Cola Wars Bottling vs Concentrate

Representing costs as a percentage of sales is not the best way to judge efficiency since it can ignore variables such as bottle deposits and discounted rates, which would show problems in production when in fact there are not any. Therefore, JJ’s statement on production remains truthful when he said that CBI has been operating as efficiently, if not more, in the past. Here’s an example:

Essentially, all risk in price fluctuations in the raw materials market is transferred and paid for by the bottling business. Supplier power of the concentrate business is also exerted over the bottling business by the threat of acquisition and vertical integration – the concentrate business supports its bottling business through providing suggestions for operational improvement. While this support can be viewed positively, both Coca-Cola and Pepsi have acquired its bottling franchises due to their dissatisfaction over the operational effectiveness of its bottling business. Through the last few decades, Coca-Cola and Pepsi have oscillated between acquiring and re-franchising its partner bottling businesses.

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.

Both systems have their advantages and disadvantages, the labor-based allocation method provides a fast straightforward method for businesses with labor intensive processes that in many businesses make up the majority of these costs. For this microbrewery however, especially within overheads the percentage of costs labor attributes towards is relatively minimal. Therefore reducing the effectiveness of such a method. ABC however represents a more in depth look at cost allocation and within such a business where there are a huge variety of factors involved looking at a more segmented form of activity based cost allocation is extremely important.

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.”

Defining the industry: Both concentrate producers (CP) and bottlers are profitable. These two parts of the

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.

As the above table indicates concentrate business is highly profitable compared to the bottling business. The reasons for this are:

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

* 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.

Compare the economics of the concentrate business to the bottling business. Why is the profitability so different?

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.

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.

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.

In all of Coca-Cola’s plants, inventories are made up of supplies, concentrates, raw materials and syrups. These are valued at a lower