The soda fountain is now ground zero in the cola wars.

I Find Karma (
Mon, 11 May 1998 04:19:49 -0700

A nice metaphoric (allegoric?) article appears in today's Wall Street
Journal for control over an industry when its leader uses its power
position to lock out competition. This goes to show how distribution
channels really are important in this day and age.

An eye opener:

> An ice-laden soft drink at a fast-food outlet can easily sell for
> $1.25, with very little overhead for the restaurant operator. Buying
> bottles and cans costs the restaurants more and they are harder to
> mark up when consumers can buy a 12-pack of Coke and Pepsi cans for $2
> in some grocery stores.

Yeah, why DO I spend a buck or more on fountain drinks? I gotta be an
idiot. (The fact that I'm posting this at 4:19am notwithstanding...)

Full article follows. Rock and roll-a cola wars, I can't take it anymore.

> May 11, 1998
> The soda fountain is now ground zero in the cola wars.
> With its pugnacious lawsuit Thursday against Coca-Cola Co., PepsiCo
> Inc. is aiming to gain ground in the market for soft drinks dispensed at
> fountains, the very heart of Coke's U.S. strength and the major reason
> for Pepsi's weakness.
> Pepsi is accusing its bigger rival of trying to freeze it out of the
> business of selling soda pop in restaurants and movie theaters served by
> independent food distributors. Pepsi's claim: As it has sought inroads
> into the fountain business, Coke has used its huge market power to
> threaten distributors with losing their Coke business if they supply
> Pepsi. Pepsi says that 90 of the top 100 national restaurant chains and
> other large fountain accounts receive their products from these
> distributors, so Coke is violating antitrust law by blocking access to
> the "distribution superhighway." Coke says the charge has no merit.
> The suit goes to the core of Pepsi's strategy against Coca-Cola, which
> has steadily gained U.S. market share and has vowed to capture 50% of
> the domestic soft-drink market by 2001. In 1997, Coke's U.S. share was
> 44% vs. Pepsi's 31% -- and one of Pepsi's top executives has referred to
> the gap as the "jaws of death."
> The fountain business "is crucial for Pepsi because it accounts for
> nearly all the difference in the 12 to 13 share-point lead Coke has over
> Pepsi nationally," explains Andrew Conway, an analyst at Morgan Stanley,
> Dean Witter & Co.
> Thanks to "combo" meals and "super-size" drinks at fast-food
> restaurants, the fountain business has been growing faster than sales of
> soft drinks in bottles and cans, though the pace has slowed. About 24%
> of soft drinks sold in the U.S. are dispensed by fountains. And while
> Pepsi and Coke are usually neck and neck in other sales outlets, Coke
> has a 65% share of the fountain business, towering over Pepsi's 25%.
> Coke doesn't break out profits for this business, but analysts say the
> fountain segment accounts for 25% to 40% of Coke's U.S. profit.
> Roger Enrico, PepsiCo's chairman and chief executive, has been even
> blunter. "Fountain could be our Achilles' heel," he told Pepsi bottlers
> at their annual meeting in January 1997. "We can't build a fountain
> business with a few gimmicks, and without the fountain business our
> future is a lot less bright."
> The lawsuit is just part of Pepsi's strategy to arm itself for the
> fountain wars. It set up a new fountain-beverage division in 1996 and
> since then has more than tripled the division's staff of 50. After
> months of sticky negotiations, Pepsi has amended contracts with most of
> its bottlers who have had the exclusive rights to sell syrup to most
> restaurants in their territories. That arrangement had turned off many
> big accounts, who preferred to buy their soft-drink syrup from the food
> distributors that already supplied them with ketchup and napkins --
> rather than from a hodgepodge of Pepsi bottlers. Coke, meanwhile, built
> a much bigger organization and did business with those very
> distributors.
> Most important, PepsiCo last year spun off its fast-food unit-made up
> of the Pizza Hut, Taco Bell and KFC chains -- as a separate, publicly
> traded company, Tricon Global Restaurants Inc. For years, Pepsi's
> ownership of the restaurants meant Coke could tell owners of other
> restaurants that pouring Pepsi was putting money into their rivals'
> pockets.
> One new Pepsi tactic aims at a big weakness in the fountain business:
> the cups. Most of the time, people order drinks when they eat out at a
> restaurant. But they often skip the drinks when they buy takeout. Pepsi
> says its research shows that consumers dislike paper cups because they
> get soggy and can easily spill if jostled, so customers just decide to
> pick up a bottle or can from somewhere else.
> But restaurants don't like selling bottles and cans, which have lower
> margins than soda from the fountain. An ice-laden soft drink at a
> fast-food outlet can easily sell for $1.25, with very little overhead
> for the restaurant operator. Buying bottles and cans costs the
> restaurants more and they are harder to mark up when consumers can buy a
> 12-pack of Coke and Pepsi cans for $2 in some grocery stores.
> Pepsi, searching for the perfect takeout cup, has come up with a
> couple of candidates. One is a 64-ounce cup with a clamp lid and a
> handle. Another, slated for testing next month, is a plastic
> "twist-and-go" cup with a dome-shaped lid that is screwed on. The cup,
> designed to carry 32 ounces, also has a narrow bottom that fits car
> cup-holders. It costs more, but Pepsi is betting it will pay for itself
> with extra volume.
> Counting on Slush
> For its part, Coca-Cola says it has introduced plenty of innovations
> in the fountain business. It introduced slush-style frozen drinks in
>several outlets and ties many of its national promotions to restaurant
> purchases. "The concept of proprietary cups is nothing new -- if a
> customer said they wanted a screw-on cup, I'm sure we'd develop one,"
> says a Coca-Cola spokeswoman.
> As for Pepsi's antitrust allegations, the spokeswoman says Pepsi has
> plenty of distribution avenues, including its own bottlers, to supply
> restaurants with soft-drink syrup. Besides, she says, Coke has contracts
> with only 540 of 3,300 food-service distribution companies in the U.S.
> The battle isn't likely to cool off soon, even though fountain drinks
> are less profitable than bottles and cans for Coke and Pepsi. Both
> consider restaurants, movie theaters and ballparks to be big billboards
> that help advertise, build brand loyalty and induce people to sample
> drinks. That is because consumers in these areas are "captive" -- they
> have no choice but to drink what is sold. Coke has used fountain outlets
> to develop smaller brands like Barq's root beer and to introduce new
> drinks, such as Surge, a citrus beverage. And many analysts say that if
> Pepsi expects Storm, a new lemon-lime drink it is currently testing, to
> ever be a big player, it will need a strong fountain business.
> Some people in the beverage business see the lawsuit as a sign that
> Pepsi still hasn't gained much ground against Coke. But Pepsi can claim
> some early wins. Vince Gennaro, president of Pepsi's fountain-beverage
> division, says the company has locked in contracts with 97% of all Pizza
> Hut, Taco Bell and KFC stores, fending off an attempted grab by Coke.
> Several Wendy's franchisees have switched to Pepsi from Coke, as have
> chains such as Planet Hollywood, Hard Rock Cafe and Bojangles.
> Last month, Pepsi signed on to be the exclusive beverage supplier for
> Walt Disney Co.'s new Club Disney, DisneyQuest and ESPN Zone venues.
> While small, the deal was surprising because Disney has a longstanding
> partnership with Coke, which sells and promotes its drinks at Disney's
> theme parks.


His whole life is a fantasy camp. People should plunk down $2000 to
live like him for a week: Do nothing. Fall ass-backward into money.
Mooch food off your neighbors. And have sex without dating.
-- George Costanza about Cosmo Kramer