Cola Wars Continue : Coke and Pepsi in 2010
"Cola Wars Continue: Coke and Pepsi in 2010” explain the economics of the soft drink industry and its relation with profits, taking into account all stages of the value chain of the soft drink industry. By focusing on the war between Coca-Cola and PepsiCo as market leaders in this industry with a 90% market share in carbonated beverages, the study analyses the different stages of the value chain (concentrate producers, bottlers, retail channels, suppliers) and the impact of the modern times and globalization on competition and interaction in the industry. Analysis
There was a “war" between Coca-Cola and PepsiCo, not only have they been rivals for ages but they have always followed each other’s moves. The warfare must be perceived as a continuing battle without blood. Without Pepsi, Coke would have a tough time being an original and lively competitor. Below are the factors that lead to problems. Barriers to Entry
Courts barred imitations and counterfeit versions of Coca-Cola such as Coca-Kola, Koca-Nola, and Cold-Cola, under trademark infringement. This barrier to entry allowed Coca-Cola to dominate and almost single-handedly develop the CSD industry, and almost excluded Pepsi-Cola from the industry, until Pepsi-Cola won the 1941 trademark infringement suit that Coca-Cola had filed against it. The second significant barrier to entry was brand loyalty, created largely by Robert Woodruff who began leading Coca-Cola in 1923. Coca-Cola’s efforts to increase brand loyalty were so successful early on that in order to gain market share and develop brand loyalty of its own, Pepsi-Cola had to rely very heavily on price differentiation and sold its 12-ounce bottle for five cents, the same price that Coca-Cola charged for its 6.5-ounce bottle. The third significant historical barrier to entering the CSD industry was the successful vertical integration of nationwide franchise bottling networks of Coca-Cola and Pepsi-Cola, beginning in 1980. Buyer Power
The buyers in the CSD industry are the various retail outlets for CSDs, including supermarkets, fountain outlets, vending machines, mass merchandisers, convenience stores, gas stations, and other outlets. Overall, there is a moderate amount of buyer power in this industry, because the buyers have significant power because they determine the shelf space and visibility of the industry’s products, but their power is also limited by the significant sales of CSDs of $12 billion annually, or about 4% of total store sales in the U.S. Buyer power is also limited by the fact that CSDs are a big traffic draw for many of these outlets. The balance of power creates a moderate buyer power relationship. Supplier Power
Supplier power is low for this industry because the factors of production for both the concentrate aspect of the industry and the bottling aspect of the industry are basic commodities like caramel coloring, natural flavors, and caffeine for concentrate and packaging and sweeteners for bottling, none of which require specialized suppliers. Further, Coke and Pepsi are among the metal can industry’s largest customers, and it is often the case that two or three can manufacturers compete for a single contract with the companies, giving Coke and Pepsi a large advantage, and therefore creating a situation of low supplier power.
There are many substitutes, including alcoholic beverages, coffee and tea, sports drinks, and several other beverages, as well as non-cola CSDs such as lemon/lime and root beer. The availability and variety of CSDs make the CSD industry nearly impervious to this threat. The threat of substitutes is low because the CSD industry has already introduced several products, such as diet versions and flavor variations of classic products, creating its own substitutes for those classic products and absorbing the subsequent profits. Rivals
Rivalry is extremely high in the CSD industry...
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