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Cola Wars Continue: Coke and Pepsi in 2010
Harvard Business Case 9-711-462
Five Forces in the cola industry: Porter's Five Forces Framework
Power of buyers
For concentrate owners: Strong. The power of buyers is extremely strong within the soda industry, given that consumers can quickly shift their alliance from one beverage to another. Also, cola is not strictly a 'necessity' as a product -- no one needs to drink soda, and consumers can easily eliminate it from their budgets if necessary.
For bottlers: Strong as well. Bottlers are extremely dependent upon soda manufacturers for their business, given that they are among bottlers' largest customers.
Power of suppliers
For concentrate owners: Medium. Concentrate owners broker agreements with large and small retailers, agreeing to assume costs of marketing in exchange for shelf space. They have the right to grant exclusive territories to their bottlers and to prohibit bottlers from selling competitor products. They set the specifications for the bottlers in terms of how they want the bottlers to present their product. Concentrators have had to renegotiate agreements to gain additional leverage in pricing their concentrates and syrups, rather than solely allow this to be determined by market conditions. But the major soda companies can always buy up smaller bottlers and sell them to larger bottlers to consolidate their networks, which give them considerable leverage in their dealings with bottlers.
For bottlers: Strong. Bottlers that can broker longstanding agreements with the soda companies have some power. Bottlers can theoretically choose whether to market a new product. They also have some leverage in deciding what type of sweetener to use when manufacturing the product, to cut input costs. Smaller bottlers find themselves struggling to keep up with the needed advertising and promotional requirements...
A major soda concentrator's drive to consolidate the supply chain is ultimately more powerful than the ability of bottlers to negotiate, given the power of the soda companies to pressure the bottlers to present their product in a specific manner. The drive of Coke and Pepsi to create more streamlined production networks has put smaller, independent bottlers out of business.
Competitive rivalry
For concentrate owners: Strong. Competitive rivalry between soda companies is fierce. First and foremost, consumption of soda has been steadily declining in recent years, effectively ensuring that there is greater competition for a narrower range of consumers. Despite the rhetoric of 'Cola Wars,' there is really very little difference between the products sold by the major soda manufacturers. This intensifies competitive rivalry, given that they must work extremely hard to convince consumers that 'Coke is it' or that Pepsi is truly the drink of the 'Next Generation.'
For bottlers: Medium-to-strong. During earlier eras, bottlers' rights to exclusive geographic territories had the effect of reducing competition, giving them security for their contracts with the major soda companies in perpetuity. Back then, competition between bottlers was less intense than that of concentrators for consumers. However, the competition between the soda companies had a devastating impact upon the economic situation of the bottlers. They were forced to deal with an ever-expanding array of new products and sizes demanded by the major soda companies, and small bottlers simply could not keep up.
Threat of substitutes
For concentrate owners: Strong. Cola choices are not merely framed as a choice of Coke vs. Pepsi, although the bulk of media coverage might suggest this -- consumers can choose…
Cola Wars Threat of Entry of New Competition: Low. The economy of scale within the CSD industry requires enormous amount of capitol to enter into this market, making this threat relatively insignificant. - Threat of Substitutes: High. Colas are now part of many different selections of drinks. Health and medical experts also contribute to this theat. -Threat of Customer Buying Power: Medium. It appears the customer base will buy soft drinks with expendable cash, but harsh
Cola Wars: Case Write-Up For many decades, the market for cola could be easily summed up as follows: Coca-Cola vs. Pepsi-Cola. Although Coke clearly dominated, Pepsi was a strong 'also ran,' particularly after branding itself as the taste of the Next Generation. However, in the 1990s, the palates of American consumers began to change, resulting in a sharp leveling off, and then a decline in soda consumption. The major soft drink
Instead, the Cola Wars helped the industry grow. In 2000, for example, 41% of total non-alcoholic beverages sold were CSDs. In the late 1990s and into the 21st century, the drinks with high growth (and media hype) were non-carbonated juices, sports drinks, tea drinks, dairy drinks, and bottled water. Pepsi dominated this market with Gatorade, Lipton and Aquafina. The bottlers were also required to reinvest in more complex equipment
Increasing their product lines with good products will increase their sales around the world. The biggest threat that Coca-Cola faces is the intense competition that exists within the industry. Coca-Cola has three main competitors, these being: PepsiCo, Cadbury Schweppes, and the Cott Corporation. All of these companies have products that compete with Coca-Cola products around the world. The competition between Coca-Cola and Pepsi has dominated the industry for more than
("Contemporary Trends in Corporate Design," 2001) Pepsi's second era of expansion in the 1970's transpired when domestic markets at its corporate home base had become stagnant. Foreign markets were growing much faster than domestic markets and thus a source of greater volume of sales. It wished to maneuver itself ahead of its rival Coca-Cola by dominating the world, if it could not immediately dominate the domestic, American market. Globalization then
Coca Cola Company The organization of choice for this paper is the Coca-Cola Company that is operating in beverage industry for more than a century principally manufacturing, distributing, and marketing nonalcoholic beverages globally. It mainly offers sparkling and still beverages. The Coca-Cola Company is a USA-based company, headquartered in Atlanta, Georgia and founded in 1886. Amongst the market leaders in the beverage industry, Coca-Cola Company fights to remain on the top. Keeping