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COCA COLA'S FRANCHISING THE BOTTLE BROUGHT DISASTER TO COCA COLA.

Remember the cola wars: the knock-down, drag-out bouts where the two cola giants would each urge the other to do their damndest — and they would? Now that you think about it, those punch fests have just fizzled out these past few years, haven’t they? There’s no more of the ‘we’ll fight in the streets, on TV, in restaurants and supermarket aisles’ attitude. And it’s not missing only in India. Sure, in the US, the ad campaigns still take weak potshots at each other, but it’s almost as if Pepsi and Coke are merely going through the motions, an obligatory show of strength like the Indian and Pakistani troops at the Wagah border, rather than really living the war.

There’s a good reason why the hostilities seem to have been suspended: there are no longer two cola companies. There’s the original, Coca-Cola, which is still selling gallons of the fizzy drink every hour; and then there’s PepsiCo, which over the years has become a foods and beverages company that also sells cola. That may sound blasphemous to advertising agencies and marketing gurus, but the numbers speak for themselves. At $66 billion, PepsiCo’s 2011 income was over 40% higher than Coca-Cola’s $46. 5 billion, but just half of that came from beverages, in which carbonated sodas have less than half share. So, Pepsi’s soda sales last year? Under $15 billion. The move away from carbonated drinks is visible in India, too. While Coca Cola India had cumulative sales of Rs 5,908 crore and net profit of Rs 368 crore in FY11, the share of snacks in PepsiCo India’s revenue grew from 15% to nearly 45% between FY09 and FY11. In the same period, Pepsi’s beverages business grew at a compounded growth of 22%, but its segment profit went down from Rs 50 crore to Rs 4 crore. On the other hand, profit from its snacks business grew from Rs 56 crore to Rs 95 crore. While FY12 numbers aren’t yet available, given that trend, it’s more than likely that snacks now account for a larger share of revenue or perhaps have even overtaken beverages (which, in any case, includes much more than fizzy drinks). Is this all part of a carefully-planned strategy or did Pepsi lose the plot somewhere along the way?

The lack of fizz in Pepsi’s beverage business may have something to do with the differing bottling strategies of the two companies as well. In a time where Coca-Cola and its main competitor Pepsi Cola, both producing cola, were both concentrating on their sales values in the developing country of India. In which they adapted the in house bottling and distribution strategy. The demand for Pepsi fell in chunks, which they would have regarded as a mistake at hand in the bottling strategies used, whereas the sales for Coca-Cola was nearly 6,000 Cores, while owning more than 70% of its bottling operations. Whereas Pepsi Cola had only 55% control of its bottling and distribution volume to the Gurgaon-based Jaipuria family and a sales of 4,000 Cores. Gradually both Coca Cola and Pepsi lost their American bottlers, since after booming they set up these outlets as their own establishments, detaching from the mother companies. This brought great disgrace to the well reputed companies and placed a black mark upon them, as well as they lost billions of sales due to the fact that they couldn’t supply the goods to meet the demand of their consumers. When you’re investing in a growing market, it is better done when you control the sales and distribution operations.” Incidentally, in 2009, Pepsi brought its American bottling back into its fold and Coke followed suit some months later It is considered to be rather difficult for the mother company to manage all bottling operations in a developing country than in a developed country, causing a fall in control of bottlers from 70% to less than 55%. Overcoming all these obstacles, coke still invests billions in to unknown fields and focuses on what consumers in the market require and are still on the top.

Over the years, while Coke has strengthened its bottling operations in India, Pepsi has been gradually moving further into the franchise model. When it came to India, over 70% of the bottling business was company-owned but now that’s down to below 50%. “In a developed market, it is easier for the parent company to run the bottling and distribution business on its own but in an emerging market, one needs local expertise to handle logistics issues and even people,” says Ravi Jaipuria, chairman, RJ Corp. Usually, it’s a good move to separate the concentrate and the bottling businesses — both work to get the best possible deal and the company wins either way. At the same time, greater control over distribution can perhaps be best achieved when the company runs its own bottling and distribution. “Coke is far more focused and quicker,” says a top executive at Big Bazaar, India’s largest supermarket chain, pointing out that brand Coke has already gained 2% share between April and May across all Big Bazaar stores, thanks to offers like a 1.25 litre PET bottle of the cola free with the purchase of two more. “This has helped increase home consumption considerably,” he adds. British cash-and-carry retailer Booker, which has three stores across Maharashtra, claims it sells 1.2 million cases of Coca-Cola beverages compared with just 250,000-300,000 cases of Pepsi beverages every month. “When it comes to modern trade, Coke is far ahead,” declares a senior official. “Pepsi really needs to step up its distribution.”

Will all this be enough to stop the flow of consumers away from Pepsi? “It will momentarily increase sales. Whenever they bring about some drastic change, it helps the company for a while,” says David Levitsky, professor of psychology and nutritional sciences at Cornell University. Sanford Bernstein’s Dibadj isn’t so sure. “I don’t know why there should be a medium positioning,” he says, referring to Pepsi Next. “I think it will be very difficult for them to be successful.” Certainly, it’s not the first time Pepsi’s attempted something like this — it launched Pepsi Edge some years ago, which was promptly countered by Coca-Cola’s C2. Both failed miserably. But if Pepsi Next succeeds in winning over a new generation of cola drinkers, it might well end up triggering another cola war.