Pepsi Once Owned QSR’s. It Didn’t Go Well
There was a time, not too long ago, when Pepsi lost a significant share of their restaurant customers because of one fact—they competed with their customers. When Pepsi owned Taco Bell, Pizza Hut, and KFC, the restaurant industry’s fountain business moved away from Pepsi and into Coke’s arms.
Coke developed and aggressively promoted the main argument against Pepsi’s decision to own restaurants, which was that doing business with Pepsi is, in effect, funding your competition. The fight for “share of stomach” (a term invented by Coke) demanded that restaurant owners not put profits into their competitor’s marketing coffers by buying Pepsi’s soft drinks. Pepsi’s fountain business has still not recovered from their ownership of those fast food brands. Coke now commands a 70% or more share of the fountain business in the USA.
Coke’s Acquisition of Costa Coffee Means Coke is a QSR Operator
The recent announcement of Coke’s intention to buy Costa, a 4,000-unit chain of cafés, may signal a significant shift for the competitive landscape. Which chains will view Coke as a competitor now? Which should?
Certainly, any chain fighting for share of stomach in the UK, where Costa has the bulk of their 4,000 units, will view Coke as a competitor. This includes McDonald’s, Burger King, Subway, Wendy’s, Nando’s, and any other chain or restaurant competing in that market.
Costa locations span 30 countries, including China, India, and others. Most international chains compete in the markets that Costa inhabits.
What Will Happen to Coke’s Current Coffee Partnerships?
What about the coffee companies that have supply agreements with Coke? Tim Horton’s, Canada’s de facto national coffee brand, recently eliminated Pepsi from their locations in favor of a new Coke contract. They now find themselves in a position of buying their soft drinks from a direct coffee competitor.
McDonald’s and Dunkin Brands both have packaged product deals with Coke. The popular bottled Dunkin coffee products and the bottled McCafe’ products are produced and distributed by Coke, the proud new owner of one of their direct coffee competitors. Will they dissolve those partnerships?
Implications for Coke’s Home Turf
And what about the rest of the foodservice industry, especially in the USA? Will Coke’s retail restaurant operation be a compelling reason for fountain customers to leave them? It’s very possible. By owning a retail restaurant brand, Coke has breached the wall they themselves erected between competition and suppliers. It’s ironic that Coke will now inevitably be on the losing side of an argument that they first used to take significant share away from Pepsi.
It is reasonable to expect the restaurant sector in the USA to reject the funding of a competing restaurant chain by purchasing the products of that chain’s parent company, even if the bulk of that competing restaurant chain’s business is overseas.
The beverage wars just got a lot more interesting!
Photo by Anonoymous work for hire for CHI Polska (CHI Polska) [CC BY-SA 4.0 (https://creativecommons.org/licenses/by-sa/4.0)], via Wikimedia Commons