...Cola Wars Continue: Coke and Pepsi Case Analysis 1. Soft Drink Industry (SDI) overview The industry considered in this analysis is Soft Drink Industry (SDI). SDI serves customer needs for refreshing and cold non-alcoholic beverages, with main industry sectors being: carbonated drinks, fruit punches, and bottled water sectors. There are three dominant companies in the industry, namely: Coca-Cola, Pepsi, and Schweppes. The soft-drink industry includes the following four major types of participating companies: • Producers of syrups and concentrates, • Bottlers, • Retail channels, and • Suppliers. 2. Porter’s Five Forces Analysis of the Soft Drink Industry (SDI): Soft Drink industry’s Carbonated Drink sector is 66 billion industry in US alone. Soft Drink industry remains very profitable, with pre-tax profits of 30% and 9% for concentrate producers and bottlers respectively. The following five forces analysis will attempt to show factors contributing to the profitability in the industry. Risk of entry by Potential Competitors: It is difficult for new entrants to enter the market because of few factors: First, in order to produce soft drinks a new company would have to have bottling or some other kind of packaging capacities or contracts with bottlers or packagers. To build a new bottling plant is very capital intensive and to enter in a contract with existing bottlers is difficult if not prohibited by the Coca-Cola and Pepsi’s agreements with existing bottlers. Because it...
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...oca Cola War Case Study Cola Wars Continue: Coke and Pepsi Case Analysis 1. Soft Drink Industry (SDI) overview The industry considered in this analysis is Soft Drink Industry (SDI). SDI serves customer needs for refreshing and cold non-alcoholic beverages, with main industry sectors being: carbonated drinks, fruit punches, and bottled water sectors. There are three dominant companies in the industry, namely: Coca-Cola, Pepsi, and Schweppes. The soft-drink industry includes the following four major types of participating companies: • Producers of syrups and concentrates, • Bottlers, • Retail channels, and • Suppliers. 2. Porter’s Five Forces Analysis of the Soft Drink Industry (SDI): Soft Drink industry’s Carbonated Drink sector is 66 billion industry in US alone. Soft Drink industry remains very profitable, with pre-tax profits of 30% and 9% for concentrate producers and bottlers respectively. The following five forces analysis will attempt to show factors contributing to the profitability in the industry. Risk of entry by Potential Competitors: It is difficult for new entrants to enter the market because of few factors: First, in order to produce soft drinks a new company would have to have bottling or some other kind of packaging capacities or contracts with bottlers or packagers. To build a new bottling plant is very capital intensive and to enter in a contract with existing bottlers is difficult if not prohibited by the Coca-Cola and Pepsi’s agreements with existing...
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...Beverage Industry Analysis PepsiCo Justin Baumgartner Cover Letter: To: Mr. Morgan From: Justin Baumgartner Re: Environmental and Industry Analysis – Alternative Beverage Market Recommendations for PepsiCo’s strategy in Alternative Beverages Date: September 19, 2012 Attached you will find my analysis of the alternative beverage markets in 2009. The analysis includes an assessment of the competition in the alternative beverage market using Michael Porter’s Five Competitive Forces framework. I have also identified key drivers for change and key success factors for competing successfully in this market. Using information, I have then provided a set of recommendations for PepsiCo’s future strategy in alternative beverages. Briefly, my analysis of competition in alternative beverages shows the market to be very competitive. The drivers for change that will influence competition in this industry in the future are technology/globalization and changing in societal concerns, attitudes, and lifestyles. The key success factors that all firms competing in this market must be addressed are product differentiation, size of their organizations, and brand loyalty. This analysis suggests my recommendation to you regarding PepsiCo’s strategy to be brand loyalty, globalization, and product innovation. I hope you will find this information to be valuable to your firm and I thank you for the opportunity to provide this service. Alternative Beverage Industry Analysis: ...
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...information collected from multiple sources such as suppliers, customers, competitors, partners, and industries that analyzes patterns, trends, and relationships for strategic decision making. True False 3. The information age is the present time, during which infinite quantities of facts are widely available to anyone who can use a computer. True False 4. Technology provides countless business opportunities, but can also lead to pitfalls and traps for a business. True False 5. Top managers use social intelligence to define the future of the business, analyzing markets, industries and economies to determine the strategic direction the company must follow to remain unprofitable. True False 6. A variable is a business intelligence characteristic that stands for a value that cannot change over time. True False 7. Companies update business strategies continuously as internal and external environments change. True False 8. For an organization to succeed, every department or functional area must work independently to be most effective. True False 9. Porter's Five Forces Model outlines the process for a sales strategy. True False 10. With the Five Forces Model, companies should watch the forces in the market. If the forces are strong competition generally increases and if the forces are weak competition typically decreases. True False 11. Successful companies today operate...
