(FORTUNE Magazine) – IN THAT CLUTTERED AREA at the end of your supermarket's soft-drink aisle, Coca-Cola and Pepsi-Cola bottlers are fighting a ferocious war. Stacked high with eight-packs and two-liter bottles and adorned with cockeyed signs that shout out the special of the week, the end of the aisle in many grocery stores looks like a listing square-rigger. Those displays can account for as much as 50% of a store's total soft-drink volume. As Coke and Pepsi battle for space, Royal Crown, Dr Pepper, Seven-Up, and other second- tier bottlers are getting crushed in the fray. As in any price war the issue is, does it do the warring parties any good? Even Coke and Pepsi bottlers worry that the bargain prices may have cheapened their products' precious brand names by encouraging consumers to buy a soda because of its price tag, not its label. ''Pepsi and Coke have always beaten their drums loudly for brand loyalty,'' says a bottler of a competing brand. ''But they are beginning to turn their own products into commodities.'' Still, because of aggressive marketing and the success of their diet colas, Coke and Pepsi pushed their combined market share from 64.7% to 66.3% over the past year. That represents a $420-million gain in the $26-billion-a- year soft-drink industry. And Coke's and Pepsi's earnings are increasing too. According to Emanuel Goldman, a financial analyst with San Francisco's Montgomery Securities, Seven-Up lost a fraction of a market share point in 1984, giving it 7.3%, and Royal Crown's market share dropped from 4.3% in 1983 to 4%. Dr Pepper is holding on to 5.8% of the market. But it had 6.2% in 1982. Every time a bottler loses a fraction of a percentage point of market share, it is likely to lose a little shelf space as well, since grocers generally divide up space on the basis of sales per square foot. Moans one competitor, ''Pretty soon Coke and Pepsi are going to squeeze everyone else out--it's just a matter of time.'' To secure the supermarkets' high-volume selling ground, Coke and Pepsi bottlers in many parts of the U.S. simply pay grocers for it by giving them huge price breaks and promotional allowances. A Royal Crown bottler puts it bluntly: ''All the supermarkets care about today is how much money you can put on the table.'' The two soft-drink giants can put a lot on the table, since their sales are bubbling. The second-tier soft-drink companies compete for promotional shelf space in the same way, but since their sales are far less than those of Coke and Pepsi, their clout is too. Says David A. Goldman, a financial analyst with the brokerage firm of E.F. Hutton, ''Dr Pepper probably doesn't spend as much on promotion in one year as Coke and Pepsi do in one month.'' LIKE GENERALS far behind the battle lines, managers at Coca-Cola in Atlanta and Pepsi-Cola USA in Purchase, New York, give lots of responsibility to regional executives for getting that prime display area on the aisles, plus lots of space in supermarket ads and circulars. Headquarters used to leave more of those maneuverings to the bottlers--mainly independent businesses that buy the syrup, make soda out of it, and sell the drinks in their regions. ''We were too laid back five years ago,'' says Brian Dyson, 49, the not- laid-back president of Coca-Cola USA. Since then both beverage giants have stepped up efforts to coordinate marketing agreements between their bottlers and the regional and national offices of major supermarket chains. Still, the bottlers are the soldiers at the front in the space war. Some Coke and Pepsi bottlers also produce Dr Pepper, RC, and smaller brands. Bottlers with no ties to the cola kings are in desperate straits. Grocers like the traffic-building competition for space. According to one estimate, if Kroger, the huge Cincinnati-based grocery chain, had taken advantage of all the discounts that Coke and Pepsi bottlers offered in exchange for store advertising and promotion in 1984, the retailer would have reaped about $2 million. Consumers like the competition too: they get lower prices. In many areas supermarkets routinely put soft drinks on special for just a penny and a half per ounce--less than the fizzy stuff cost ten years ago. With prices going down, consumers are drinking up more soda. The market grew about 6.5% in 1984 on top of 4% growth in 1983--remarkably strong for an industry that is supposed to be mature. But the growing market hasn't helped the lesser brands. ''The big guys dictate,'' says a Western bottler of Dr Pepper. ''If you don't follow, they either gobble you up or push you out.'' The only hope he sees is in consolidation of the largest of the small soft-drink companies--RC, Dr Pepper, and Seven-Up. Though Seven-Up is a subsidiary of Philip Morris (1983 sales: $9.5 billion), it is widely believed to be up for sale. A consolidation of sorts is under way in the non-cola category, with R.J. Reynolds Industries' acquisition of both Canada Dry and Sunkist. A linking of small bottlers might also help. Other than that, the second-tier companies can concentrate on the regions of the U.S. where they are strongest.

