In the battle of cola powers, Coke had always been a clear-cut
victor over Pepsi. But, as Matthew Arnold reports, the tide is turning
and, in a new report, Pepsi has surpassed its longtime rival.
For a time, it seemed as if the cola wars had gone the way of the
Cold War, with Coca-Cola taking a substantial lead in market share, and
a moribund Pepsi seemingly resigned to playing second fiddle.
But the past year has been cruel to Coke, while Pepsi's marketing
efforts have, by most accounts, picked up steam. According to two major
reputation indexes released earlier in the month, Coke has lost ground
with both consumers and the captains of its corporate peers. Fortune's
ranking of 'America's Most Admired Companies' had Pepsi dethroning Coke
for the lead in the beverage category, while Coke dropped to fourth. At
the same time, the Reputation Institute and Harris Interactive published
the results of their annual Reputation Quotient study, which showed
Coca-Cola falling from the top 10.
'Coke has had a difficult couple of years,' says Gary Hempill, SVP with
Beverage Marketing, an industry research and consulting firm. 'They've
been going through a reorganization with major management changes, a
number of acquisitions have fallen through, and they've had a product
On the other hand, Pepsi is on a roll. Their growth has been very solid,
both in and out of the US, and their other units have performed quite
well. Plus, they've had some very prominent acquisitions.'
Pepsi beat out Coke to pick up South Beach Beverage Co. last month, and
expects to complete its acquisition of Quaker Oats and its potentially
lucrative Gatorade unit in the next several months, all factors which
would have impressed industry peers voting in the Fortune survey.
'Pepsi went through some difficult times back in the mid-90s,' says John
Fischer, editor and publisher of Beverage Digest, a major industry trade
publication. 'Today, it is a company that has its act together and is
well-managed and agile.'
This success has been relatively recently won. In 1998, Pepsi launched
an overhaul of its logo called 'Project Blue,' replacing the old red and
blue on white design with a new one emphasizing a global motif. It was a
brave stab at Coke, but received a wealth of criticism when it failed to
sufficiently push sales.
By last summer, Pepsi had opted to go back to its roots, reviving its
Pepsi Challenge, a staple of '70s advertising lore in which consumers
are put to a blind taste test comparing Pepsi and Coke. 'It occurred to
us that there were something in the order of 80 million Americans who
weren't even born the last time we issued the challenge,' says Larry
Jabbon-sky, director of PR for the Pepsi Cola Company of North
'It was huge over the summer and into fall.'
Pepsi has always used its position as underdog to best advantage.
Internally this has meant that it has had to work smarter with a far
smaller PR staff.
Coca-Cola boasts a US PR team of 30, with 18 working internal PR and 12
working external, while PepsiCo's drink division keeps a PR team of five
headed by SVP of public affairs Becky Madiera. The company has no agency
of record but instead hires on a project-by-project basis.
Coke goes flat
While Pepsi has reinvented itself, Coke has tripped up. The cola giant
saw its courtship of Orangina quashed by French regulators. Then,
following a summer 1999 contamination scandal in Belgium which cost the
company $400 million and seriously wounded Coke's reputation in
Europe, chairman and CEO M. Douglas Ivester left. His successor, Douglas
Daft, initiated a major reorganization, slashing some 5,000 jobs and
pleasing investors but souring some consumers on the brand. Still
smarting from those debacles, the company recently offered to settle a
discrimination suit by 2,000 African-American workers for $192.5
Daft is trying to regain the strategic initiative for which Coca-Cola
has traditionally been known. He initiated a series of charitable
programs and internal efforts to emphasize its commitment to diversity,
including a $1.5 million contribution to found the Diversity
Leadership Academy of Atlanta and the hiring of a company diversity
officer. Daft stated repeatedly that it was his top priority to ensure
Coke had the world's most diverse workforce.
Appealing to the locals
Asked about Pepsi's ascension, Jabbonsky says it's all a matter of
community relations. 'It's a decidedly simple business,' says Jabbonsky.
'We try to come up with programs that resonate with the primary
customer, which is the bottler. While the Pepsis and Cokes of the world
are huge multinational corporations, our business is really very local
These are words that would ring painfully true in the corridors of
Coca-Cola's Atlanta headquarters. The company's slow response in
Belgium, exacerbated by a corporate structure heavily centered on its US
headquarters, cost it dearly, as did its distant and lackluster
performance in France.
Coke has since decentralized its operations and embraced a new
'Our business strategy is 'Think local, act local,'' says Ben Deutsch,
director of PR for Coca-Cola. 'Our organization has been redesigned from
the ground up, returning us to a leaner, more decentralized management
Suzanne Carter, an assistant professor at Notre Dame who is affiliated
with the Reputation Institute, says Coke found out the hard way how
quickly a local crisis can tarnish a company's brands abroad. 'One of
the things that happened with Coke in Europe is that they failed to
recognize how global their reputation is,' says Carter. 'As a result of
how they reacted in Europe, their US reputation has been affected as
But can a short-term loss in consumer confidence really impact a brand
as big as Coke? Hempill says not. 'We haven't seen any numbers to
indicate a huge defection of Coke customers,' he says. 'Sales overall
have been a little flat the last couple years, but that's an overall
industry problem, not a Coke problem.'
And while Coca-Cola has lost ground on its reputation, it retains the
advantage in sales over Pepsi, with 44.1% of the US soft drink market,
compared to Pepsi's 31%. In fact, Coke has even managed to extend its
lead over Pepsi in the past years, according to figures by the Beverage
'I can predict with virtual certainty that their consumer image will
begin to rise again,' says Fischer. 'Its brands are very strong and
deeply intertwined with many aspects of US culture.'