Coca-Cola vs Pepsi

Media Management 2304

Alexandra Drissner, Johan Ericsson, Emelie Levall, Charlotta

Storckenfeldt

21373@student.hhs.se

Outline

• Steps in industry analysis

• Porter‘s five forces – concentrate industry

• Porter‘s five forces – bottler‘s industry

• Challenges today

Industry analysis

• Industry definition:

• Concentrate industry is the industry that produces concentrates for carbonated soft drinks (only producer no service provider)

• Bottling industry is the industry that fills concentrates, which might also include DSD (producer and service provider)

• Geographic scope is North America

Value chainDefinition of participants

Concentrate raw materials

(natural flavors etc.) Concentrate Bottlers

Packagin & sweeteners

Retailer channel

Fountain channel

Consumer

Concentrate industry

Rivalry

• High intensity of rivalry due to slow industry growth and two equal sized, highly committed rivals that strive for leadership

• Dimension of competition is based on price (premium) but even more on branding

High rivalry among existing firms

Threat of entry

• High entry barriers due to high capital investments for research, branding, advertising etc. and unequal access to distribution channels (dependent on bottler networks of Coke & Pepsi)

• Expected retaliation of existing players high Low threat of entry

Buyer power

Bottlers:• Low negotiation power as “anchor bottler” account for

the majority of volumes from the concentrate producers; high switching costs for buyers

Low buyer strength

Fountain Channel:• High negotiation power as switching costs for fountain

accounts are low High buyer strength

Threat of Sub.

• Substitutes of growing importance e.g. due to health issues

• High switching costs for bottlers Medium threat of substitutes

Suppliers power

• Less concentration than in the concentrate industry

• No product differentiation

• Low switching costs

• Few or no substitutes

• Little threat of forward integration

Low supplier strength

Bottling industry

Rivalry

• Exclusive territories lowers rivalry between bottlers of the same brand

• Franchise agreements forces each area to have several bottlers (higher concentration than needed?)

High rivalry between different brand bottlers and low rivalry between same brand bottlers.

Threat of entry

• New Entrants

• Capital intense industry

• Difficult to get retailer shelf space

• Coke/Pepsi policy of exclusive territories

Low threat of new entrants.

Buyer power

• Retailers have high negotiation power, but Coke/Pepsi are better off than small brands.

Moderate to high buyer strength

Threat of Sub.

• Substitutes

• Fountains

Threat of substitutes differs between restaurants (high) and retailers (low)

Suppliers power

• High concentration of suppliers

• Substitutes associated with switching costs.

• High threat of forward integration High supplier strength

• Packaging

• High share of bottler’s total cost

• No differentiation Low to medium supplier strength

Low supplier strength

Challenges today

• Increasing importance of private labels

• Non-CSD beverages of growing importance but adjustments of bottling facilities requires high investments

• Power of retailers increasing

• Health issues

• CSD-market is saturated

Consequences of Cola Wars

• Changed base of competition: From price to brand

• Reduced profitability because of:

• high advertising spendings

• Increased profitability because of:

• consolidation of bottlers

• only few concentrate producers (who are increasingly dependent on coke‘s/pepsi‘s bottler network)

The End