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...The Bottled Water Industry Threat of entry of new competitors is low. Firstly, the competitors that currently exist are large, dominating companies who already own a huge market share of the industry. New entrants attempting to enter the market will have compete with established brands such as Coca-Cola, PepsiCo, and Nestle. These brands have decades of experience in the food & beverage industry, have developed brand recognition & loyalty and have achieved low-cost production and distribution capabilities that cannot be easily matched. Secondly, it is expensive to initially develop the infrastructure to produce the product. The case states that prices for bottle-filling lines range from $125,000 to over $100 million, not to mention the costs associated with “source certification, road grading, and installation of pumping equipment …” which require approximately $300,000 worth of investment. Threat of substitute products/services is high. Numerous bottled and non-bottled products that can easily substitute bottled water. The main factor that differentiates bottled water from other soft drinks is that it caters to a health-conscious market because it has no sugar and no calories. However, today, there are several healthy soft drinks that are ‘zero-sugar added’, ‘zero-calorie’ alternatives to water. Coke zero, crystal light powders, diet sodas, zero-calorie energy drinks, etc. are just some examples. Tap water is also a substitute product because many people simply trust...
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...Question 1, Using Porter’s Five-Factor Model of Market Profitability (Aaker, p. 67), explain why the major concentrate producers have historically been so profitable. Soft drink industry is very profitable, more so for the concentrate producers than the bottler’s. This is surprising considering the fact that product sold is a commodity which can even be produced easily. There are several reasons for this, using the Porter’s five forces model of market profitability analysis we can clearly demonstrate how each force contributes the profitability of the industry. (Goutham Vulpala, Laxmi, 2007) Barriers to Entry: The several factors that make it very difficult for the competition to enter the soft drink market include: • Bottling Network: Both Coke and PepsiCo have franchisee agreements with their existing bottlers who have rights in a certain geographic area in perpetuity. These agreements prohibit bottler’s from taking on new competing brands for similar products. Also with the recent consolidation among the bottler’s and the backward integration with both Coke and Pepsi buying significant percent of bottling companies, it is very difficult for a firm entering to find bottler’s willing to distribute their product.(Goutham,2007) . • Advertising Spend: The advertising and marketing spend (Case Exhibit 5 & 6) in the industry is in 2000 was around $ 2.6 billion (0.40 per case * 6.6 billion cases) mainly by Coke, Pepsi and their bottler’s...
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...followed by the opening of the first store outside North America in Japan in 1996, leading to its current status with over 16,000 stores in over 50 countries. Along the way, Starbucks created numerous opportunities for success starting with its offer of full health benefits to full- and part-time employees and then becoming the first privately owned U.S. company to offer a stock option program that includes part-time employees followed by an initial public offering (IPO), with common stock being traded on the Nasdaq National Market (Company, Starbucks Basic Timeline, 2010). It has also expanded into other markets besides the coffee shop offerings with its joint venture with Pepsi-Cola North America to sell the bottled Frappuccino coffee drink, its purchase of Tazo Tea and Coffee Equipment Company and the Clover Brewing System and the creation of the VIA Ready Brew coffee . Finally Starbucks...
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...COKE AND PEPSI 1. Why, historically, has the soft drink industry been so profitable? 2. Why is the profitability of the concentrate business so different to that of the bottling business? 3. How has the competition between Coke and Pepsi affected industry profits? 4. Can Coke and Pepsi sustain their profits? Answers: 1. Market forces are promising for profits through the Porter’s five forces analysis. The soft drink industry has been profitable over the last couple of years for the following reasons. The soft drinks have become more available and with the addition of flavored and diet options which have made more Americans consume hence increasing the profitability of the industry. Revenues have also been extremely intense even with the bottling companies. We could also say that the soft drink industry has been controlled by just Coke and Pepsi which in return has given them positive economic profit. Also, the companies in charge of Coke and Pepsi started expanding their profits through collaborations and acquisitions of subsidiary bottled water and tea companies. For example, Coke and Nestea, Pepsi creating Orange Slice. The inputs for both products were mainly sugar and the packaging. And if sugar got expensive they could switch to corn syrup as they did in the earl 1980’s. Lastly, the soft drink industry were able to sell to buyers through five principal channels and the most principal suppliers were supermarkets. 2. There are higher number of bottler’s when...
