sales in Japan were reported to have fallen and bearing in mind that Japan accounts for more than 35% of the total Coca-Cola volume, a fall in sales translates into big losses (SWOT analysis, n.d).
The company has a strong brand which is recognized all around the world. Strong brands position a company above other on a competitive advantage. The only thing that Coca-Cola can do is to make sure that it more. Changes in packaging have affected to some extent, sales and market positioning, but new products don’t seem to disturb consumer preferences. Using it as a strategy, Coca-Cola is presented with a rare opportunity to serve a large geographical base (SWOT analysis, n.d).
Initially competition seemed a major threat, but as time went by, this proved less substantial. Substitutes such as products from PepsiCo pose real threats. There is no doubt that the sector of soft drinks has a strong foundation. The only problem is that customers are not totally bound to it. This is because the sector has many possible substitutes that threaten its strong base.
These include drinks such as “coffee, tea, hot chocolate and milk” (SWOT analysis, p. 1). These drinks have continuously piled pressure on the soft drink industry thereby threatening not just the existence of Coca-Cola, but also PepsiCo. It is also a fact that both Coca-Cola and PepsiCo control about 40% of the soft drink market.
In recent times, consumers of these products are becoming increasingly health conscious. This posses a major threat because consumers will become more selective as they look at the health effects that have, on some occasions, been associated with soft drinks. The buying power of consumers is another possible threat. Coca-Cola and PepsiCo have faced continuous rivalry from each other.
This has often slowed the movement forward in this industry as stakeholders are always forced to respond to never ending changes in the attitudes and demands of their customers to avoid losing out on competition. Consumers in this industry can also switch to another beverage brand without facing any consequence (SWOT analysis, n.d).
A look at PepsiCo shows that the company enjoys the advantage of having a very experienced management team that helps in the manufacturing of a very competitive product line that has enabled it to find its place on the wide global market despite having come in late. This experienced team has helped in researching into the trends of the industry and results have been seen as they exploited the trends to their advantage and emerged top in 2005.
The growing needs for specialized cultural foods and the changing trend towards healthier foods has offered PepsiCo an opportunity to thrive in this sector. Changing trends in the consumer income have also made consumers to less sensitive to price and their consumers are not using price as a reference point when choosing between Coca-Cola and PepsiCo.
People are changing to convenience more than price and this has boosted Pepsi sales. The only threat is the size of the company. This can lead to a loss of focus or internal conflicts if not properly managed. The ease of reliability of PepsiCo product line is a threat that the company should watch keenly.
The company also has an almost pure competition in the way it prices its products is also a threat. And lastly, the company should check on its taster technological advances because they tend to overshadow existing products making them less advanced (SWOT analysis, n.d).
This basically looks at the changes that happen in the market due political, Economical, Social and Technological parameters. It has already been mentioned that these two companies deal with the business of non-alcoholic beverages categorized among foods under the FDA statutes.
This means that their production is regulated by the government. If the required standards are not followed, then the company can face disciplinary action in form of fines that are set for violators. Changes in the laws and regulations can therefore, disrupt the operations at Coca-Cola and PepsiCo.
Prevailing political conditions in the international markets also play a role in determining market trends. These can include “civil unrest, changes and restrictions imposed by the government especially touching on capital transfer across borders” (PEST Case study, p. 1).
Trends in the economy have also affected Coca-Cola over the years. For instance, the company was doing so well, until recession set in. this affected almost all the market segments of the company.
Social change is another factor that is analyzed in the PEST analysis. Many customers, especially those in the US have become more concerned with healthier lifestyles. Many are therefore, abandoning alcoholic drinks and resorting to healthier drinks such as diet colas and bottled water.
This affects the non-alcoholic industry by increasing the demand for the non-alcoholic and healthier beverages. The last element to be looked at is Technology. Technology has helped in the area of advertising, marketing and other programs of promotion. Internet and television technology has evolved to the extent that special effects can be used.
These make products more attractive and therefore, attracting more sales. Bottles and cans have increased Coca-Cola sales because they are portable and also easily disposed off. Technology has also been felt in the production line. New machines have increased production of Coca-Cola products. Technology has also led automatic serving machines that have increased efficiency when serving customers (PEST Case study, n.d).
Both companies know that these factors exist and therefore, both strive to ensure that they meet the highest standards possible in everything they do. Strict quality controls are adhered to meet high quality expectations from consumers. PepsiCo beats Coca-Cola in the area of authority.
