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Cola Wars On The Mean Streets

Marketing: SOFT DRINKS


The battle heats up in Gotham--and the rest of the country

Until recently, the northern edge of Central Park was a weary, rundown spot. But in the past few months, the look of the place has changed. Suddenly, five convenience stores sport red awnings and one store features a new mural with a bright-yellow sun. The latest urban beautification program? Hardly. It's part of an aggressive new push by Coke into New York, long a Pepsi-Cola stronghold. After hanging the awnings and supervising the mural job, Coke's forces have taken to promoting the corner as a sign of their victory. Says Deborah Stokes, a longtime resident: "It looks like Coca-Cola Land now."

Harlem, a four-square-mile neighborhood, may seem like small potatoes. But these days, as Coke and Pepsi rev up their marketing rivalry, no fight is too small and no market too local to take on. With $30 billion in beverage sales between them, Coca-Cola Co. and PepsiCo Inc. have long battled each other with multimillion dollar ad campaigns and country-by-country marketing coups. And on July 20, Pepsi tackled Coke on a new turf, paying $3.3 billion for Tropicana Products Inc., a rival to Coke's Minute Maid.

But to make sure all that marketing money translates into bottles sold, both Coke and Pepsi are intensifying their efforts at the local level. With each pushing hard to improve U.S. market share, top managers are calling on the troops to redouble marketing and sales efforts as they duke it out in a storefront-by-storefront battle for soda supremacy. And nowhere is the fighting more heated than in the intensely competitive, intensely difficult New York market. "Many soft-drink executives think New York is the toughest market in the country," says John Sicher, editor of industry newsletter Beverage Digest. "The traffic is huge, the population is dense, the neighborhoods are complicated."

But it's also a huge prize--and one PepsiCo, headquartered in Purchase, N.Y., would be loath to lose. Pepsi has always spent big to stay ahead on its home turf. New York is one of only four U.S. markets where Pepsi-Cola outsells Coca-Cola Classic. Nationwide, Coke--along with its portfolio of other brands, such as Sprite and Diet Coke--controls 44.1% of the beverage market, against a stagnant 30.1% for Pepsi products. But in New York, Coke's lead in total sales is less than half that much.BELLWETHER. New York is only the starting point. Both cola kingpins know there are plenty of underexploited opportunities in other big urban markets, making the battle a forerunner for others beginning to unfold across the country. "The model of New York is pretty much the model of what's going on in the U.S. right now," says Philip A. Marineau, president of Pepsi-Cola Co. North America.

The showdown over the Big Apple began a year ago when Coke's largest bottler, Coca-Cola Enterprises Inc. (CCE) moved into the New York market. CCE has since added 600 more marketing people and 60 new trucks to its delivery fleet, in addition to a multimillion dollar investment in infrastructure. That comes two years after a buy-up of truck routes to improve control over distribution.

The efforts are evident on the streets. Each marketing representative visits up to 120 small stores a week, pushing for snazzier displays, better placement, and more promotions. When the owner of the 10th Avenue Gourmet store on Manhattan's Upper West Side told 26-year-old sales manager Rebecca Flores that he was planning a promotion for Pepsi's Mountain Dew in three days, for example, Flores called headquarters and set up a giveaway of Surge, Coke's competing product, the next day.

The Surge push is also part of CCE's effort to align its marketing programs with those of Coca-Cola itself. For Coke, which owns 44% of CCE, going local means working closely with the bottler, since their delivery force is in the stores every day. "We can't do this on a macro basis," explains Henry A. Schimberg, chief executive of CCE. "We have to do it on a micro basis."LOCAL SAVVY. So far, the results of Coke's Harlem push--and of redoubled efforts in all of New York--are impressive. In the hotly contested Harlem small-store segment, sales of Coke's high-margin 20-ounce bottles have doubled. Throughout New York this year, they're up 56%, well above Coke's 30% goal. Harlem supermarkets have seen a boost too, with sales up 20%. Even William W. Wilson, president of Pepsi's New York bottler, describes the Harlem effort as "a good attempt at tactical marketing." But, he adds, "these things are hard to sustain."

Just in case, Pepsi is pushing its own New York campaign to the hilt. But rather than send out fresh new troops, Pepsi is relying heavily on its bottler's local distribution force to boost its presence in stores, with new racks, coolers, and giveaways. It is also making a big push to get the most from its sponsorships of Lincoln Center, Radio City Music Hall, and the Bronx Zoo with ticket giveaways and advertising tie-ins. Pepsi executives believe that Coke will regret the decision to buy out distributors. By hiring out its truck fleet, Pepsi keeps costs low and adds local savvy. Indeed, after the buyouts, many of Coke's old distributors defected to Pepsi, taking their connections--and crucial knowledge of the city's traffic patterns--with them. The result: Sales of pepsi's 20-ounce bottles in New York are up 77% over the past 18 months, thanks largely to big gains in Mountain Dew. Patrick J. Mannelly, group vice-president of CCE's New York territory, concedes that Coke is still fighting to recapture hundreds of small-store accounts.MOXIE. That's not the only way Pepsi is using the street smarts of its entrenched distribution force--and its own connections--to trump Coke's efforts. When Pepsi's sports-marketing office learned that Coke's sponsorship agreement for Yankee Stadium was filled with loopholes, for example, it pounced. Now, even though Coke signs festoon the outfield and vendors hawk it in the stands, Pepsi's All Sport brand is in the dugout, where yellow coolers stand in full view of fans and TV cameras. Coke-North America President Jack L. Stahl can do little but sniff: "If you wandered in there, not a lot would be consumed."

Pepsi's renewed push reaches all the way to the top. Pepsi CEO Roger A. Enrico is using his friendship with Yankees owner George Steinbrenner to lobby for a switch when the sponsorship comes up in 2002. One promising sign: Steinbrenner did voice-over narration for a claymation ad for Pepsi's new Lipton Brisk tea that was set--of course--in Yankee Stadium.

Elsewhere, too, Pepsi has kept up the heat. It snatched the Shea Stadium contract from Coke this year, and now a group called the Pepsi Party Patrol uses a shoulder-mounted air cannon to launch T-shirts as high as the upper deck between innings. "Pepsi's interest and energy about this is palpable," says Mark Bingham, marketing chief of the New York Mets. In this hard-fought battle, Coke and Pepsi are doing everything they can to come out on top.By David Greising in New YorkReturn to top

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