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...Problem For many years, Coke and Pepsi have been the two largest soft drink companies competing for the highest market share in the nation and the world. The Coke formula was created in 1886 by John Pemberton, and later acquired by Asa Candler, who expanded the coke formula and converted it into syrup, which was then sold to bottlers to produce carbonated drinks. Coca-Cola had great success during World War II; the brand expanded internationally with the help of the U.S Government. The company promised Coca-Cola to U.S soldiers for five cents, regardless of its production cost. An estimated 64 Coca-Cola bottling companies were opened overseas resulting in a positive overall company market share in Europe and Asia. Since 1950, Coke’s marketing strategy has always been targeting family consumption, especially in supermarkets. In addition, Coke has mainly focused on fountain sales at major restaurant franchises, like McDonalds and Burger King. They are considered Coke’s main source of revenue. Throughout the years and due to demand, Coke has created non-cola flavored carbonated drinks such as Fanta, Sprite, etc., to broaden their carbonated drink consumption. Later on, the company purchased Minute Maid, Duncan Foods, and Belmont Springs Water. Coke also expanded its brand with the creation of Diet Coke. Diet Coke was a huge success for the company, making it the nation’s third-largest-selling carbonated soft drink in the Eighties. In 1986, the company created a bottling company...
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...The Five Forces Model An industry can be defined as a group or companies offering products or services that are close substitutes for each other. Close substitutes are products or services that satisfy the same basic consumer needs. For example, tea and coffee are close substitutes. Managers have to analyze competitive forces in an industry environment in order to identify opportunities and threats confronting to a company. Michael E. Porter of the Harvard School of Business Administration has developed a framework that helps managers in this analysis. Porter’s framework, known as the five forces model focuses on five forces that shape competition within an industry: (1) the risk of new entry by potential competitors, (2) the degree of rivalry among established companies within an industry, (3) the bargaining power of buyers, (4) the bargaining power of suppliers, and (5) the closeness of substitutes to an industry’s products. A. Potential Competitors Established companies try to discourage potential competitors from entering, since the more companies enter an industry, the more difficult it becomes for established companies to hold their share of the marker and to generate profits. Thus a high risk of entry by potential competitors represents a threat to the profitability of established companies. On the other hand, if the risk of new entry is low, established companies can take advantage of this opportunity to rise prices and earn greater returns. The strength of the...
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...Case Analysis – Cola Wars Continue: Coke and Pepsi in 2010 Coke and Pepsi are two leading companies in the soft drink industry. They contend with each other during decades. The Cola Wars are a campaign of mutually-targeted television advertisements and marketing campaigns since the 1980s between soft drink manufacturers The Coca-Cola Company and PepsiCo. Historically, the soft drink industry has been so profitable. Porter’s Five- Forces Model of industry competition can define and analyze an industry in terms of five main factors. In this industry, competition is quite cruel between rivalries since Coca-Cola and Pepsi are already powerful leaders in the industry. It is basically a duopoly situation in soft drink field. The two companies share the whole market making them a huge profit even the industry itself is flattening. Due to the situation in the industry, there is not any barrier for entering but new company will be extremely risky to enter the market, since both Coca-Cola and Pepsi are mature companies with high reputation during decades. Unless the new enterprise is highly innovative and surely can do a better job than the two industry leaders. Therefore, threat of new entrants is expected to be very low. The threat of substitute products mainly comes from the promotion of a healthy diet, which makes juice, power drinks and other non-CSDs a better choice other than sodas with lots of sweetener and fat. This threat however, has been overcome by the introduction of...
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... an analysis will be provided to show the relative importance of each of the Porter’s Five Forces for the strategic position of Starbucks - an American global coffee company, in its coffee house industry compared to that of Costa Coffee and Café Nero Introduction Starbucks as a global coffee company has strong position in its industry, there are however variable external factors like environment, technical and economic changes which affect the strategic position of Starbucks. Data is collected and presented in the following paragraphs based on the model of Porter’s Five Forces. 1. Intensity of competitive rivalry Table 1 Company 2011 Sales (million) Starbucks £398 Costa £377 Café Nero £436 BBC News (2011) The intensity of competitive rivalry is high in the coffeehouse market. In the UK, Costa and Café Nero not only suit better the tastes of local UK people, but also have the financial resources and position to leverage their strengths to threaten Starbucks. From the Allegra Strategies Project Cafe UK report, Nero is the dominant player in the UK market among the top coffee shops in UK and enjoys the highest sales volume. (see table 1) Despite Starbucks’ as an iconic global brand, there is a slowdown in its expansion. (Bakery Info, 2009) There is also little scope for product differentiation of coffee, retailers focus on boosting spending of customers by offering food alongside drinks. Starbucks targets breakfast and snacks, the range is limited compared to others...