As already mentioned, Coca-Cola has a central body that sets out what products should be produced, but PepsiCo allows local bottlers to determine the products they pack and sell to their customers basing on their assessment of the demands of the local customers and market factors.
This gives PepsiCo an upper hand when it comes to making essential figures as compared to Coca-Cola which is making superior figures. In other words, PepsiCo seems to be winning the game in terms of making revenues and also in creating profit margins. This has drawn more investors to PepsiCo who see a promising future with the company (Kevin, 2010).
Since its launch, PepsiCo has been growing constantly in a pattern that is stable and therefore, it has room for more expansion in future. In general, PepsiCo has outpaced Coca-Cola in revenues. Reports in 2007 showed that Coca-Cola was making minimal gains, a consequence that was attributed to the sluggish growth in the industry of soft drinks.
It has been shown that “most of Coca-Cola’s income is generated from the sale of its soft drinks, but PepsiCo only gets about 20% of its income from soft drinks” (Caggeso, p.1). The rest of PepsiCo’s income comes from its wide array of snacks; this cushions the company from any fluctuation in consumer preferences (Caggeso, 2007).
As already mentioned, customers may not like the speed in which PepsiCo is growing, but this is the exact reason why long term investors prefer PepsiCo over Coca-Cola. PepsiCo has reached its maturity stage and therefore, its products are enjoying maximum economies of scale.
This trend can go on for years only if the right strategies are used. PepsiCo promises its investors more improvements in terms of profit margins in the coming years. Coca-Cola does not seem to be giving investors this assurance. Coca-Cola only promises fixed incomes, which for sometime has not been increasing. This means that the company is making profits but not expanding. This paints a bleak future where Coca-Cola may experience diseconomies of Scale.
As a marketing strategy, PepsiCo has embarked on hiring CEOs from different cultural backgrounds to make sure that they satisfy customers in its wide market. To match the measures that PepsiCo has taken, Coca-Cola will also have to employ different strategies in order to gain popularity that PepsiCo is enjoying (Cola Wars, 2005).
The process of decision making at Coca-Cola Company does not fit in its structure and also does not reflect its roadmap as outlined in the mission, vision and values. What happens on the ground does not fit in its centralized structures; this is one reason why other companies like PepsiCo are beating it in this area.
To prevent this from straining the company’s fortunes, Coca-Cola should employ a more decentralized structure to allow different segments make decision basing on the demands of the customers in their regions. This will also help ease the process of problem solving. It has been shown that the strong bottling systems used by Coca-Cola give it an infinite market growth.
The company therefore, has enough resource for this growth, but without proper marketing strategies that will attract local appeal, then success will be hard to realize. Coca-Cola should also diversify its product line to make sure that when fluctuations in customer preferences do not totally affect its revenues (Harkonnen, 2009).
Coca-Cola has a very strong brand reputation and also enough experience in this sector, the company can therefore use this as a chance to make its brand and logo more known. This is an option, but the best alternative will be for the company to make sure that its brand equity reflects its financial picture.
This will help in the penetration of the global market with an aim of realizing long-term gains. Political instability is inevitable especially in the less developed countries and therefore, the markets may not meet Coca-Cola’s expectations.
To avoid this, Coca-Cola should take into consideration the unique environment it is operating in terms of culture, politics and the economy of respective markets. Changing consumer attitudes is also a threat and therefore, to counter it, Coca-Cola should resource its drink products further because the market is still rapidly growing.
Throughout this research, it has emerged that PepsiCo can has made tremendous strides in this sector despite having come into the picture many years after Coca-Cola. For investors who are not interested in making instant cash, but are looking for long term gains, then PepsiCo is the company to invest in. this does not mean that Coca-Cola is doomed for failure; it only requires the right strategies to regain its top spot in the soft drink sector (Harkonnen, 2009).
It is evident that the soft drinks sector is very lucrative to both Coca-Cola and PepsiCo which are the dominant companies in the industry. The sector has seen an increased growth in the area of non-carbonated and ready to drink beverages.
This has seen many companies come in, in an effort to have a share of this market, but these two companies have remained the dominant ones. Each has come up with different strategies to outdo the other; this has led to the famous cola wars.
Coca-Cola seems to enjoy its brand reputation that has been in existence for more than a century and a large customer base. This has not deterred PepsiCo from making its mark, and as has been shown, it has challenged Coca-12841451Cola’s dominance.
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