Cola Wars Continue: Coke and Pepsi in 2010

1238 Words Feb 1st, 2012 5 Pages
Cola Wars Continue: Coke and Pepsi in 2010
A case discussion note
January 17, 2012

1. Historically, why has the soft drink industry been so profitable?
Historically, the soft carbonated soft drink (CSD) industry has been valued at $74 billion in the United States. In order to understand the reasons why the industry has been hugely profitable despite the ‘Cola Wars’, an examination of the CSD industry with Porter’s five forces analysis will be conducted. As market leaders, the analysis will be centred on both Coke and Pepsi (hereafter “C&P”).
Threat of new competition: Barriers to entry in the CSD industry are extremely high and there are various factors to support this. Firstly, both C&P spend gargantuan amounts of
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Even if new entrants somehow found a way to produce and market their drinks, the incumbents’ (C&P) far-reaching networks would make it impossible for them to secure any form of distribution channels. Shelf spaces in supermarkets were dominated by C&P because supermarkets were given a cut of the profit generated from the sales of their products. These cuts accumulate to a significant amount of profit-generation for the retailers. Additionally, combined, C&P owned 89% of national pouring rights. The fact that the incumbents had exclusivity in both supermarkets, fountain outlets, and other forms of retail channels would make it almost impossible for new entrants to distribute their products.
Bargaining power of consumers: Historically, the two main customers of soft drink producers were supermarkets (29.1% of distribution) and fountain outlets (23.1%). In general, retail outlets have been unsuccessful in asserting much bargaining power over the industry. In part due to the level of fragmentation as well as their reliance on C&P as drivers of customer traffic. Longstanding contracts and acquisition of fountain outlets also serve to weaken consumer’s bargaining power. Bargaining power of suppliers: Major suppliers for C&P provided commodities in the form of cans, sugar, bottles, etc. These products were highly homogenous and could be substituted easily. The aluminium can
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