In 1975, Pepsi launched an aggressive marketing strategy aimed directly at Coca-Cola’s dominance of the American soft drink market. The campaign, known as the Pepsi Challenge, sparked a decade-long advertising war between the two beverage giants that would become known as the Cola War. At the time, Coca-Cola controlled roughly 60 percent of the American carbonated beverage market from its headquarters in Georgia. Pepsi, based in New York, shared the remaining 40 percent with smaller brands like Dr Pepper.
Facing such a steep disadvantage, Pepsi’s marketing team concluded that challenging Coca-Cola’s reputation was the only way to close the gap. The company initiated its campaign in Texas, a Southern state where Coca-Cola’s influence was nearly absolute. Pepsi set up blind taste tests in shopping centers, public squares, and schools, asking participants to close their eyes and sample both beverages. The results surprised even Pepsi’s own team: a majority of participants preferred Pepsi, largely because of its sweeter taste and higher sugar content.
The campaign ran successfully for a decade, until 1985, and provoked a decisive reaction from Coca-Cola that escalated the conflict into a full-scale marketing war. Before the rivalry reached that point, both companies had complex histories rooted in medicine. Coca-Cola was created in 1885 by John Stith Pemberton, an Atlanta pharmacist. His original formula combined alcohol with coca leaf extract, the source of cocaine at the time.
The beverage was initially marketed as a treatment for cancer and nerve damage under the name French Wine Coca. When Atlanta banned the sale of alcohol, Pemberton replaced the wine with soda water and added sugar. The resulting drink was named Coca-Cola in 1886, and the Coca-Cola Company was officially founded in 1892. Cocaine remained a legal medical substance in the United States until its trade was criminalized.
By 1929, coca leaf extracts were removed from Coca-Cola’s ingredients, transforming it from a medicinal tonic into the regular carbonated beverage known today. Pepsi was also born as a medicinal drink. Pharmacist Caleb Bradham created it in North Carolina in 1893, roughly seven years after Coca-Cola’s invention. Originally a digestive aid, the drink was renamed Pepsi-Cola in 1898, taking its name from the Greek word for digestion.
The Pepsi-Cola Company was established in 1902. Neither company produced the oldest carbonated beverage in history. That distinction belongs to Schweppes, founded in 1783 by Swiss watchmaker Johann Jacob Schweppe. For twelve years after its creation, Coca-Cola expanded rapidly across the United States without serious competition and began moving into global markets.
Pepsi also grew domestically, reaching assets of one million dollars by 1915, but it remained far behind Coca-Cola in both market share and international reach. Pepsi’s expansion came to a sudden halt after World War I. Sugar prices, which had stood at five cents per half-kilogram, soared past twenty cents due to wartime shortages. Sugar was a key ingredient in Pepsi, and the company suffered massive losses.
Founder Caleb Bradham expected prices to stabilize after the war, but they continued climbing. Bradham responded by buying large quantities of sugar at inflated prices, reaching as high as 26 cents per half-kilogram. When prices later collapsed to just two or three cents, Pepsi could not absorb the losses and declared bankruptcy in 1923. Coca-Cola was also affected by the sugar crisis, but its international operations saved it.
Through its branch in the Philippines, Coca-Cola produced its beverages at regular sugar prices, avoiding the price surge that devastated Pepsi. Pepsi, having no operations outside the United States, had no such protection. After Pepsi’s bankruptcy, creditors purchased the company’s trademark and assets for just thirty thousand dollars. New York investment broker Roy Megargel later bought the shares for thirty-five thousand dollars, believing in the brand’s potential.
But when the Great Depression struck in 1929, Megargel’s own financial empire collapsed, and he filed for bankruptcy for Pepsi a second time in 1931. Megargel then approached Charles Guth, owner of Loft’s Candy, a company with about two hundred vending machines that sold more than one hundred thousand liters of Coca-Cola annually. Guth had asked Coca-Cola for a discount due to the volume he purchased, but Coca-Cola refused. Guth decided to take his business elsewhere and began distributing Pepsi through half of his vending machines.
