Cola Wars
Porter’s Five Forces have given managers an effective tool for analyzing industry structure. If it goes that industry structure and competition are ultimately responsible for industry profitability, an analysis of the five competitive forces offers an explanation for the success of the soft drink (CP) industry. The soft drink industry benefits from generally benign forces.
Colas characterized the first 50+ years of the soft drink industry, with Coke and Pepsi accounting for the top brand names. While substitutes for soft drinks certainly exist, the major players in the CP industry have successfully shaped this competitive force in their favor, by changing the arenas in which they operate. As Porter states, “to limit the threat of substitutes, offer better value through wider product accessibility”. Vending machines, convenience stores, and fountain outlets provided customers with readily available impulsive buying opportunities. Despite customers’ shifting preferences towards non-carbonated and more health-conscious choices, the CP industry has been able to sustain profits by diversifying their product offering.
In 1998, the three major players in the soft drink industry accounted for 90.2% of market share (see Exhibit 3). This percentage of market share is a testament to the high barriers of entry to newcomers. As a new concentrate producer, unequal access to distribution channels would be encountered. The major players of the CP industry have established long-standing relationships with both bottlers and retail channels. Door-to-Store Delivery strengthens the major players’ relationships with retailers, while also providing an advantage of lower costs. As a new bottler, capital requirements are sizable, and would deter start-ups from entry. It is likely that the three major players would be inclined to retaliate against a potential competitor by cutting supply lines, heavily slashing prices, and increasing advertising. Utilizing the resource based view of
Colas characterized the first 50+ years of the soft drink industry, with Coke and Pepsi accounting for the top brand names. While substitutes for soft drinks certainly exist, the major players in the CP industry have successfully shaped this competitive force in their favor, by changing the arenas in which they operate. As Porter states, “to limit the threat of substitutes, offer better value through wider product accessibility”. Vending machines, convenience stores, and fountain outlets provided customers with readily available impulsive buying opportunities. Despite customers’ shifting preferences towards non-carbonated and more health-conscious choices, the CP industry has been able to sustain profits by diversifying their product offering.
In 1998, the three major players in the soft drink industry accounted for 90.2% of market share (see Exhibit 3). This percentage of market share is a testament to the high barriers of entry to newcomers. As a new concentrate producer, unequal access to distribution channels would be encountered. The major players of the CP industry have established long-standing relationships with both bottlers and retail channels. Door-to-Store Delivery strengthens the major players’ relationships with retailers, while also providing an advantage of lower costs. As a new bottler, capital requirements are sizable, and would deter start-ups from entry. It is likely that the three major players would be inclined to retaliate against a potential competitor by cutting supply lines, heavily slashing prices, and increasing advertising. Utilizing the resource based view of