Why has the soft drink business been so profitable ?
An industry analysis through Porter’s Five Forces reveals that market forces are favourable for profitability. Both concentrate producers and bottlers are profitable. The industry is already vertically integrated to some extent (§ “Bottler consolidation and spin-off - p8). That’s why we sometimes will not distinguish concentrate producers and bottlers. However, we have to keep in mind that relations between concentrate producer and bottlers were often strained. Moreover, in terms of operating profit/sales (exhibit 4 - p18), during the period 1980-2004, we can notice that concentrate producer – Coca-Cola company – earned between 21% and 37,1% whereas its largest bottler – Coca Cola Enterprise – only earned between 4,3% and 8,6%. Rivalry :
We could characterize the soft drink market as an oligopoly, or even a duopoly between Coke and Pepsi, resulting in positive economic profits. There was tough competition between Coke and Pepsi for market share, and this occasionally hampered profitability – especially for the bottlers. But on the whole, the carbonated soft drink industry remained very profitable. Moreover, nothing contributes as much to the present-day success of the Coca-Cola Company (respectively Pepsi) than Pepsi (respectively Coca-Cola Company). It’s a stimulating competition.
But then, came the private label brands !
See question 2 below.
Other beverages, from bottled water to teas, became more popular. Coke and Pepsi responded by expanding their offerings, through alliances (e.g. Coke and Nestea), acquisitions (e.g. Coke and Minute Maid), and internal product innovation capturing the value of increasingly popular substitutes internally. (§ The Cola wars begin - p7). Power of suppliers :
If sugar became too expensive, the firms could easily switch to corn syrup, as they did in the early 1980s. There are generally a lot of cans companies who are competing for...