Cola Wars

Cola Wars


        Stephen Brennan

        Accounting II

        Tue/Thur. 3-4:30


The Wall Street Journal recently did an article on how 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.  However, 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, international marketing can be very

complex.  Many issues have to be resolved before a company can even consider

entering uncharted foreign waters.  This becomes very evident as one begins to

study the international cola wars.  The domestic cola war between Coca-Cola and

Pepsi is still raging.  However, the two soft-drink giants also recognize that

opportunities for growth in many of the mature markets have slowed.  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 in the developing world, 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 to make Coke the early bird in many of the major

foreign markets.  At the height of World War II, Woodruff proclaimed that

Awherever 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.


In the intervening 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.  This paper seeks to examine these markets and the opportunities and

roadblocks that lie within each.


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 was a landmark

agreement and gave Pepsi the first-mover 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.

Also, Pepsi must counter trade its concentrate with Russia's Stolichnaya vodka

since rubles are not tradable on the world market.  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), Coca-Cola sells

for Rb450.  For the economy size, Pepsi sells 2 liters for Rb1,300, but Coca-

Cola sells 1.5 liters for 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
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