Coca Cola Wars Continue

Cola Wars Continue

1. Why is industry so profitable:

We can use Porters Five Forces Analyzis to answer this question. The most important elements of producing CSD are CP and bottlers. As an Exhibit 4 shows, during the analyzed years the companies - concentrate producers and their biggest bottlers were both profitable. This parts of the industry deals with different areas of production, their functions are independent, but sometimes they’re overlapping.

* Barriers of Entry:

* Vertical integration of CP and bottlers – Coca-Cola started in 1980 started to buy it’s biggest bottlers. In 1986 it created a bottling subsidiary, Coca-Cola Enterprise (CCE) and went public. Pepsi followed Coca-cola. In 1999 its subsidiary – Pepsi Bottling Group (PBG) went publicNow, the PBG and CCE have major share of bottles and can volume (PBG has 56% of total Pepsi Company volume; CCE has 75% of Coca-Cola). . This actions made smaller concentrate producers increasingly dependent on the Pepsi and Coke bottling network to distribute their products.

* Economies of scales – bottling facilities are expensive. Only big player on the market can allow itself to make innovation and introducing new products on the market. Both Coca-Cola and Pepsi in the 80ties and 90ties created more than 10 major brands and have big variety of containers. Economies of scale don’t allow competitors to profit after entering the market

* Brand loyalty – Coca Cola was creating it’s brand since the beginning of 20th century. It aggressively fought with imitations and counterfeits and patented it’s bottled, making from the company an American icon. The only lost case was a Pepsi-Cloa suit, were court ruled in favor of Pepsi. From the 50-ies, this two companies are occupying the most of the market share for CSD, creating de facto a duopoly on SCD market

* Buyer power – it’s moderate, because of:

* Diversification of buyers – vending machines, supermarkets, retail outlets,...