PEPSI COLA PAKISTAN: FRANCHISING & PRODUCT LINE MANAGEMENT

The case talks about the dilemma faced by Irfan Mustafa, west Asia vice
president and chief executive officer of pepsi cola incorporated (PCI). He
was in charge of increasing profits focusing on 7-up after its acquisition in
1986. Teem was a popular brand in Pakistan and after 7-up PCI withdrew
all marketing and technical support. Mustafa believe it was still a popular
brand and could help him make profit.

PEPSICO INC.
PepsiCo Inc was established in 1990 and accounted for $44 billion in retail
sales. It deals in soft drinks, snack food and restaurants.
Pepsi Colas first expansion was in 1934 and by 1990 it had approx. $1.5
billion net sales and $94 million in profits. By this time the international
market was double of USA. But the consumption was fairly low. However,
research showed that the demand is high and if the distribution
infrastructure is improved, growth volume will improve rapidly.
In 1990, pepsi cola gathered bottlers from around the world and unveiled
strategy to target fast growing market segments. This was due to
slowdown market to just 3%.

7-UP INTERNATIONAL
PepsiCo bought 7-up for $246 million in 1986. Because of this the total
volume increased by 20%. Still Coca Cola remained the industry leader.
This acquisition was widely praised. 7-up represented 15% of international
soft drinks. It was different lemon based soft drink and after five years of
purchasing by 1991, pepsi cola added more than 30 additional markets.

COMPETITIVE ANALYSIS
This was one of the most competitive industry but it was difficult to find
data and companies relied on their own research. Coca Cola claimed they
are outselling other soft drinks by four times that of competitor. i.e 46% of
soft drink market. The market share grew by 8% by 1990 while pepsi
colas sale grew 29%. Coca Cola wanted to expand business
internationally because they believe thats where the business is. Per
capita soft drink consumption outside United States was five times more.
Goizueta said it was their tactic to invest in local bottling company and
push for expansion in various markets. While Coca Cola concentrated on
only soft drink PepsiCo diversified to good as well. Still Pepsi had 33% US
soft drink market while Coca Cola had 41%. So pepsi lagged behind in that
market and had less than one third of coca cola market worldwide.
Goizueta believed this was because coca cola focused their attention on
soft drink business.
Though coca cola was in lead but pepsi wasnt far behind. They claimed
market leadership in parts of Middle East, Latin America and eastern
Europe. Pepsis representative Sinclair believed they would close the gap
soon but others said he was being optimistic. This competition was
described as a very high stakes struggle for brand loyalty. It wasnt just
about the formula anymore but everything from top management to
bottler. Though coca cola was leader pepsi was growing rapidly. This
success was based on marketing tactics which were based on focusing on
the younger generation.
They reached the peak when coca cola failed at introducing new coke and
was forced to reintroduce old coke within 90 days.

PEPSI COLA PAKISTAN INC. (PCI)

This was the west division of pepsi cola international which comprised of
three countries namely Pakistan, Bangladesh and Sri Lanka. Mustafa
joined PCI as CEO in 1990. He had two MBA degrees. He worked with
Lever Brothers Pakistan for 14 years and oversaw $100 million in
consumer products.

Pepsis market could be broken down in concentrated product

manufacturing and then quantities sold in retail stores. Per capita
consumption in Pakistan in 1991 was lowest in the world. Retail price was
US $38 per year. Before acquision of 7 up the market had cola, mirinda
and teem. PCI developed teem to compete in market. Except teem and
7up which were in dark green bottles, colored drinks were sold in
transparent bottles.
The two segments of soft drink were on premise like cinemas, snack bars,
airlines etc. Remaining 15% were take home segment. In 1990 market
share for pepsi was 58% while coca cola was 33%.

7up before acquisition was not promoted to its full potential thus
witnessed stagnant sales.

DISTRIBUTION
PCI recorded 54000 Pakistani retail outlets sold soft drinks and most were
small with limited storage space. If one was out of stock people would
easily substitute it with another soft drink. Thus the distributors had to
visit and restock often. It was fairly difficult as the road conditions in rural
areas were bad. 85% consumption was on premise sale so the cold chain
was important. The motto was if it is cold it is sold. The trick was giving
out branded refrigerators to maintain loyalty, advertising and keeping
sales good by keeping bottles cold.

ADVERTISING
Advertising accounted for 60% spending and remaining 40% were used
for promotion. Promotions were discount pricing, coupons, reward
programs etc. They had a good budget with bottlers who paid 65% of
advertising and promotions and rest 35% were paid for PSI. Bottlers made
profit as they were associated with a brand like pepsi. The main purpose
was to achieve volume growth. TV and ads were major factors while
newspapers were less popular ones. The company employed two ad
agencies for these purposes. The promotions used were managed locally
usually and differed in different regions. Mustafa realized TV was the most
popular medium and provided access to 75% of Pakistani population.
BOTTLERS
Pepsi started franchising in 20th century to expand its distribution. This
was given to a bottler for exclusive rights to produce, bottle, price and sell
the product in assigned area and it was made sure that the quality was
maintained. The contract was termed for 10 years with renew option of 5
years while the bottlers owned plants, trucks, glass and bottles. The
bottlers reported to Mustafa. He accessed their financial position, stability,
future development and the amount of commitment. The PCI
management decided the goals, targets, positioning etc. The bottlers of
Pakistan were affluent people and often sold outside their territory so
Mustafa shifted their focus on the competitor coca cola. He also took note
and action against cross franchising thus establishing a gentlemans
agreement. The quality was kept in check by sending a sample to Tokyo
and getting it tested and the engineers were responsible for a number of
bottlers and regular quality inspection.

7 UP BOTTLERS
One of the main reasons for pepsi acquiring 7up was to get more
coordination of bottlers. They wanted more control and combining this
increased the market capacity. This ensured esteem brand but needed a
large capital investment. Mustafa was concerned about the greater power
PCI bottlers would have after the acquisition and what PCI relationships
would mean for them. In a few states the 7up bottlers had already sold
their plants and rest were supposed to do so in the next few coming years.
His focus was to convince other four to sell the plant. The bottlers feared if
they merged then the 7up brand could be overshadowed. PCI
management tried negotiating but the two bottlers but they cut the deal
themselves which concerned Mustafa and he tried telling importance of
PCIs involvement in negotiation.

BRAND PORTFOLIO & MARKETING PLAN

7UP helped increase PCI sales by approximately 65%. Remaining 20%
sales were by mirinda and Teem. Mustafa believed budget for pepsi should
be to maintain market share and for 7up to building it. Next problem was
to see how to manage rest of the budget for Teem and the action to be
taken for that. Three options were to build, maintain or harvest. The hold
share strategy for mirinda was working well so he was happy with it. He
was concerned how to keep the brand Teem alive and if he should divide
the market in rural or urban. He relied on less expensive means of
information like radio where the electronic media had less coverage. He
wondered if he could apply the concepts of Thumps up to Teem.
Whichever medium he chose he had to keep in mind how Teem would
affect the potential market of Pepsi, &-up and mirirnda.