Cola Wars

1. Why is the soft drink industry so profitable?

In the U.S., the consumption of CSDs grow by 3% annually and the availability keeps on increasing. In addition, CSDs are also very affordable to the majority of people, making it even more profitable.

Based on the Porter’s Five Forces, the concentrate industry and bottling industry are both profitable. They are very interdependent and their functions often overlap each other. For example, concentrate companies also do bottling and bottling industry do many advertisements and promotions. They are already vertically integrated to some extent.

In addition, this industry has pretty strong barrier to entry, especially in terms of suppliers and distribution channels. Many existing companies such as Pepsi and Coca Cola are dominating the industry and they are very strong in terms of their strategy and operation. It would be hard for other competitors to come into the industry.

In terms of power of buyers, this industry is profitable because building brand image and brand loyalty in this industry is not an easy thing. Companies should provide really good quality and promote it a lot to the market until they can compete with Pepsi and Coke. New companies also do not have the advantage of economies of scale, and thus, are less willing to compete in the market.

Last but not least, this industry is more about brand name. Capturing brand image and brand loyalty is extremely important and critical.

2. How has the competition between Coke and Pepsi affected the industry’s profits?

The competition between Coke and Pepsi affect the industry’s profits a lot. The competition is good because it brings the best out of Pepsi and Coke. They set competitive prices (due to price wars) and give the best quality they could possibly give to customers. Also, it is good because it keeps Coke and Pepsi to be as innovative as possible to increase their sales. Industry’s profit might be increasing time by time due to...