Industry attractiveness for the concentrate suppliers is as follows: 1. Bargaining power of suppliers: The powers of suppliers are low for the CSD as the suppliers are fragmented. Materials like coloring, citric acid and caffeine have no differentiation. Also the switching costs to these are really low and these commodities are easily available in the market. Also there is minimalistic threat of forward integration. 2. Bargaining power of Buyers: Bottlers have very low bargaining power as both Coke and Pepsi determine the terms of the contract for pricing and other conditions. Also they have retained exclusive deals with food outlets. As a matter of fact, most voluminous bottling accounts were owned by these companies which gave them large negotiating powers. 3. Threat of substitutes: Threat of substitution is very high as there are numerous alternates to CSDs. There is a change in consumer behavior and people are switching to healthier drinks. The switching cost for the consumer is also really low. 4. Threat of new entry: There are high entry barriers as the investment for research, branding, advertising is very high. Also it is difficult to gain distributor access. And naturally there will be retaliation from existing dominant players in the strategic group. Therefore threat to new entry is low. 5. Threat of rivals: There is high intensity of rivalry due to slow industry growth and changing consumer tastes. Two equal sized companies competing for leadership makes the rivalry very high. Dimension of rivalry is based on price premium but more on branding. Industry attractiveness for the bottlers is as follows:
1. Bargaining power of suppliers: The strength of the suppliers is medium because CSD have consolidated small bottlers. CSD also maintain relations with multiple bottlers and vice versa. It is also true that CSD producers’ sales depend on the bottler’s competitiveness in the market. 2. Bargaining power of buyers: The strength of buyers is high as there are substitutes available. The switching costs are very low. Also that the markets in the developed nations are saturated. 3. Threat of substitutes: This threat is relatively low, as bottlers cannot be easily replaced by other marketing channels. Also fountains cannot be made available everywhere. Bottling component of sales is very high. 4. Threat of new entry: Barriers to entry are high because bottling is not really a profitable industry. Markets are saturated; it’s hard to gain distribution share/shelf space. Bottling is a very capital intensive industry. Also Coke and Pepsi have exclusive share of territories. 5. Threat of rivals: There is rivalry among bottlers of different brands rather than same brands because the territory has been exclusively divided by Coke and Pepsi. Also the exit barriers are high, which makes the rivalry intense.
As analysis using Porter’s five forces shows why the soft drink industry has been so profitable. Suppliers and buyers have not had more power over the industry than it has had over them. Internal rivalry, while seeming intense, has not eroded the profitability of the industry because of its concentration and the fact that the two major players have primarily competed on the basis of advertising and promotion and not price. New entrants: Entry is difficult both for reasons of scale and the strong brand identity of the current major players. Substitutes have not been close enough to take away significant market share, although the emergence of new substitutes may pose the largest threat to the industry’s profitability. Suppliers and Buyers
Suppliers to the soft drink industry are, for the most part, providing commodity products and thus have little power over the industry. Sugar, bottles and cans are homogeneous goods which can be obtained from many sources, and the aluminum can industry has been plagued by excess supply. The one necessary ingredient which is unique is the artificial sweetener;...
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