Coke Accused of Fountain Monopoly
May. 07, 1998
NEW YORK (AP) _ Pepsi accused Coke on Thursday of monopolizing the sales of fountain soft drinks at restaurant chains and movie theaters by threatening to take away Coke from distributors that carried Pepsi as well.
The lawsuit filed in U.S. District Court here comes as Pepsi-Cola Co. has only recently positioned itself to be able to challenge Coca-Cola Co.'s dominance in the fountain segment of the $55 billion soft drink market.
The suit did not pertain to sales of bottles or cans of the soft drinks, only to fountain-dispensed drinks handled by large foodservice distributors who control deliveries to chains of restaurants and theaters.
The lawsuit, filed by Pepsi-Cola's parent PepsiCo Inc., asked the court to restrain Coca-Cola from entering into agreements with its distributors to exclude Pepsi and to award the company undetermined damages.
``Coca-Cola's message to foodservice distributors is clear: If a distributor carries Pepsi at a customer's request, the distributor will be terminated by Coke,'' the lawsuit said.
A spokesman for Atlanta-based Coca-Cola, Bill Hensel, said: ``We think the suit is totally without merit. It seems that Pepsi would prefer to compete in court rather than in the marketplace. We believe that all facets of the soft drink industry are highly competitive, especially the fountain segment.''
The Pepsi lawsuit said Coke had become arrogant at its success in the fountain-dispensed market, which Pepsi credited to two of its own blunders.
Pepsi said it had damaged its ability to compete in the market by distributing its fountain products through local bottlers at a time when specialized national, regional and local fountain distributors were taking over the market.
It said its ability to compete was also damaged when PepsiCo acquired several restaurant chains including Pizza Hut, Taco Bell and KFC in the 1970s and 1980s that used Pepsi products. Coca-Cola pointed to the restaurants in convincing other restaurant chains that Pepsi had become their competitor.
Pepsi said it eliminated both obstacles in 1997, when it negotiated a new arrangement with its bottlers allowing it to distribute fountain soft drinks through foodservice distributors and when it spun off its restaurant chains as a separate company, Tricon Global Restaurants.
Fountain sales account for about 27 percent of soft drink sales in the United States, and industry analysts estimate Coca-Cola had 65 percent of that business compared with 20 percent to 25 percent for Pepsi.
Pepsi said in the suit that as it emerged as a more potent threat, Coke responded ``by threatening foodservice distributors with the loss of Coke if they dare to carry Pepsi for their customers that want Pepsi and by cutting off any distributors that decide to carry Pepsi anyway, making examples of them,'' the lawsuit said.
The lawsuit said virtually all agreements between Coca-Cola and its fountain distributors has included a condition preventing the distributor from handling Pepsi products but that the company rarely tried to enforce the rule until 1997.
Pepsi said the threat was ``overwhelmingly powerful and coercive, and reflects Coca-Cola's single-minded determination to hold on to its monopoly.''
The lawsuit said the bottler values the business of chain restaurants and movie theaters because customers who sample the product there will later buy it at supermarkets, vending machines and other retail outlets.
``As the market for sales of fountain-dispensed soft drinks distributed through foodservice distributors expands, the effect of Coca-Cola's practices will grow even worse and will be exacerbated as word of Coca-Cola's enforcement spreads,'' Pepsi said in its court papers.
Coca-Cola leads Pepsi in the overall U.S. soft drink market, with a 43.9 percent market share to Pepsi's 30.9 percent, according to the Beverage Digest/Maxwell Report for 1997.