Rivalry Among Existing FirmsConcentrate Industry Main competitors Coca Cola: Market share US of 44,1% (2000) Pepsi Cola: Market share US of 31,4% (2000) Little product differences Low capital investment (machinery, overhead or labor costs) High operating costs (advertising, promotion, market research, bottler relations) Competition encourages and holds back profitability, innovation and growth
Power of SuppliersConcentrate Industry Input for Concentrates Low power as ingredients are majorly commodities Can Producers Low power due to high competition and a high number of available suppliers The main players on the market can “easily” backward integrate
Power of BuyersConcentrate Industry Bottlers often operate as franchises Low power due to dependency on brand name and input (concentrate formula) Companies can forward integrate
Threat of New EntrantsConcentrate Industry High entry barriers Economies of scale - strong brand names Large product portfolio available High brand identity and thus customers loyalty High initial capital investment for start-ups Suppliers are dedicated to existing players
Threat of SubstitutesConcentrate Industry Rather low Change in consumer needs (health trends) Bad press Mergers & acquisitions are possible due to high financial power High control of distribution channels by existing firms in the industry
Profitability AnalysisConcentrate Business vs Bottling Business Concentrate Business High Profitability for Coke and Pepsi Pretax profit as % of sales: 35% Low capital costs Duopoly, both are the major players in the market High growth potential through vertical integration possibilities and product innovations Bottling Business Rather low profitability Pretax profit as % of sales: 9% High capital costs High power of suppliers and thread of forward integration Higher Profitability for CB
Today’s Challenges Environmental debates (recycling) Health trends (low calories, caffeine) Internationalization Increasing Competition Globalization: Increasing Communication Expanding product portfolios (new flavors, etc.) International water quality Differing international formulas according to local taste
Bibliography Cola Wars Continue: Coke and Pepsi in the Twenty-first Century http://www.slideshare.net/SSEGroup9/cola-wars-2946604 http://www.slideshare.net/vameyer/sse-cola-wars-group-12 http://www.slideshare.net/chimprox/sse-colawars-group5-presentation Porter, M.E., “The Five Competitive Forces that Shape Competitive Strategy”, HBR, 2008.