Coke and Pepsi have a third major rival on the bottled soft drink shelves, namely Cadbury-Schweppes. The big three carbonated beverage makers now exist in a stable oligopoly that change only by small increments and which controls over 90% of the market. Over the years, Cadbury-Schweppes (the result of a merger between a British candy company and a British beverage company) has improved its position by acquiring key brands in the US, namely Dr. Pepper and SevenUp, along with A & W and Canada Dry.
In past decades, the carbonated beverage section had been the beneficiary of an amazing record of growth, where consumption has more than doubled over the past 25 years. Americans consume twice as much soda as they did 25 years ago, up from 22 gallons per person per year to over 56.
While individual flavors go up and down, the relative market share of the big three changes at a glacial rate. The next biggest North American soda company, the Canadian-based Cott Beverage Company, had only a little over 3% of the market and that company specialize in supplying private label soda to supermarkets and other chains.
As with many mature retail industries, the beverage giants have a problem – growth in the sales of their flagship carbonated products are at a near standstill in the key U.S. market, with 1% growth or less. After years of rapid growth, it seems that the average American can’t drink any more flavored, fizzy soda water. To remedy that, these three companies are rapidly expanding both globally as they enter and promote new markets for existing products and locally, as they add products from adjacent beverage categories in the supermarket, in categories that are still expanding.
Selling costly sugared water and building an increasing demand for it, even in Third World countries, involves marketing in its purest form, unsullied by any preexisting need or local tradition. Markets in Eastern Europe, China, India, and Mexico, among others, are expanding fast, and both Coke and Pepsi are finding local partners (bottlers) in these countries to keep extending their reach. And while the American market may be mature, there’s still an opportunity worldwide to replace hot beverages like coffee and tea that require some preparation with these cold, iconic, Ready-to-drink brands.
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We believe it is important to note that Coca Cola has roughly the same market share as Pepsi and Cadbury-Schweppes combined. This is interesting because it implies that Coca Cola has the most market power. Because price competition is rather limited in this industry, this results in "advertising wars," as mentioned in class. Since the US market is not growing very fast, advertising doesn't seem to be effective. It will be interesting to see if the three oligopolists decrease costly advertising expenses in the US or if they feel compelled to continue due to a fear of losing market share. Because Coca Cola has the highest market share, it will likely decrease advertising if it thinks the others will follow, but otherwise will continue in order to maintain its market share. It may be more profitable to redirect advertising expenses abroad to growing markets, even if one loses market share in the US.
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