ADVANCED CORPORATE STRATEGY – SCIENCES PO CASE STUDY
1. A profitable industry based in:
- - - A solid business model. Potential and relatively easy to diversify: space for complementary products (leverage brand equity) Good financial muscle.
The soft drink industry is facing new challenges. The carbonated drink market has lost pace but there are several opportunities to overcome the situation.
2. Concentrate producers and Bottlers are extremely
Although having very different sources of profitability they ultimately rely on the same customers. The fundamental difference between CPs and bottlers is added value. The biggest source of added value for CPs is their proprietary, branded products whereas for bottlers it steems from their relationships with CPs and their customers/retailers.
3. Future profitability sustainment to be found in:
a) International markets b) Diversified portfolios: health-conscious consumption, noncarbonated beverages and snack foods. c) Key strategic relationships’ improvement: strategy alignment
1. Overview of the market: a market that has topped out and is searching new opportunities Share of Carbonated Soft Drink Consumption as total beverage consumption 35% 30% 25% 20% 15% 10% 5% 0%
• Market of carbonated soft drink has tripled its volume since 1970 but its share of total beverage consumption is slighty decreasing. Changements in the market: • iversification within the markets: diet and flavored D varieties. • rowing of the share of non carbonated drinks: bottled G water, juices, sport drinks… • n internationalizing process in progress aiming A Europe, Latin America, Middle East and Southeast Asia.
From exhibit 1
Category Carbonated Bottled water
% share 46,80% 18,40% 14,90% 8,50% 7,60% 3,90% 100%
Thanks to arrangement, alliances and acquisitions
Geography Europe US Asia-Pacific Rest of the world Total
% Share 37,10% 30,90% 19,80% 12.30% 100%
Juices Tea & coffee Functional drink Concentrates Total
Datamonitor (2005, May). Global Soft Drinks: Industry Profile. New York
Porter's five forces analysis: a quite favorable scenario for positive economic profitability Barriers to Entry: • Marketing muscle and market presence of Coke and Pepsi very powerful brand name (loyalty). • Access to distribution channels: Soft Drink Interbrand Competition Act. • Production costs which are substantial: bottlers‘ high capital investment economies of scale required
Threat of New Entrants ≈0
Competitive Rivalry: • Extremely concentrated revenues: Pepsi + Coke 75% market (duopoly), followed by Cadbury at 14,5% (Exhibit 2). • Increased rivalry due to declining consumer demand for CSDs- innovation and marketing. • Market saturation: competition is fierce and reduces profitability. However, it also enhances innovation/creativity.
Power of Suppliers +
Power of Suppliers: • Few inputs are required by both CPs and bottlers: concentrate’s ingredients; sweetener and packaging. • owever, plastic prices is increasing (42% H plastic bottles) • ow-moderate power because a lot of suppliers L (easy to substitute) and only 3 big companies interest of the former in building long-term relationships.
Power of Buyers ++
Power of Buyers: • 5 principal channels: - Supermarkets (31%) and Mass Merchandisers (13%) need Coke and Pepsi but control over premium shelf space low price + visibility competition = lower profitability - Fountain (23,4%): exclusivity to one manufacturer = strong bargaining power - ending (14.5%): no bargain power, most V profitable channel - onvenience-and-gas (15%): high-margin C channel (20-oz PET bottle).
Threat of Substitutes: • Other beverages (Non-carbs): bottled water, juices, tea, coffee, energy drinks. • Can be handled via acquisitions...