In desperation some bottling companies have sued. Last August, Beverage Management Inc., which distributes 7 Up in Cincinnati, asked a federal court for a preliminary injunction to stop Coke's arrangement with Kroger, contending that the cola king had unfairly restrained the 7 Up bottlers' ability to compete. In court papers Coke says that its agreement--which prevented Kroger from featuring certain sizes of a competing soft drink during the same week it promoted Coke--didn't commit Kroger to reserve any time for Coca-Cola promotions. Coke maintains that Kroger was free each week to accept its offer or take a better deal from some other company, including Beverage Management. Moreover, Coke charges that BMI brought the case because it is ''losing the game'' of selling soft drinks in Cincinnati. Pepsi's share of that market is 45%, Coke's is around 35%, and BMI's about 10%. In October the judge denied Beverage Management's motion for a preliminary injunction, but the 7 Up bottler is continuing the antitrust suit against Coke. SOME BOTTLERS say they aren't willing to risk incurring the wrath of a big food retailer by dragging it into a lengthy antitrust case. Indeed, BMI says it went to court reluctantly, hoping not to jeopardize its relationship with Kroger, the dominant chain in Cincinnati. That Dr Pepper bottler in the West claims Coke and Pepsi have illegally ''bought'' the major grocery chain in his market, but he says he won't sue. He's afraid the retailer might wipe him out by slowly reallocating shelf space to other brands. In spite of the skirmishes now under way in the courts, the deep discounting and highly charged promotions will probably continue. Some weak bottlers, and perhaps some weak companies, may fall away. Even if, with the wave of a magic wand, the prices for all soft drinks suddenly went up, Coke and Pepsi would probably be able to keep their gargantuan market shares as well as an even bigger chunk of profits. In that case, though, consumers might drink less soda--and perhaps more coffee, tea, or milk. Or orange juice, vodka, or cabernet sauvignon. As Beverage Digest publisher Jesse Meyers says, the real battle out there is for the ''shelf space in our stomach.'' BOX: INVESTOR'S SNAPSHOT PEPSICO SALES (LATEST FOUR QUARTERS) $7.9 BILLION* CHANGE FROM YEAR EARLIER UP 11% NET PROFIT $203.8 MILLION* CHANGE UP 29% RETURN ON COMMON STOCKHOLDERS' EQUITY 11% FIVE-YEAR AVERAGE 18% RECENT SHARE PRICE $40.75 PRICE/EARNINGS MULTIPLE 19 TOTAL RETURN TO INVESTORS (12 MONTHS TO 12/10) 17% PRINCIPAL MARKET NYSE *Data reported by company; not yet fully restated for discontinued operations. Explanatory notes: page 93 INVESTOR'S SNAPSHOT COCA-COLA SALES (LATEST FOUR QUARTERS) $7.3 BILLION CHANGE FROM YEAR EARLIER UP 9% NET PROFIT $618.7 MILLION CHANGEUP 12% RETURN ON COMMON STOCKHOLDERS' EQUITY 23% FIVE-YEAR AVERAGE 20% RECENT SHARE PRICE $61.25 PRICE/EARNINGS MULTIPLE 13 TOTAL RETURN TO INVESTORS (12 MONTHS TO 12/10) 12% PRINCIPAL MARKET NYSE Explanatory notes: page 93