Pepsi Accuses Coke of Hogging Syrup Sector
The cola wars escalated dramatically on Thursday when PepsiCo Inc. accused market leader Coca-Cola Co. of trying to monopolize the independent distribution system that delivers soft drink syrup to restaurants, movie theaters, sports venues and other locations.
A suit filed in U.S. District Court in New York accuses Coca-Cola of illegally trying to force independent food service companies around the country to handle only its brands--and of withholding syrup from distributors that agree to deliver Pepsi’s brands. The suit did not indicate whether the alleged antitrust violations occurred in California.
The lawsuit seeking unspecified damages represents “the latest salvo in the cola wars,” said John Sicher, editor of Beverage Digest, a Bedford Hills, N.Y.-based trade publication. “Pepsi announced a year and a half ago that it would make a focused effort to gain business in the soda fountain business, and this lawsuit seems to be an important part of that intensified battle.”
Coca-Cola, in a statement issued Thursday afternoon, dismissed Pepsi’s suit as “totally without merit. . . . All facets of the soft drink industry are highly competitive. But it appears that Pepsi would prefer to fight in the court rather than in the marketplace.”
The cola wars heated up early in 1997 when PepsiCo sold its Taco Bell, KFC and Pizza Hut restaurant chains in order to concentrate on its soft drink lines. Some observers say the sale was designed to eliminate concerns among restaurant operators that Pepsi’s restaurant holdings made it a prime competitor.
Coca-Cola controls 43.9% of the $54-billion U.S. soft drink market, with Pepsi holding a 30.9% market share. Coke is even more powerful worldwide, holding 49.7% of total sales compared to Pepsi’s 20.3%.
The suit filed Thursday deals only with the $11.8-billion domestic fountain business, where Coke controls 60% of the market. While that’s less than a quarter of the overall domestic soft drink market, Pepsi and Coke view the sector as increasingly important because restaurant, movie theater and sporting venue sales represent a key avenue for reaching new customers.
In recent months, Pepsi and Coke have been jockeying for position in the fountain business, generating a steady stream of hard-fought “pouring rights” contracts at highly visible venues.
Pepsi-Cola recently paid an unspecified amount to replace Coke as the exclusive soft drink at Edison International Field, home of the Anaheim Angels. Pepsi also locked up soft drink sales at Club Disney, DisneyQuest and ESPN Zone, three new regional entertainment chains operated by Walt Disney Co. Coke countered by crowing that 300 Jack in the Box fast-food restaurants had switched over from Pepsi. And when Pepsi landed the Indianapolis Motor Speedway, Coke quickly noted that it had earlier rejected the contract as too expensive.
PepsiCo’s suit alleges that Coca-Cola has been forcing independent distributors to sign agreements prohibiting them from carrying both cola lines. But PepsiCo also maintains that Coca-Cola rarely enforced the agreements until last year, when “Pepsi emerged . . . as a significantly more competitive threat.”
PepsiCo, which historically had used its bottlers to distribute its syrups, began switching over to independent distributors last year. But, according to the suit, its progress has been stalled because “virtually every major food service distributor in America today has an agreement with Coca-Cola.”
Lawyers say it’s difficult to predict the fate of Pepsi’s antitrust challenge.
“When you look at antitrust law, the wording tends to be very general,” said Patrick J. Welch, a St. Louis University economics professor. “It’s not like a regulation where you can point to one sentence and say, ‘Here’s the answer.’ ”
