Coke vs Pepsi - Some Perspective, page-12

Hey Johnmagee,

I'm wondering if you could share your figures on market share? How much are Coke losing to the competitors? It's safe to assume that they are losing some market share but if you had figures you could share and where you are sourcing your information from it would be really helpful. I would also be interested to the see how big the overall market is. Is consumption of drinks rising overall or is the level of consumption falling?

In regards to the supermarkets taking a larger portion of profits or squeezing margins, this is Porters 5 forces 101. Well 1 of the forces anyway. Dominant consumers capture greater share of profits. To show you that this is actually happening and it's not just CCL management making things up...look at other products in the supermarket. Specifically fresh produce, meat and dairy. Have you seen how the price of milk has come down. Have you heard about how Australian farmers are getting paid less and less? Without even using specific examples it's not hard to see that when you have 2 players that dominate such a large part of the market, then they will have considerable power when dealing with suppliers like Coke, dairies or farmers.

In relation to margins, everyone knows that Coke had higher margins in the past. Higher margins exist for 2 reasons...higher selling prices and a lower cost base. Presumably Coke were at least partially successful in both aspects and they didn't have a high cost base because then the margins would be closer to average. So the market has arguably changed and now competitors are coming in competing by lowering prices. In response Coke needs to lower prices to remain competitive. This brings the average margins down across the market and unless consumption dramatically increases the overall profit in this industry is going to fall. So the 'business' is changing. This wasn't the strategy that CCL had in the past. Coke isn't being beaten by competitors who are doing a better than them. The competitors aren't offering a better premium alternative. The competitors are changing the dynamics based on cost. Think about airlines. The service level used to be much better, but then you get these discount airlines in who undercut the prices but we also lose a lot of quality. It's not so much that premium airlines are being beaten by Tigerair, they are selling a different cheaper product. I'm sure you can follow the analogy.

In any case you appear to be stuck in a contradictory argument. If Coke maintains margins, they probably lose more market share and you complain about that. If they reduce the margins to compete against the competitors, you also complain because margins are being squeezed. What is it that they can do that would appease you from here?

No one is saying this is going to be easy. Have you heard pretty much every company announcement since April 14. Management have stressed this over and over. There is no astute analysis required. This will require some work and time and patience. There is no magic switch that will flick and make things go back to the good old days.

In your opinion, what could Coke be doing to turn things around. It's really easy to come up problems and question every move of management what is much harder though is coming up with some productive strategies that they should be doing. In other words, what actions should management be doing to justify a higher price? I am really interested to hear your thoughts.