Still Sweet on Coke and Pepsi?

Week Beginning: 26.01.2015

Bloomberg View recently posted an article about the competition between Coca Cola and Pepsi. At the time the soda-pop business is at its purest form. As the article stated it is sublime and ridiculous at once. 

First of all it is ridiculous, because it involves selling sugar water and second of all it is sublime, because the firms main responsibilities are branding and producing a secret syrup that someone else mixes with carbonated water and serves at restaurants or sells in supermarkets. However both companies’ capital expenditures are low and their profit margins are high. The article mentions that Coca Cola s operating margin topped 25 % for years and years, which is remarkable for a company that is selling something different than iPhones or drugs. Adding to that Pepsi’s overall margins is lower, due to the fact that they are also selling snacks and are not fully concentration on their most popular drink. Things became more complicated for Coca Cola and Pepsi as they acquired their biggest North American bottlers in 2009-2010. After this their operating margins fell, so they reacquired them again. However the biggest concern for the companies is, that people might stop drinking soda-pop, as customers realized that too much sugar will affect their health. This is clearly shown by the decreasing home market, North America. The organization, Euromonitor, says that the market is shrinking at 0.7 % through 2018. This was also caused through the publicity that the President of Coca Cola in North America got, as he said that he cut down his consumption of Coca Cola. Since then both companies have focused on cutting down their costs, by removing workforce. All in all Pepsi is a little bit a head of Coca Cola but their profits are basically the same for December 2014.

This article links to the topic, Branding, which we covered last week. As stated in the beginning one of Coca Cola’s and Pepsi’s biggest responsibilities is branding. An example for that would be that there are many companies out there, which produce more or less the same product, but Pepsi and Coca Cola seem to make the most profit out of it. This is happening, because of branding. A customer buys the product, because of the brand name, its image or other features. Adding to that this article also links to Change of the CUEGIS as it shows that the soda-pop market is not as popular anymore as it was in earlier decades, therefore both market leader companies have to adapt to that change. Furthermore it also links to Strategy of the CUEGIS, because if Coca Cola or Pepsi is making less profit, their production cost will increase again. Therefore Economies of Scale need to be considered and the firms need to use certain strategies to cut down their costs. The article also touches on Ethics as it involves selling sugar water to people for  reliativly high price, compared to other brands, which might sell a similar drink. The only reason why the price is different is because of the branding of the firm. Therfore it is questioned if similar products should have different prices due to branding. All in all the article shows that Coke and Pepsi are slowly moving to the decline stage and becoming dogs, although they might still be in the maturity stage.