Sofa Wars



The soft-drink battleground has now turned toward new overseas markets. While once the United States, Australia, Japan, and Western Europe were the dominant soft-drink markets, the growth has slowed down dramatically, but they are still important markets for Coca-Cola and Pepsi. Globalization has become an important word in the 90?s and Eastern Europe, Mexico, China, Saudi Arabia, and India have become the new "hot spots." Both Coca-Cola and Pepsi are forming joint bottling ventures in these nations and in other areas where they see growth potential. As we have seen in the Japanese video dealing with Coke?s business in class, international marketing can be very complex. As I begin to examine the international soda wars this will become very evident. The domestic cola war between Coca-Cola and Pepsi is still raging, as we clearly know. However, these two soft-drink giants also recognize the opportunities for globalization in many of the international markets. Both!

Coca-Cola, which sold 10 billion cases of soft-drinks in 1992, and Pepsi now find themselves asking, "Where will sales of the next 10 billion cases come from?" The answer lies overseas, where income levels and appetites for Western products are at an all time high.

Often, the company that gets into a foreign market first usually dominates that country's market. Coke patriarch Robert Woodruff realized this 50 years ago and unleashed a brilliant ploy or in a way a very simple global strategyto make Coke the early bird in many of the major foreign markets. At the height of World War II, Woodruff proclaimed that ?Wherever American boys were fighting, they'd be able to get a Coke.@ By the time Pepsi tried to make its first international pitch in the 50s, Coke had already established its brand name and a powerful distribution network.

During the last 40 years, many new markets have emerged. In order to profit from these markets, both Coke and Pepsi need to find ways to cut through all of the red tape that initially prevents them from conducting business in these markets.

One key movement for the soda wars occurd in Europe in 1972, Pepsi signed an agreement with the Soviet Union which made it the first Western product to be sold to consumers in Russia. This landmark agreement gave Pepsi the first advantage. Presently, Pepsi has 23 plants in the former Soviet Union and is the leader in the soft-drink industry in Russia. Pepsi outsells Coca-Cola by 6 to 1 and is seen as a local brand, similar to Coke?s reputation in Japan. However, Pepsi has also had some problems. There has not been an increase in brand loyalty for Pepsi since its advertising blitz in Russia, even though it has produced commercials tailored to the Russian market and has sponsored television concerts. On the positive side, Pepsi may be leading Coca-Cola due to the big difference in price between the two colas. While Pepsi sells for Rb250 (25 cents) a bottle, Coca-Cola sells for Rb450. For the economy size, Pepsi sells 2 liters for Rb1,300, but Coca-Cola sells 1.5 liters fo!

r Rb1,800. Coca-Cola, on the other hand, only moved into Russia 2 years ago and is manufactured locally in Moscow and St. Petersburg under a license. Despite investing $85 million in these two bottling plants, they do not perceive Coca-Cola as a premium brand in the Russian market. Moreover, they see it as a "foreign" brand in Russia. Lastly, while Coca-Cola's bottle and label give it a high-class image, it is unable to capture market share.

Another country in the hot battleground for Coca-Cola and Pepsi is Romania. When Pepsi established a bottling plant in Romania in 1965, it became the first US product produced and sold in the region. Pepsi began producing locally during the communist period and has recently decided to reformat its organization structure and retrain its local staff. Pepsi entered into a joint venture with a local firm, Flora and Quadrant, for its Bucharest plant, and has 5 other factories in Romania. Quadrant leases Pepsi the equipment and handles Pepsi's distribution. In addition, Pepsi bought 500 Romanian trucks which are also used for distribution in other countries. Moreover, Pepsi produces its bottles locally through an investment in the glass industry. While the price of Pepsi and Coca-Cola are the same (@15 cents/bottle), some consumers drink Pepsi because Pepsi sent Michael Jackson to Romania for a concert. Another reason