Structure and Evolution of the CSD Industry: Cola Wars Case
1. Briefly describe the basic structure of the CSD industry and how it has evolved.
The CSD industry is very much concentrated. According to Exhibit 2 of the case, the market concentration of the two firms was over 75% in 2000 (44% for Coca Cola and 31% for Pepsi) and almost 72% in 2009 (almost 42% for Coca Cola and almost 30% for Pepsi).
The barriers to enter the CSD market are very high mainly because of the economies of scale enjoyed by Pepsi and Coca Cola. These two firms produce a very large portion of the total output of the market and they reach their MES (minimum efficient scale) when they cover for over 70% of the market.
Another important barrier to enter this industry is the well-known reputations that Coca Cola and Pepsi have. It would take many years and many millions of dollars invested for somebody else to be able to build such reputation in the CSD industry.
On May of 1886, pharmacist Dr. John Pemberton had created a drinkable medicinal formula which he termed "Coca-Cola". Pemberton 's original Coca-Cola recipe called for coca leaves and kola nuts. After mixing his concoction with sparkling mineral water, Pemberton began to market the beverage as a fountain drink, and as an alternative to beer and ginger ale. In the next year pharmacist Dr. Asa Candler, bought the formula from Dr. Pemberton. Due to his penchant for aggressive marketing and advertising, Dr. Candler 's Coca-Cola business became quite successful, and Coca-Cola became one of America 's most popular fountain drinks. After 1905, coca leaves were no longer used as one of the main ingredients in Coca-Cola. In time, fructose syrup replaced the crystal sugar used in the soda, allowing for cheaper and faster manufacture of the syrup. The bottling industry also allowed for a wider distribution of the soda, further increasing its sales and its popularity. During 1960’s Coke launched Fanta, Sprite and Tab. Today, Coca-Cola products are consumed at a rate of more than one billion drinks per
The CSD industry is very much concentrated. According to Exhibit 2 of the case, the market concentration of the two firms was over 75% in 2000 (44% for Coca Cola and 31% for Pepsi) and almost 72% in 2009 (almost 42% for Coca Cola and almost 30% for Pepsi).
The barriers to enter the CSD market are very high mainly because of the economies of scale enjoyed by Pepsi and Coca Cola. These two firms produce a very large portion of the total output of the market and they reach their MES (minimum efficient scale) when they cover for over 70% of the market.
Another important barrier to enter this industry is the well-known reputations that Coca Cola and Pepsi have. It would take many years and many millions of dollars invested for somebody else to be able to build such reputation in the CSD industry.
On May of 1886, pharmacist Dr. John Pemberton had created a drinkable medicinal formula which he termed "Coca-Cola". Pemberton 's original Coca-Cola recipe called for coca leaves and kola nuts. After mixing his concoction with sparkling mineral water, Pemberton began to market the beverage as a fountain drink, and as an alternative to beer and ginger ale. In the next year pharmacist Dr. Asa Candler, bought the formula from Dr. Pemberton. Due to his penchant for aggressive marketing and advertising, Dr. Candler 's Coca-Cola business became quite successful, and Coca-Cola became one of America 's most popular fountain drinks. After 1905, coca leaves were no longer used as one of the main ingredients in Coca-Cola. In time, fructose syrup replaced the crystal sugar used in the soda, allowing for cheaper and faster manufacture of the syrup. The bottling industry also allowed for a wider distribution of the soda, further increasing its sales and its popularity. During 1960’s Coke launched Fanta, Sprite and Tab. Today, Coca-Cola products are consumed at a rate of more than one billion drinks per
Bibliography: DEFINITION: Consumption of carbonated soft drinks. Litres per person per year, 2002. SOURCE: Global Market Information Database, published by Euromonitor via NationMaster