Coca Cola Wars

Coca-Cola Case Analysis

Compare the economics of the concentrate business to the bottling business: why is the profitability so different?

The soft drinks industry is a $100 billion dollar international industry. The Coca-Cola Company and Pespi Cola Company are the two major giants in the industry where their products are sold to countries all over the world. Coke and Pepsi are twin icons of American culture where “in your face” advertising makes the companies’ trademarks impossible to not recognise. The Cola Wars refers to the intense competition between these two major corporations. Supplying a very similar product, both companies sought to gain a competitive edge over the other in the hope of greater market share, greater profits and greater brand loyalty. Both companies, whom have been in existence for over a century, have encountered both ups and downs. The four major components involved in the production and distribution of carbonated soft drinks (CSDs), are concentrate producers, bottlers, retail channels and suppliers. The economics of the concentrate business compared to the bottling business is extremely interesting in the analysis of the Cola Wars Case. Both are essential stakeholders in the CSD industry yet their costs and profitability are very different.

One reason why the profitability of the concentrate business as opposed to the bottling business is so different is due to the greater amount of bottlers required compared to the number of concentrate producers required. The concentrate producers blend raw material ingredients, package the mixture in plastic canisters and ship those to the bottler (Yoffie, 2006). Bottlers purchase concentrate, add carbonated water and high fructose corn syrup, can or bottle the resulting CSD product and deliver it to consumer accounts. For the concentrate producers, the entire United States of America can be served by one manufacturing plant. This is a key reason why concentrate producer’s profitability exceeds the...