Cola Wars Case
Cola Wars Continue: Coke and Pepsi in the 21st Century
Concentrate Producers and Bottlers were two of the four major participants that were involved in the production and distribution of Carbonated Soft Drinks (CSDs) in the United States. The Concentrate Producers (CPs) were responsible for blending raw material ingredients, packaging the blend in plastic canisters, and shipping it to the Bottler. Using Porter’s Five Forces analysis for the CPs industry, we determined that the Bargaining Power of Buyers was low. In 1987, Coke’s Master Bottler Contract granted Coke the right to determine the concentrate price based on a pricing formula that adjusted quarterly and stated a maximum price for the sweetener used in the production. Pepsi’s Master Bottling Agreement required that top bottler purchased its raw materials from Pepsi on terms and conditions determined by Pepsi. These agreements limited the opportunity for price negotiations between the buyers and the CPs. The Bargaining Power of Suppliers was low because CPs often maintained close relationship with more than one supplier. Additionally, due to the basic nature of the raw materials used in the CPs process, there were many suppliers who were willing to lower their prices just for the opportunity to get a contract with the leaders in the industry. We believe that the Threat of Substitutes was medium due to the observed increase in sales of many alternatives to CSDs such as, beer, milk, coffee, bottled water, powdered drinks, teas, juices in the 1990s. This ultimately had a negative effect on the sales of CSDs and respectively the CPs industry; however, the cola segment of the CSD industry was able to maintain its dominance at 60%-70% market share. We believe that the threat of New Entrants was low. The CPs’ capital investment requirements were small in machinery, overhead, or labor; however, in order to achieve the scale of the major CPs they required a lot of time and
Concentrate Producers and Bottlers were two of the four major participants that were involved in the production and distribution of Carbonated Soft Drinks (CSDs) in the United States. The Concentrate Producers (CPs) were responsible for blending raw material ingredients, packaging the blend in plastic canisters, and shipping it to the Bottler. Using Porter’s Five Forces analysis for the CPs industry, we determined that the Bargaining Power of Buyers was low. In 1987, Coke’s Master Bottler Contract granted Coke the right to determine the concentrate price based on a pricing formula that adjusted quarterly and stated a maximum price for the sweetener used in the production. Pepsi’s Master Bottling Agreement required that top bottler purchased its raw materials from Pepsi on terms and conditions determined by Pepsi. These agreements limited the opportunity for price negotiations between the buyers and the CPs. The Bargaining Power of Suppliers was low because CPs often maintained close relationship with more than one supplier. Additionally, due to the basic nature of the raw materials used in the CPs process, there were many suppliers who were willing to lower their prices just for the opportunity to get a contract with the leaders in the industry. We believe that the Threat of Substitutes was medium due to the observed increase in sales of many alternatives to CSDs such as, beer, milk, coffee, bottled water, powdered drinks, teas, juices in the 1990s. This ultimately had a negative effect on the sales of CSDs and respectively the CPs industry; however, the cola segment of the CSD industry was able to maintain its dominance at 60%-70% market share. We believe that the threat of New Entrants was low. The CPs’ capital investment requirements were small in machinery, overhead, or labor; however, in order to achieve the scale of the major CPs they required a lot of time and