Coca-Cola's competitive position analyzed through Porter's Five Forces
This paper is about Coca-Cola. The components of this paper are as follows. There is an executive summary, there is a PEST analysis and there is an analysis using the Michael Porter's Five Forces model. Conclusions are drawn about the nature of the company's external environment, and what these environmental conditions might mean for Coca-Cola's strategy.
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Coca-Cola External
Coca-Cola's industry conditions, according to the Five Forces analysis, are generally favorable. The environmental conditions, according to the PEST analysis, are also generally favorable. This means that with few obstacles, Coca-Cola should be able to achieve its business objectives.
NCAIS Code
The industry code for Coca-Cola is 312111: Soft Drink and Ice Manufacturing (U.S. Census Bureau, 2007).
Porter's Five Forces
Porter's Five Forces explain the ability of firms to earn profits in their industry. The bargaining power of suppliers is relatively low. Coca-Cola is a high volume buyer -- the highest in the industry -- and for most suppliers this volume is critical to the business. The inputs are not well-differentiated, so the switching costs for Coke are not especially high. The bargaining power of buyers is moderate. Most wholesale and retail buyers are all but obligated to carry Coca-Cola, given the popularity of the firm's products. Some of the largest buyers, like Wal-Mart or Target, do have buying power because of the volume of business that they do. Other than brand loyalty, however, consumers can switch very easily between Coke products and competing products. Many consumers are price sensitive, however, and there are many low-priced generic beverages on the market.
The intensity of rivalry in this industry is very high. Coca-Cola and Pepsi are the market leaders, and there are a host of generic products on the market as well. The two main firms have an intensely personal rivalry and very high exit costs, raising the stakes. In addition, the largest markets (such as the U.S.) are mature, meaning that the companies are battling intensely for a relatively fixed market. Both firms, however, are differentiated players and maintain relatively high prices, so the oligopoly situation does not cause these firms to sell at a loss in order to gain market share.
The soft drink industry is characterized by moderate barriers to entry. Anybody can make soda, but the primary barrier to entry is with distribution. It is almost impossible for a new firm to match the saturation-level distribution because of the high costs involved and the difficulty in establishing the brand awareness that would compel store owners to dedicate that kind of shelf space to a new product. Thus, while entering the industry is easy, being anywhere near competing with Coke is not. The threat of substitutes is very high. Consumers have myriad choices for refreshing beverages. Coca-Cola has responded to this trend by introducing a wide range of drinks itself, but the fact that consumers can substitute anything from tap water to alcoholic drinks for a Coca-Cola product means that Coke products must create a strong, unique value proposition in order to attract business. That can have a negative impact on profitability.
All told, the soft drink industry is a favorable one in which to operate, especially for the big two firms who have substantial advantages in bargaining power over buyers and suppliers. The industry is a slow growth industry with intense rivalries, but there are limits to new entrants and the leading firms have substantial bargaining power over both buyers and suppliers, allowing them to turn profits consistently.
Conclusion
Coca-Cola has a generally favorable environment and the company's inherent strength allows it to capture benefit from the environmental conditions. With few barriers to doing business, Coca-Cola is in a good position to grow globally and to continue to operate profitably in its more mature markets.
Works Cited:
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