Tuesday, February 19, 2013
1. Why is the soft drink Industry so profitable?
* Using Porter's Five Forces reveals that market forces are favorable for profitability
* Defining the industry:
* The industry consists of two major dependents, that is, the "Concentrate Producers" and the Bottling Companies. * High barriers to Entry.
* Profits shared between "CP" and Bottling Companies/
* Concentrated revenues, Coke and Pepsi accumulating 73% with small companies taking up the remainder (widely considered an oligopoly or duopoly)
* Soft drink industry evolved from just "Colas" to other beverages like tea and bottled water. * As a result Coke and Pepsi expanded there offering with Minute-Maid and Nestea, cleaning the threat of substitute with its established brand name. * Substitutes became less of a threat due to diversification by the Concentrate Producers.
* Power of Suppliers:
* Suppliers didn’t have much of a bargaining power as the main ingredient of Colas were primarily sugar and sugar could be purchased from any source on the open market and Buyers had the option to switch to Corn Syrup at any time if Sugar became too expensive. * Aluminum was inexpensive and abundant in the early 1990s so suppliers were left to compete with each other whereas the Cola companies had the choice between many bottling companies.
* Power of Buyers:
* The outlet through which consumers could get their hands on colas were numerous, but Cola companies mainly focused on: food stores, convenience and gas stations, fountain, vending and mass merchandisers. * The least Profitable channel was Fountain as they essentially was literally giving away the Cola * The most profitable on the other hand was vending as It was a direct connection with the Consumer, no middle man involved and the only thing the Cola...