Cola Wars

THE COLA WARS

The thread of new competition is very low, since there are significant costs to entering this industry; this makes it very hard for the small competition to be able to enter. Smaller players also encounter the loyalty problem, consumer of Coke or Pepsi, are very loyal to these 2 brands, and usually find no interest in smaller competitors. Pepsi and Coke also have the room and the finances to enter a price war with any new competitor.

Thread of substitutes products , this is a very significant one, since other companies have introduced other products, that are more in tuned with the new “healthy” culture that has developed in the past years. Products like Gatorade, Power drinks, etc. are a substitute for water, just like Coke and Pepsi; but these drinks promote lower carbs, less sugar and over all a much healthier choice.

Bargaining Power of buyers: Pepsi and Coke have the financials to deal with the bargaining of buyers, supermarkets, vending and all other retails have the power to negotiate lower prices from the industry, as well as better quality. Fast food chains and restaurants also have fountains with one of the 2, either Coke or Pepsi as their dark cola drink.

Bargaining power of suppliers: the suppliers are the person who deliver the raw materials needed to make cola and these are considered to be commodities, like sugar, additives and bottlers. This supplier can capture more of the value for themselves by raising prices or even limiting quality, quantity and prices.

Intensity of competitive rivalry: between Coke and Pepsi there has always been rivalry, Coke was the pioneer to then have to share its market with Pepsi 40 years later. Coke’s first approach was to bring out a product that would mimic Pepsi, but after this gave them a very bad reputation, they decided to bring back the original recipe. Pepsi mainly concentrated on very high advertising to be able to gain market share.