Cola Wars Continue

Media ManagementCamilla Minnhagen

Gösta CarlbergXuan Zhao

Hengchong Zhang

January 19, 2010

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Is the concentrate industry profitable?

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Porter’s five forces of competition

SUPPLIERS

POTENTIALENTRANTS

SUBSTITUTES

BUYERS

INDUSTRYCOMPETITORS

Rivalry amongexisting firms

Bargaining power of suppliers

Bargaining power of buyers

Threat of

new entrants

Threat of

substitutes

• It’s difficult for stores to not sell important brands like Coca Cola, but in distributors are also quite few on the Swedish market so they have a lot of power against small unknown brands

• The buyers are big food chains and restaurants as well as small entrepreneurs. In Sweden ICA is a very dominant player together with Coop and Axfood

Bargaining power of suppliers

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• The economies of scale is good, but it costs to defend your market share

• Strong customer loyalties if your brand is strong

• There is limited access to distribution channels since companies like Coca Cola have agreements with all important players

Threat of new entrants

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• Low legal barriers- it’s coke

• The capital requirements for a concentrate producer such Coca Cola is low. One plant costs about 25-50 million to build and can provide the whole US with concentrate.

• There is low switching costs since it’s easy for consumers to choose another product

Threat of new entrants

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• A substitute is always a threat within the beverage industry since it’s easy to take an other product. After al, it has the same function. It should taste could, and make you less thirsty. Competitors are fighting with better prices and products. Red Bull is an example of a new innovation that “came out of nowhere”.

Threat of substitutes

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• The product portfolio could be seen as highly differentiated for big brand like Coca Cola

• The competition between local breweries is quite high for well known brands

Bargaining power of buyers

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• You have a few quite balanced competitors on the concentrate business

• The growth of the industry is low and are just above average GDP

• The differentiation is sometimes high, but the switching costs is low

Rivalry among existing firms

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• All this leads to high rivalry between the firms which affects the companies strategies negative for example more marketing costs less profit low profit potential for other competitors.

• A big problem for huge companies is that there is few line to hide behind, which you can defend you market share from. A new company’s brand can become cool and interesting just because the brand is new and unknown.

• Example: Red Bull

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Why is profitability so different between the concentrate business and the bottling business?

Bottling

Industry Competitors Potential Entrants Suppliers Substitutes Buyers

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Cocentrate producers vs Bottling Plants

Operating profits Pricing Negotiation power

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What challenges face these companies today?

financial crisis in the world slow growth in sales volume some other none-cola beverage into the

market

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The effect of the competition

The profit of the industry grows very slowly and the two companies take most of the market share.

CSD consumption of the total beverage consumption slowly decreases.

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The factor effects the profitability

In the international market, the local culture

The economy situation The new need of the consumers The raise of non-cola The sales tactic of the competitors

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Thank you!