The gamble initially backfired. Consumers accustomed to Coca-Cola rejected Pepsi, and Guth lost more than 30 percent of his soft drink sales. In desperation, he offered to sell Pepsi to Coca-Cola’s president, Robert Woodruff, for fifty thousand dollars. Woodruff declined.
With nothing left to lose, Guth made a decision in 1934 that reversed Pepsi’s fortunes. He began selling Pepsi in 355-milliliter bottles at the same price Coca-Cola charged for a 185-milliliter bottle. Pepsi offered double the quantity for the same price, and sales surged almost immediately. Pepsi needed larger production facilities to keep up with demand.
Guth converted a Loft’s Candy warehouse into a bottling plant, gradually shifting Loft’s employees and spaces to Pepsi operations. By 1938, Pepsi signed franchise agreements across the United States, and the company moved from loss to profit, reaching four million dollars in revenue. In 1940, Pepsi launched a major promotional campaign with a song called “Pepsi-Cola Hits the Spot. ” A million records were distributed nationwide, and the tune became immensely popular throughout the 1940s.
Its lyrics advertised Pepsi’s core selling point: double the quantity for the same price as Coca-Cola. Coca-Cola responded with television advertising in November 1951, airing a 30-minute commercial on CBS. It became the first carbonated beverage company to run a television campaign globally. Pepsi followed with its own television ads less than two months later.
In 1953, Coca-Cola launched a radio station called Coke Time to broadcast its advertisements and music. The rivalry intensified through the 1960s as both companies acquired competitors and expanded their product lines. Coca-Cola acquired the American Juice Company in 1960 and introduced Sprite the same year, which became a major success. Pepsi responded in 1965 by merging with Frito-Lay, the food giant behind Lay’s and Doritos.
The merger created PepsiCo, a massive conglomerate spanning dozens of beverage and food brands. By the early 1970s, Pepsi was ready to escalate the competition again. The Pepsi Challenge campaign that began in 1975 took Pepsi directly into Coca-Cola’s strongest markets. Blind taste tests consistently favored Pepsi, and Coca-Cola saw its market share threatened.
Coca-Cola’s response on April 23, 1985 became one of the most infamous corporate decisions of the twentieth century. Chairman and CEO Roberto Goizueta held a press conference in New York to announce New Coke, a reformulated version of the original drink. The new recipe contained more sugar than the old Coca-Cola and even more than Pepsi, because blind tests had shown consumers preferred sweeter beverages. Goizueta called the change the best decision in Coca-Cola’s history.
He cited 250,000 taste tests conducted before adopting the new formula, insisting it would dominate the market. New Coke failed spectacularly. Within 79 days, Coca-Cola was on the verge of collapse. Consumers rejected the drink as a poor imitation of Pepsi.
The company received up to ten thousand complaint calls per day, with people calling to criticize the change. Coca-Cola’s board quickly recognized that altering the beloved original formula was a catastrophic marketing mistake. On July 11, 1985, Coca-Cola held another press conference to announce the return of the original Coca-Cola. The company apologized publicly and promised the mistake would never be repeated.
Coca-Cola lost the first round of the Cola War but did not surrender. The company invested in innovative advertising campaigns and even created space-resistant cans for astronauts aboard the Challenger space shuttle mission in 1985. Coca-Cola repeatedly sent its beverage into space for consumption. Pepsi struggled to match Coca-Cola’s advertising creativity in the years that followed.
By 1996, Pepsi had incurred losses in the millions after several failed campaigns and lost 47 percent of its profits to Coca-Cola. Fortune magazine declared that year that Pepsi had officially lost the Cola War. The definition of “winning” depends on the measure. While Coca-Cola won the branding battle, PepsiCo’s total revenues have far surpassed Coca-Cola’s in recent years.
PepsiCo reported revenues exceeding 86 billion dollars in 2022, while Coca-Cola reported just 43 billion dollars during the same period. It is a striking reversal for a company that was twice forced into bankruptcy and whose trademark was nearly sold to Coca-Cola for fifty thousand dollars in the early 1930s. Advertising rivalry between the two companies continues today, but neither side has mounted a direct attack on the other on the scale of the Cola War.