Coke vs Pepsi: Cola Quarrels

When Coca-Cola India CEO and President Donald W. Short headed for India in March last year after heading Coke Japan, he got a terse sayonara from his bosses at the megacorp's headquarters in Atlanta, Georgia: "Do the right thing."

Maybe he did too much of it. Just over a year later, it's going to land his company in court. On May 6, in the middle of the parched summer during which the Rs 3,000 crore soft-drink business scores its biggest hit -- almost 50 per cent of all soft-drink sales takes place between April and June -- the focus will shift from how many cases Coke sells to how it defends a case slapped on it by arch-rival Pepsi a couple of weeks ago. So far, the two companies had restricted themselves to pitched battles in the marketplace -- which was beginning to peak with the over-the-top advertising battle. "The reason I went to court," Pepsico India Holdings Chairman P.M. Sinha says, "is because I would like the fight in the marketplace".

Pepsi's Gripe

Pepsi allegations run a range from forcing its employers and customers to leave. A sample:

Coke offered key Pepsi sales people salary hikes of 300-400 per cent when the industry norm is 40 per cent -60 per cent for new hirings.

Ace endorsers like paceman Javagal Srinath were lured into breaking their contracts with Pepsi.

Coke tried to pressure the Board of Control for Cricket in India to break a sponsorship deal it had signed for the recent Pepsi Triangular Series.

Among other things, Pepsi's petition alleges that Coke had "entered into a conspiracy" to disrupt its business operations. "Rattled by the huge success of Pepsi in India," goes the petition, "it has become clear from the sequence of events in the past six months that the defendants want to cause loss and damage to Pepsi's business by adopting unfair and illegal means."

A sampler of the salvo reads like an all-out, take-no-prisoners shooting match. And a lot of the firing is about hiring. Coke has been accused of luring away three of Pepsi's key sales personnel from Kanpur, going as far as to offer Rs 10 lakh a year in pay and perks to one of them, almost five times what Pepsi pays him. Sales rookies who were earning Rs 48,000 per annum were offered Rs 1.86 lakh a year. Many truck drivers in the Goa bottling plant who were trundling along on Rs 2,500 a month shifted up with Coke's bait of Rs 10,000 a month. In an industry where new hirings average a pay hike of between 40 per cent and 60 per cent, Coke, alleges Pepsi, was offering between 300 per cent and 400 per cent.

Other moves hurt too. Pepsi alleges that Coke's Marketing Director Sanjiv Gupta -- the whizkid behind the marketing of superstar Amitabh Bachhan's ABCL -- was to join Pepsi in '97. But within days of his getting the appointment letter, Coke made a counter offer. Said Gupta in his note to Pepsi: "Since our discussion, I have now received an alternative offer more in tune with my career and financial aspirations and I am inclined to accept the alternative offer."

Coke is playing cool and quiet even as Pepsi, drawing on an impressive battery of legal eagles -- so far, eight top lawyers, among them former finance minister P. Chidambaram, advocate K.K. Venugopal, former attorney-general Ashok Desai and Arun Jaitley -- is spitting ire. Coke executives are keeping mum, saying that the matter is sub-judice and insisting that the reply will be made in the courts. Short will only say this: "Coca-Cola failed to connect with consumers in India initially. But now we are delivering what is right for our customers and consumers."

Delivering value for money, delivering advertising round-houses and conducting market coups have been standard operating procedure in the Coke vs Pepsi saga for decades. Those who switched loyalties from one company to another have been branded as traitors. Market gossip has it that one company has planted moles in the other. One routinely launches attacks on the other's bottling and distribution network. It's just hotted up in India, say market analysts, since Short's arrival.

Short does have a business mission, and he has no problems admitting to that. Coke's short-sightedness was acute. In 1993, it began with a mammoth 69 per cent share of the market, according to data from the Indian Market Research Bureau, after buying out Parle's popular brands, Thums Up, Limca and Gold Spot. But then choosing to ignore these, says J.D. Singh, professor of marketing at the International Management Institute, Delhi, it frittered away enviable collective strength. It did not realise that Parle's brands had enormous staying power, shown by their fightback with Pepsi. Market share had dropped by more than 10 per cent by the end of last year, while Pepsi's market share went up from 23 per cent to 43 per cent in the same period. Top brass anger with the results was evident: Short is the third Coke CEO in four years.

For its part, Pepsi didn't really push hard till Coke was about to re-enter the Indian market, thereby frittering away its own lead-time advantage of close to four years. "Both companies didn't really concentrate on the fundamentals of marketing like building strong brand equity in the market, and are now resorting to short-term strategies to garner a share of the market," says Singh. "The strategies reflect a poverty of imagination." Singh points to the sometimes clever, mostly callow ad wars that favour puns to scoring real points -- spending as much as Rs 70 crore a year to do so. But there's a story away from the glare of advertising and marketing, the truth that hurt Coke as much as it does Pepsi.

When Coke bought Parle it also inherited 56 bottlers. But many of them needed huge investments in capital. Around the same time, Pepsi began what it calls COBO-isation, or Company Owned Bottling Operations, because bottling infrastructure was one of its weakest points. It had 18 plants of which almost half weren't up to the mark. By the time Coke began to contemplate investing in its inherited bottling units, in 1995, it ran into differences of opinion. For instance, its Ahmedabad bottler, where former Thums Up don Ramesh Chauhan was a partner, had such differences that he switched to Pepsi. Last year, Coke's successful Goa bottler too switched to the Pepsi camp. Net effect: scrabble to maintain the advantage -- and regain it, depending on which company one looks to -- in the perennial battle between the two soft-drink giants which sizzle as often as their products claim to soothe. That, whatever the outcome in court, is the real thing.