Many different companies buy soft drink products. These companies include fast food franchises, food stores, convenience stores, and vending. Fast food franchises are the least profitable but due to the large quantity purchases they make these companies are able to negotiate their prices. Food stores are able to offer premium shelf space so they command lower prices. Convenience stores have to pay the highest prices.
Vending is the segment that coca-cola is able to serve the buyer directly so it has the most profit.
There are many different substitutes for the soft drink. These include beer, water, coffee, and juices. Coca-Cola and Pepsi were able to counter these substitutes through brand equity, advertising, and by making their products easily available to the consumer. They also began to produce these substitutes on their own in order to tap into that segment of the market.
Barriers to Entry:
The barriers to entry in this market are fairly high. Both Coke and Pepsi have franchising agreements with existing bottling companies. These agreements prohibit the bottler’s from taking on new soft drink companies. This makes it very hard for a new soft drink company to find a bottler willing to distribute their product. Coke and Pepsi have also been able to develop loyal customers through their brand image, which would make it hard for a new soft drink company to find consumers.
The ingredients found in soft drinks are very common. The suppliers of these products have little influence on these ingredients due to them being common. It would be easy for a new soft drink company to find a supplier willing to sell these ingredients to them.
The soft drink industry can be described as a Duopoly since Pepsi and Coke are the two firms competing. The market share of the rest of the industry is too small to be a factor. The competition between the companies has never...