Colarwars

COLA WARS CONTINUE: COKE & PEPSI

1. Why, historically, has the soft drink industry been so profitable for Coke &

Pepsi?

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Brand equity: Coke and Pepsi have established brand identity and

loyalty over a long period of time (two players dominate 75% of the

market)

Limited shelf space, vending slots and fountains: many already tied up

by Coke and Pepsi

Exclusive arrangements with bottlers and distributors (locked-in buyers)

Scales of economy in advertising

Low cost ingredients (sugar, water, corn syrup, flavouring)

Substitutes not always conveniently available (can use vending

machines or fast food outlets as an example)

Americans drink more CSDs than any other beverage by a huge

margin; in some foreign countries, drinking Coke or Pepsi is a status

symbol

Targeting younger consumers and introducing new products to meet

changing consumer tastes

High turn product  high sales volumes

2. Apply the Five Forces Model to evaluate the attractiveness of the industry.

a. Is it attractive from the perspective of the concentrate manufacturer?

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Barriers to entry – high

o “secret” concentrate formula belonging to the

manufacturers

Supplier power – low

o Ingredients needed for the “secret” concentrate formula

are readily available through many different sources

Substitutes – low to medium

Buyers – low

Rivalry – high

b. Is it attractive from the perspective of the bottler?

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Barriers to entry – high

o Need to have a plant to enable bottling

Supplier power – high

o Dependent on the concentrate manufacturers

Substitutes – low to medium

Buyer power – depends on the distribution channel

o Local convenient stores – low

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o Big distributors – high

Rivalry - high

3. How can Coke & Pepsi sustain their profits with increasing globalization,

flattening demand and the growing popularity of non-CDS?

[open-ended question]