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Pepsi and Cola-Case Study - Copy.docx

Pepsi and Cola-Case Study - Copy.docx - Running head CASE...

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Running head: CASE STUDY 1 Case Study [Name of Writer] [Name of Institution]
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CASE STUDY 2 Introduction Coca-Cola and Pepsi dominated the carbonated soft drink (CSD) industry for over a century but are now experiencing significant and continuing drops in sales due to changes in their external environments. Government regulations combined with the push towards healthy diets to fight obesity have threatened the American CSD sales. With the shifting trend towards non-carbonated drinks (non-CSD’s), Coca-Cola and Pepsi need plan, organize and execute strategies to compete for market share in the non-CSD industry while also maintaining sales in their CSD lines. This paper will provide background on both companies with an emphasis on their changing external environments along with their overall organizational structure arrangements and how they are managing change. I will also provide an analysis of their key management issues followed by my recommendations and conclusion of how both companies can grow in the 21st century. Analysis Historically, the soft drink industry has been profitable due to its high revenue, contributed by large sales quantity and competitive pricing, and low cost structure. With the dropping prices of raw materials for the concentrate and new bottling technology, Coke and Pepsi were able to offer soda’s at bargain prices making it easily accessible to every American. Also Coke and Pepsi’s powerful promotional messages in their advertisements engrained their product in the people’s minds creating strong brand loyalties where a price raise would not affect their consumers’ purchasing patterns. Most importantly, up until the early 2000’s, people did not view soft drinks as a health hazard and the main cause for obesity in Americans so it was served in all establishments including schools. Both companies failed to efficiently create plans for transitioning into the non-CSD industry The two main players in CSD and non-CSD production are the concentrate producers and the bottlers however, both are not equally profitable. In reference to exhibit 4 (Yoffie & Kim, Pg.17), cost of goods sold as a percent of net sales for the concentrate producer and the bottler is 22% and 58% respectively. The source of this discrepancy is the difference in capital investment required for their operations. Concentrate producers’ costs included raw material ingredients to make the concentrate, advertising, promotion, market research and bottler support. Their operations required minimal amounts of capital investment in comparison to the bottlers. Bottling and canning lines for high-speed production in a large plant and automated warehousing cost hundreds of millions of dollars. That coupled with the cost of concentrate, packaging, labor, overhead and capital investment in trucks and distribution networks add up to a large operating expense resulting in a high cost of goods sold lowering their operating income to 8% of net sales which is a quarter of the concentrates producers 32%. With
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