Coca-Cola splashed out £50m with the aim of turbocharging its soft drink sales. So why did it lose sales to Pepsi?

Before the battle for gold medals at this summer’s Olympics had even started, another even more brutal contest was being fought.

Nowhere were the stakes higher than at the world’s biggest soft drinks company Coca-Cola. Having thrown an estimated £50m at London 2012, the US giant and its UK bottling operation Coca-Cola Enterprises billed the event, and the Torch Relay they so heavily backed along with the Paralympics, as a chance in a lifetime to “turbocharge” the entire soft drinks category.

But the latest sales figures show that Coke’s commercial ambitions surrounding the Games, on both counts, have faded along with the flames. According to Nielsen, for the year to 15 September the off-trade soft drinks category grew 4.4% in value but shrunk 0.4% in volume to just below £2.9bn.

Coca-Cola sales, while up in value by 2.7%, were down nearly 2% in volume, the equivalent of 60 million fewer 330ml cans - and worse still, it appears to have been comprehensively outperformed by its bitter rival Pepsi.

“Coke committed a huge above-the-line spend but has been outmanoeuvred when it comes to in-store activity”

A leading sales director

During the same period, Pepsi value sales rose by nearly 13% and almost 14% by volume [Nielsen 52 w/e 15 September]. So has the UK finally been truly converted to the taste of a new generation or - as some observers suggest - has Pepsi pipped Coke to the post in the short term through deep discounting that is at best unsustainable or at worst has played a key role in forcing it to seek refuge in the proposed merger with AG Barr?

To be fair to CCE, which this week posted a 3.5% fall in sales to $2.1bn for the third quarter, 2012 has been no picnic for soft drinks makers. Coke’s much-vaunted sponsorship of the Torch Relay started in sunshine on 19 May but this was almost the last time the UK saw sunshine till the Olympics themselves.

Then again, these were the same appalling conditions in which the Pepsi brand was operating. Britvic points to figures showing sales of Pepsi Max, Diet Pepsi and Pepsi were up 16% by value year-on-year [Nielsen total grocery MAT w/e 1 September 2012].

At the heart of its recent marketing and in-store was sugar-free Pepsi Max. As well as accounting for half of total Pepsi sales, it has driven 60% of the value growth for the total Pepsi brand, and was responsible for driving 70% of overall cola category growth, claims Pepsi, pointing out that 528,000 new customers in the cola category came from Pepsi Max [Nielsen Homescan Total GB MAT to 18 August 2012]. Hardly the sort of run-up to the Olympics Coke had in mind.

Promotional tactics

So why the contrast in performance between the two? A former senior Coca-Cola executive believes sponsorship of the Olympics has proved a double-edged sword.

“The Olympics is a paradox. In the short-term, it’s been a distraction, involving an immense level of support. But has any CCE bottler performed well on its home turf in an Olympic year? It’s the biggest thing these guys will ever do, organisationally.”

Some experts also point to Pepsi making deeper cuts in its promotional strategy in the months leading up to and including the Games, and there is some truth in this. Pepsi ran 756 promotions, nearly twice as many as in 2009-10. And it offered a much larger average saving - nearly a third, and savings wise, an increase of nearly a quarter year-on-year.

One senior industry source described a regular 89p promotion for a 2-litre bottle of Pepsi as “devastating” to profitability and “very hard to come back from in the long run”. And the ex-Coca-Cola man points out: “We were selling two-litre bottles for £1 10 years ago.”

But another senior drinks industry sales director argues: “This is proper guerrilla marketing and these figures will be pretty embarrassing for Coke.

“Much of what has happened is down to Pepsi being more aggressive on promotions and making deeper cuts to price on the shelves. Coke committed a huge above-the-line spend on the back of the Olympics but has been outmanoeuvred when it comes to in-store activity. You have to have complete through-the-line activation.

Yet promotional activity alone does not explain the discrepancy. A closer look at figures shows Pepsi actually reduced both the frequency and depth of its promotions in the three months following the start of the Olympic Torch Relay, whereas Coke increased both number and frequency as the Games approached, with 1,674 promotions, an increase of 13% on the previous year, with an average saving of 25%.

And one leading marketer claims the global marketing concepts introduced with the Games may not have “connected” with UK customers. “Pepsi was very active in pricing but it wasn’t silly,” he adds. “It remained very focused on shopper marketing.”

Pepsi claims its success in the battle of the titans was about effective marketing. “We knew 2012 would be an important year for retailers and manufacturers alike, so we stepped up our activity to reflect this,” claims Jonathan Gatward, GB marketing director at Britvic Soft Drinks. “Despite the poor weather during the crucial July and August eight-week period, cola category growth was 6% and Pepsi percentage growth was 14% [Nielsen total grocery 8-week data w/e 1 September 2012], which added £5.5m to the category during this period.”

So, will Coca-Cola be embarrassed? CCE has always claimed, like Lord Coe, the Olympics were about legacy and long-term ambitions. It also points to huge gains by its juice and water brands this year.

And as the ex-Coke man says: “It’s been around for 120 years and a short-term win is not how Coca-Cola look at the opportunity.”