Pepsi, Coke: Not the right choice

Atlanta: Pepsi and Coke, soft drink behemoths and arch rivals, are totally inundated by losses - though deceptive their savvy commercials and marketing gimmicks can be. While Pepsi suffered a Rs 265-crore loss as on 31 December 2000, Coke too accumulated losses of Rs 650 crore in the same period.

The figures look imposing despite the fact that Pepsis figures do not include losses from Tropicana, a pure-juice drink. Similarly, Cokes figures have been arrived at after its Atlanta-based parent had written off $400 million in the first quarter of calendar 2000. Worth noting is the fact that losses have increased on a year-to-year basis. Thus, in Pepsis case, its losses in the calendar year 2000 increased to Rs 67 crore in comparison to Rs 37 crore in calendar 1999.

Why are these two soft drink majors incurring such huge losses despite being market leaders? Blame it on competition, say analysts. So fierce is the urge to retain their respective market shares that the two end up spending heavily on advertisement and other sales promotion activities, which include sponsorships and high-profile celebrity endorsements.

According to industry estimates, both the companies, put together, end up spending nearly Rs 450 crore to Rs 500 crore annually on advertisements. Then there are heavy-dealer discounts to contend with. For example, Pepsi has cut down on its prices of its 2-litre bottles of Pepsi, Miranda and 7-Up to Rs 43 from Rs 50. Similarly, it has also cut the price of its 500-ml bottle to Rs 15 from Rs 18.

Will the companies cut out on their advertisement budgets, dealer discounts and other sale promotional activities? Apparently not, because as long as there is competition in the market, these strategies will have to be continued with.