| BUSINESSWEEK ONLINE : MAY 3, 1999 ISSUE | ||||||||
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| THE CORPORATION
Now That's a Pepsi Challenge The Cola Wars used to be a walkover for Coke. As relentless as a Roman legion, it regularly humbled a distracted Pepsi, widening its market-share lead. But Coca-Cola Co.'s easy victories are history. A newly invigorated Pepsi (PEP) has launched a hellacious assault on its archrival that has forced Coke, already struggling with international woes, to expend huge chunks of money and time to defend its 44%-to-31% U.S. lead. Whipping No. 2 PepsiCo Inc. into fighting trim has been the mission of Chairman and CEO Roger A. Enrico since he took over in 1996. Enrico has made Pepsi a leaner, feistier foe by spinning off capital-intensive distractions such as restaurants and bottling. Now, with revved-up marketing, price wars in the stores, and an assault on Coke's lead in fountain and vending-machine sales, he is going after Coke with a vengeance. Says Philip A. Marineau, Pepsi's head of beverage operations: ''We've reenergized our system.'' KUDOS. Nowhere is the change more visible than in Pepsi's marketing. After years in which it pumped out glitzy ads that didn't sell much, Pepsi is doubling spending--to $300 million a year--to launch a fusillade of new initiatives that are finally winning kudos from marketing experts. In March, Pepsi rolled out a splashy new campaign for its flagship Pepsi-Cola brand. And to hype its new Pepsi One diet drink, the cheeky No. 2 is even dusting off its old ''Pepsi Challenge'' gambit from the 1970s--the last time it made gains on Coke. But perhaps its biggest move will come starting in May with the release of Star Wars: Episode I--The Phantom Menace. With plans to spend up to an estimated $2 billion over the six-year, three-film deal, Pepsi has scored a big piece of what should be one of the hottest promotional opportunities around. Look for Pepsi to exploit the films with toys, ads, and co-branded soft-drink cans. Out in the real world, the newly pugnacious company's chief avenue of attack is fast-food chains. Now accounting for one-quarter of all beverage sales, such chains are the fastest-growing distribution channel--and, with margins of 15%, one of the most lucrative. Coke, with 8 of the 10 largest fast-food chains in its pocket, has a commanding 65%-to-25% market-share advantage. But Pepsi has scored some minor victories, stealing seven smallish fast-food accounts from Coke, including Pizza Inn Inc. (525 outlets) and Bojangles' Restaurant Inc. (257). And its biggest victory may have come simply from being a contender when Coke recently renewed its contract with Burger King. Pepsi's competing bid forced Coke to spend a boatload to keep the contract. ''The fact is, we put a scare into Coke,'' says a Pepsi exec. ''Wait till we go after McDonald's.'' Coke must also worry about Pepsi's bid to plant more of its blue vending machines around the landscape. Since 1997, Pepsi has added 170,000 machines nationwide, for a total of about 1 million. Today, Coke remains far ahead, with roughly 1.4 million machines. But Pepsi's push has made the battle to place the machines--which boast margins of more than 30%--far more competitive. SNACK TIME. Enrico also wants Pepsi to do better at exploiting the one edge it enjoys: the combined strength of its soft drinks, its new Tropicana juice unit, and Frito-Lay, the world's largest salted-snack provider. After all, people heading to the store for a snack often pick up soft drinks at the same time. So far, the ''Power of One'' campaign has consisted of a few joint promotions. But Enrico is making sales calls on supermarket-chain CEOs with the heads of Frito-Lay, Pepsi, and Tropicana. Their pitch: Increase your sales by moving soft drinks next to snacks. Count on Coke, which would be at a disadvantage because it doesn't sell chips or pretzels, to resist Pepsi's aisle-placement plans. The reality remains that Coke can no longer coast. ''Pepsi has changed the rules,'' says William W. Wilson, CEO of independent Pepsi-Cola Bottling Co. of New York. ''It's finally willing and able to spend big-time on catching Coke.'' No wonder Coke is looking over its shoulder. By Larry Light in New York _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ BACK TO TOP |
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Coke's Man on the Spot TABLE: They'd Like to Sell the World a Coke CHART: As Coke Sales Stall...Earnings Take a Hit...And the Stock Loses Its Fizz A Case of Deja Vu Now That's a Pepsi Challenge INTERACT E-Mail to Business Week Online | |||
