Coke vs. Pepsi: An Economic Analysis

In this case study we will do an economic analysis of two major competitors; Coke® and Pepsi®. We will look at the history of these to competitive giants and discuss how they have evolved over the years to become rivals in the 21st Century. In this case study we will also look at the supply and demand of each company’s products. Coke and Pepsi are not only in the beverage business they have branched out into other arenas to continue being the leaders in their market.

Both companies do business all over the world; we will also look at how they size up internationally as well as nationally. We will look at production and cost in the short run and long run by analyzing each company economically.

Each company has forecasted where they will be financially in the 21st Century and in this analysis we will calculate if they have forecasted close to where they are today. Management is a big part of the success of large firms such as Coke and Pepsi so we will look at the management styles of each one.

By looking at management will analyze the strategic decision making of each firm and note any issues they have had in the past or present with upper management. Finally strategic decisions in oligopoly markets with regards to profit maximization is vital to the firm and the shareholders alike, we will analyze those strategies as well.

After reading both of these competitive giants’ histories it is clear to see they are both trend setters in their own rights.

Coca-Cola® was being formulated in Atlanta in a pharmacy and selling about 9 drinks a day to now selling over 1 billion servings of Coke products a day. With Coke the product has always been an advertisement junkie from its beginnings when the founder put the Coca-Cola name on everything to now having global ad campaigns. Pepsi has also been a media giant and has soared in the market because of its huge ad campaigns. Pepsi has been known to use mega stars like Michael Jackson and Brittney Spears to be spokesmen for the brand which has been a big success over the years. Both Coke and Pepsi have evolved and changes in look at take over the years. Coke in the early 90’s tries to change the formula to New Coke and was soon back to what is known now as Coca-Cola Classic®. Pepsi has also tweaked its formula only to revert back to the original.

Both of these companies have many many brands and brand extensions. The competitive nature is apparent in each of these companies and will continue on. Coca-Cola seems to have a slight lead in the market and has always been a leader but not by a landslide Pepsi is always running close behind. There is both loyal Coke and Pepsi customers and some who enjoy both products and go back and forth. Coke has many brands like Minute Maid, Vitamin Water, Aquafina, Sprite, and many more. Pepsi also has many of the same or similar brands like Tropicana, Sobe Life Water, and more to coincide with Coke. Brand extensions are very important in the success of these companies. Pepsi Cola and Coca-Cola were both started in the late 1800s by pharmacists in the south Pepsi in N.C. and Coke in GA. Pepsi Co was formulated in a merger with the Frito Company which became Frito Lay. Brands like Frito Corn Chips and Lays Potato Chips and Pepsi together were formed in 1965.

Though apart Frito was started in 1932 and Pepsi in 1895. This 1965 merger began a lifelong relationship and successful partnership. Doritos emerged in 1965 adding to the success and Pepsi enters Japan and Eastern Europe as well. In the 70s Pepsi acquires things like Pizza Hut and Taco Bell, which adds to the brands solidity and its market value. Looking at these companies financially is where you can see how they stack up against each other. Coke has a good positive outlook on the future. Pepsi also has a good outlook on future endeavors in the US and abroad. Coke being a huge international company brought in $27.8 billion of net operating revenues from operations outside the United States. (United States Securities and Exchange Commision, 2011) Coca-Cola also created 4,700 jobs in 2011 in the opening of the Great Plains Bottling Company in the US. These leaps and bounds made by Coke are nothing abnormal it is a huge marketer.

One big issue for both Pepsi and Coke is water scarcity and that most likely will have an effect on the companies’ productions costs which are in turn passed on to its consumers eventually. Coca- Cola is concerned with the water scarcity issue and reports I its 10-K filings that the water sustainability problem will more than likely have an effect on the company and reposts this, ”from overexploitation, increasing pollution, poor management and climate change as the demand for water continues to increase around the world, and as water becomes scarcer and the quality of available water deteriorates, our system may incur increasing production costs or face capacity constraints which could adversely affect our profitability or net operating revenues in the long run” (United States Securities and Exchange Commision, 2011) The PepsiCo Company faces the same type of troubles when it comes to externalities. The negative effects of these externalities will take a toll on the profits of all bottling companies since they will have to begin to develop ways to be productive without corrupting its external environment.

In India drought has made water a scarcity and some of the blame is being put on Coca-Cola Bottling Plants in the area. In a village in India protest caused a $25 million a year plant to shut down. Some protestors say “drinking Coke is like drinking a farmer’s blood” Groundwater is not the only problem reported high levels of pollution have been reported as well and sludge fertilizer offered to farmers as a peace treaty high in levels of cadmium-laden in the sludge fertilizer. Protestors say why they would do that and nothing about depleting water, Coke responds that those accusations have no merit. (Ehl, 2011) PepsiCo has had the same bad reputation for depleting water resources around the globe.

Coalitions like Council of Canadians and Food and Water Watch work to ensure the food, water, and fish we consume is assessable and sustainable. They also make sure the government does its job at protecting those resources as well. In conclusion Coke and Pepsi are both equally competitive and equally challenged with today’s problems. Seeing the value in both of the companies is easy they have both been models for the beverage market and for the world market alike. By looking at the history of the companies it is clear to see they run neck and neck with on another.

I think going forward with the companies that there has to be greater concern for the world economics and water depletion is part of that economical problem. Learning new ways to safely produce the products in areas that have an abundant supply of resources is the key to success here. Investing in the research and development of safe ways to bottle is on the forefront of both of the bottlers’ agendas. These are two extremely successful companies that have been around for over 100 years they are not going anywhere anytime soon.