Cola Wars Compare the economics of the concentrate business to that of the bottling business: Why is the profitability so different? The returns received by concentrate producers differ from those received by bottlers for several reasons … Concentrate producers: Capital investment. Concentrate production business is less capital intensive than bottling. It requires less funds to be invested in machinery, labor and modernization. "A typical concentrate manufacturing plant cost about $25 million to $50 million to build, and one plant could serve the entire United States" (Yoffie, 2007). The number of significant costs is small. The major ones are: advertising, Market Research and product development. However, concentrate producers …show more content…
"Bottlers ' gross profits routinely exceeded 40%, but operating margins were usually in the 7% to 9% range (Comparative Costs of a Typical U.S. Concentrate Bottler and Producer). Stability. The returns received by bottlers are less than returns received by concentrate producers due to the risk levels as well. The concentrate producers are responsible for brand promotion and invest heavily in trademark to stimulate sales. High returns are what they get as the result. However, bottlers have little risk in their operations as they are given the famous name well-known all over the world. This development provides them with stable returns, and low risk. How has the competition between Coke and Pepsi affected the industry’s profit? The competition between Coke and Pepsi reached its peak to become a real war battle by the year 1980. This war had affected the industry profit for both concentrate producers and bottlers, while the effect of bottlers was much higher. After the successful “Pepsi Challenge” (blind taste tests: sales shot up) in 1974, Coke countered with rebates, retail price cuts and significant concentrate price increases. Pepsi followed of a 15% price increase of its own. During the early 1990’s bottlers of Coke and Pepsi employed low price strategies in the supermarket channel in order to compete with store brands. The concentrate producers were always able to increase their profits by increasing the concentrate price, while the bottlers, especially the
On a general level product margins look to be fairly strong, however when we take a closer look at the ABC costing method used for the beer label Bismark
As we analyze Figure 2, we have determined from a costs perspective that basing production manager’s bonuses off of a percentage of sales is unethical because he is not being based off of his “performance.” For starters, in 2008, CBI expanded and began producing Gera beer, which unlike other exported beer, does not collect an eight dollar deposit fee. Next, from 2008 to 2009, CBI was hit with a $6,128,000 bottling
Rivalry: The rivalry between Coca-Cola and Pepsi is extremely high; however, both companies continue to remain profitable. Prior to the 1980s, pricing wars negatively affected profitability for Coca-Cola and Pepsi. After Coca-Cola renegotiated its franchise bottling contract and both companies increased concentrate prices, the rivalry began to focus on differentiation and advertising strategies. Through creative advertising campaigns, such as the “Pepsi Challenge” where Pepsi ran blind taste tests to demonstrate that consumers
This case describes the complexity of PepsiCo's competitive position in the Mexican soft-drink market during the late 1990's. Between 1993 and 1996 PepsiCo and Coca-Cola waged a classic cola war in Latin America. The goal for both companies was to gain market share and by the end of 1996, Coca-Cola had clearly won the Latin America cola war. In 1993 PepsiCo enjoyed a 42% market share in Venezuela thanks to the success of its bottling partner, the Cisneros Group but by the end of 1996, PepsiCo held less than 1% of the Venezuelan cola market. Following PepsiCo's anchor bottler in Mexico, Gemex, the case details the strategies employed by PepsiCo's senior management beginning in 1993 to expand its
Porter’s (2008) competitive forces play a significant role in the success of the concentrate producers (CPs) in this industry. The forces are "threat of new entrants, rivalry among existing competitors, bargaining power of buyers, threat of substitute products or services, and bargaining power of suppliers" (p. 27). Concentrate producers usually produce carbonated soft drink (CSD). Coca-Cola and Pepsi-Cora are known as two big CPs in the world.
The method showed that the pricing that was being used for the three products were not correct. The price at which the pumps were being sold was low were high whereas flow controllers were low. Because of which the most profitable product was coming out to be flow controllers whereas it was actually the least profitable.
Huge capital costs to set up an efficient plant for the bottlers while the capital costs in concentrate business are minimal
* The fixed cost component of developing the product was between $30,000 and $50,000 but additional $300,000 was needed to finance the first production run. The funds would be needed until the initial payments from sales arrived a few months later.
Although financial information is not available for all competitors, the top 3 competitors show a discrepancy in production efficiency. This would lead the analysis to support the existence of other significant factors influencing the value chain outside of production. These could be the cost of supplies, distribution and marketing.
Compare the economics of the concentrate business to the bottling business. Why is the profitability so different?
power. While these stores did carry both Coke and Pepsi products, they could negotiate more effectively due
The case explains the economics of the soft drink industry. There activities that add value to consumer at nearly every stage of the value chain of the soft drink industry. The war is primarily fought between Coca-Cola and PepsiCo as market leaders in this industry; who combined have roughly a ninety percent market share in their industry. The impact of globalization on competition has allowed both of these major players to find new markets to tap which has allowed each continued growth potential.
During the “Pepsi Challenge,” the person would prefer one product to the other. In the late 1990s, “Pepsi launched its most successful long-term strategy of the Cola Wars, Pepsi Stuff.” The Consumers were “invited” to “Drink Pepsi, Get Stuff” by using codes on cans and bottle caps to redeem points for free Pepsi lifestyle merchandise. The battle continues today “as they battle for brand supremacy…through advertisements, slogans, and celebrity endorsements.”
In all of Coca-Cola’s plants, inventories are made up of supplies, concentrates, raw materials and syrups. These are valued at a lower
The rivalry between coke and Pepsi is legendary and not just only product development and occasionally get personal collusions which sometimes resonate their marketing and promotional activates.