Why Pepsi Has a New Problem

Fighting the Cola Wars, Pepsi might have lost another battle.

But the conflict was not with a cola.

Pepsi’s New Problem

Several weeks ago, we learned that Pepsi was no longer the #2 cola.

Different from Coke and Pepsi, Dr Pepper (no period after Dr) was an uncola that bottlers with a Coke or Pepsi non-compete agreement could still sell according to a 1963 court decision. As a result, wherever you had Coke or Pepsi (it could not be both), you had an alternative that eventually became #2.

Now, another uncola nudged Pepsi downward.

Sprite–Coke’s lemon-lime soda–has pulled into the #3 spot. The Hustle tells us that Sprite’s “Obey Your Thirst” ads with the NBA’s Anthony Edwards and track-and-field sprinter Sha’Carri Richardson helped propel revenue with Sprite Chill leading Coke’s sales in 2024.

Sprite likes to say, “It’s not just another flavor; it’s an experience:”

Our Bottom Line: Oligopoly

Coke still has close to 20% of the soda ((or pop depending on where you live) market. And although it is behind, Pepsi is almost tied with Dr Pepper and Sprite:

Economists call the soft drink market an oligopoly. As a market that has several large, mass producing dominant firms and many customers, market entry and exit are difficult. Competing in an oligopolistic market, it is crucial for the four leading brands to achieve product differentiation through non-price competition.

Reflecting the behavior of a successful oligopoly, Dr Pepper checked every box. According to Beverage Daily, they built sales with a unique “23 flavor recipe,” regular and zero sugar innovation, and effective digital spending. Somewhat similarly, Coke’s Sprite seems also to know how to grab consumer attention.

On a competitive market structure continuum showing ascending firm power, oligopolies are closest to monopoly because of their size and pricing power:

Concluding, we can say that at #3 Sprite became a leader in pop culture (unless you say soda).

My sources and more: Thanks to The Hustle for inspiring today’s post. Then, ADWEEK and Beverage Daily had more of the details.

Please note that several of today’s sentences were in a previously published econlife post.