PepsiCo brings antitrust action against Coke alleging Coke is "attempting to monopolize the market for fountain-dispensed soft drinks through independent foodservice distributors throughout the United States." Suit brought 5/7/98 in Federal court in NY. PepsiCo claims Coke violates Sherman and Clayton antitrust laws. PepsiCo asks court for injunction plus treble damages. Pepsi North America president/CEO Phil Marineau tells bottlers: "We're going to war against Coke in the marketplace and now we're taking the battle to the courts to ensure fair and open competition." Coke response. Coke executive: "We don't believe there is any merit to this lawsuit."

Marineau letter. On day lawsuit filed, Marineau writes Pepsi bottlers: 1) "90 of the top 100 national restaurant chains ... currently receive delivery of all their products -- including soft drinks -- through foodservice distributors." 2) "No one but Coca-Cola violates the basic rights of distributors to determine for themselves what they will carry." 3) "We are not about to let Coke restrict the consumer's right to choose."

Backdrop. Coke has long dominated fountain business in US. But in early 1997, Pepsi announces intent to build its fountain business. Weatherup. At Pepsi bottlers' meeting in New Orleans in January 1997, Pepsi CEO Craig Weatherup tells bottlers: "We're going to drive hard ... to win our fair share of the fountain business." Enrico. PepsiCo chairman/CEO Roger Enrico tells bottlers: "Coke is deadly serious. They mean to put you out of business ... Fountain could be our Achilles heel ... Without fountain business our future is a lot less bright."

Bottler contract change. Starting in early 1997, Pepsi began efforts to persuade bottlers to modify franchise contracts re fountain business. Until 1997, Pepsi bottlers held exclusive right to sell most Pepsi fountain syrup; Pepsi could only sell directly to end-user national accounts. (In contrast, Coca-Cola Co historically had right to directly sell its fountain syrup.) In 1997, Pepsi began obtaining right from bottlers to directly sell syrup to national open commissaries which sell variety of supplies to fountain customers. By early 1998, Pepsi succeeds in getting contract changes with most US bottlers. Coke/Pepsi bottlers says during 1997 Pepsi became aggressive in seeking US fountain business.

Obstacles 'eliminated.' In its complaint, PepsiCo maintains "it historically has been less successful than Coke" in penetrating fountain business "for two reasons." Cites bottler contracts (described above) and prior ownership by PepsiCo of restaurant business. Adds: "In 1997, PepsiCo eliminated both of these obstacles" via bottler contract change and restaurant spin-off. Pepsi executive. Vince Gennaro, president Pepsi's fountain business division, tells BD: "As we began to have success, Coke became particularly aggressive. We hope this will stop Coke from taking monopolistic action."

Fountain business. Fountain channel represents about 22% of total CSD business in US. CSD total volume in 1997 was about 9.6 bil cases. So fountain accounts for approximately 2.1 bil cases. BD estimates Coke has about 65% of US fountain business, Pepsi about 25%. Major accounts. Table below shows top-10 US fountain accounts (BD 11/7/97). Among top accounts, McDonald's with 12,000 US outlets is exclusively Coke. Subway with 10,800 outlets serves Coke at some units, Pepsi at others. Pizza Hut's 8900 outlets primarily serve Pepsi; Pizza Hut until recently part of PepsiCo, now part of Tricon after PepsiCo spin-off. Burger King -- with 6900 outlets -- is Coke account.

Burger King. Coke has long held McDonald's. Burger King account switches hands. Burger King changes to Pepsi from Coke in 1983 (BD 6/17/83). Following 1989 acquisition of Burger King by Grand Met -- now called Diageo -- Pepsi undergoes review and retains account (BD 7/7/89). But in 1990, Coke retakes Burger King account (BD 5/11/90).

Lawsuit details I. In its complaint, PepsiCo alleges: "Coca-Cola dominates the sale of fountain-dispensed soft drinks through foodservice distributors. These are independent companies that distribute a broad variety of food products, paper products and other supplies, including fountain-dispensed soft drinks (to) restaurant chains, movie theater chains and other customers." Crux. Complaint adds: "To insulate itself from competition in this market, Coca-Cola insists on supplying Coke to these distributors only on the condition that they do not distribute Pepsi ... When PepsiCo recently intensified its efforts to challenge Coca-Cola's monopoly in this market, Coca-Cola took pre-emptive action by threatening to cut off and actually cutting off supplies of Coke to foodservice distributors that fulfill customers' requests for Pepsi."

Lawsuit details II. PepsiCo says Coke controls 90% of the market for "fountain-dispensed soft drinks distributed through independent foodservice distributors." Adds Coke "possesses the power to control prices in this market ... and the power to exclude competition." Plus. "Virtually every major foodservice distributor in America today has an agreement with Coca-Cola. (Agreements) incorporate an express condition against the distributor's handling PepsiCo soft drink products ... Until 1997, Coca-Cola rarely took any steps to enforce this condition ... In 1997, however, as soon as PepsiCo became a serious competitive threat (Coke) began actively to enforce the condition ... It cut off foodservice distributors that began to distribute Pepsi and threatened to cut off foodservice distributors that showed an interest in carrying Pepsi." Harm. PepsiCo claims it has suffered "irreparable" harm, "because there is no way fully to measure all of the business that PepsiCo is losing by losing the opportunity to reach the customers" of restaurants and theaters served by distributors.

Views. Triarc. Triarc Beverage CEO Mike Weinstein: "We've faced similar exclusionary practices in other channels of distribution which have negatively affected our business. We've previously spoken out about them in industry forums." Wall Street. Goldman Sachs' Marc Cohen: "Pepsi has clearly made a strong commitment to increase penetration in the fountain business. They are aggressively pursuing that and want to make the playing field level." PaineWebber's Manny Goldman: "This is an important suit. For the first time, Pepsi has the potential to significantly improve its fountain economics. This won't be resolved overnight." Plus. Other industry analyst: "This is an epochal moment. It could also be a dangerous one, as it could draw the (Federal) government in to look at the industry."

Table. Table below shows top-10 US fountain soft drink accounts. Chains are ranked by estimated number of units. Where more than one brand is listed in a flavor segment, individual units in that chain sell different brands. Data does not show relative volume of brands sold.

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