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...TQ1 The beverage industry has always been economically successful, especially Coke and Pepsi. Coke started as a “potion for mental and physical disorders,” sold by a pharmacist named John Pemberton. The Coke business evolved quickly and reached franchises by 1910. The concentrate business and the bottling business, though closely related have very different economic dynamics. The profitability of concentrate producers was much more successful than bottler’s. Even though the profitability of concentrate producers is higher than bottler’s they are still inter-reliant; they share cost in things such as marketing and production. There are many reasons why concentrate was financially successful; using Porter’s five forces we can noticeably see how each force plays an intrical role in profitability. Bottlers and concentrate businesses deal with the same buyers and suppliers. There were many suppliers that could provide raw material to concentrate business owners; therefore suppliers could not ask a premium and their power was low. Bottling businesses, much like suppliers were dependent on concentrate businesses. In reference to the five forces model, concentrate producers supplied bottlers with raw material necessary to make soft drinks. Concentrate businesses took management roles in product development and even negotiated with bottlers. Therefore, it is evident that concentrate business had control in the industry. In addition, there was a high volume of suppliers so that made...
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...The Five Forces Model – Cola Industry GB 459 21 February 2013 The Five Forces Model – Cola Industry Soft drinks and ‘soda water’ have been around since the 1700’s. In 1835 the first bottled soda water was introduced in the US. In 1876, Root Beer was mass produced for public sale. The Soft Drink / Cola industry rapidly became a booming business. By 1920 the U.S. Census bureau reported more than 5000 bottlers existed. (Zmuda) In today’s modern world, the industry has only grown. In fact, competition is so fierce there are only a few key players strategizing for top positions in the industry. The sector is dominated by three major players, which together control nearly 80% of the global market. (Pepsico Inc.) Coca-Cola is king of the soft drink-empire and boasts a global market share of around 50%, followed by PepsiCo at about 21%, and Cadbury Schweppes (Dr Pepper and Seven Up) at 7%. (Prince) To better understand the cola industry, we will focus on Porter’s five forces affecting the industry. These five forces are potential competitors, rivalry among established companies, the bargaining power of buyers, the bargaining power of suppliers and substitute products. Potential Competitors New entrants are not a strong competitive pressure for the cola industry. There is a relatively new threat to the industry from companies that manufacture and sell soda making machines where consumers can make their own soda at home for less than half the cost of soda from one...
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...Contents 1 Overview 2 General environmental analysis 3 Industry Analysis 3.1 Industry Structure - U.S. soft drink market share of concentrate producers - Suppliers within the carbonated soft drink industry 3.2 Market Structure - U.S. Liquid Consumption Trend (gallons/capita) - U.S. non-alcoholic refreshment beverage volume 2009 - U.S. soft drink market share – soft drink brands 3.3 Marketing Channels 3.4 Porter’s five forces 4 5 4 2 2 2 2 4 Competitive / corporate strategies of Coke and Pepsi 5 SWOT Analysis 6 Questions 6.1 How has the competition between Coke and Pepsi affected the industry’s profit? 6.2 If it has been such a profitable industry, why have so few firms successfully entered this business over the last century? What are the barriers? Why have Coke and been so successful in launching their products? 6.3 Why, historically, has the soft drink industry been so profitable? 6.4 Compare the economics of the concentrate business to that of the bottling business: Why is the profitability so different? 6.5 How can Coke and Pepsi sustain their profits in the wake of flattening demand and the growing popularity of non-CSDs? 7 9 11 Exam Case Study Cola Wars Continue: Coke and Pepsi in 2010 1 Overview (Power Point Page (PPP) 2) For more than a century, Coke and Pepsi compete for market share within the world’s beverage market. The most intense battles were fought over the $74 billion carbonated soft drink (CSD) industry in the United States that lasted until the mid-1990s...
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