1. If we analyze the situation using Porter’s five forces it is easy to see why the industry was so profitable. The substitutes as juices and water didn’t affect the profits of the soft drinks industry. The taste of the soft drinks is what is the most important for the consumers and it is unique. Coke and Pepsi’s powerful brands are inimitable, so not really many substitutes were on the market.
The entry barriers are pretty high. There are significant costs to enter the industry of soft drinks producers which automatically eliminates small players. The loyalty for the brand is also an issue. Consumers seemed to be pretty loyal over the years - it makes it very hard for a new enterer to compete with the major players Coke and Pepsi and right after Cadbury. Bottlers were usually on a long term contract with the big companies and could not easily sign a contract with a new direct competing enterer. Two major players Coca cola and Pepsi have about three quarters of the soft drinks market were fiercely competing with advertising, creating new products and expanding new territories, without going into price war. The major products for the soft drink industry were not hard to find – carbonated water, sugar, bottles, so the only one that gave power for the suppliers was the flavored concentrate. The concentrate producers as suppliers have their unique formulas and price control over them. They have the power of sustainable competitive advantage over the bottlers and the buyers and as a result their profits were growing fast. They also have a substitute for the bottling companies – fountain sales.
Buyers can be divided by three categories – bottlers they have to buy the concentrate and had no power over the suppliers because they were dependent on them to exist. Second the merchandiser buyers were extremely important channel - they had fair buyer’s power. Pepsi was more focused on big outlets like Wal mart and Coke was dealing with more the fountain...
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