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Sse cola wars_group8b_2011
 

Sse cola wars_group8b_2011

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A Porter-analysis of concentrates and bottles within the soda industry.

A Porter-analysis of concentrates and bottles within the soda industry.

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  • The threat from other beverages such as bottled water, tea, coffee, energy drinks e.g. was considered to be increasingly high 10-15 years ago. However, looking at the threats for Coca Cola and Pepsi, they responded by expanding their offerings; Coke in alliance with Nestea and aquisitions as Minute Maid Pepsi with their internal product innovation of Orange Slice.- The Concentrate Producers’ vigorous diversification and expansion of product portfolio  substitutes less of a threat relatively to previous years.
  • Revenues in this industry are very concentrated , if you look at Exhibit 3, one could conclude that Coca Cola company and Pepsi Cola together with theirassociated bottlers, command 75,5% of the market in 2000. Adding in the next tier of soft drinkcompanies, the top six controlled 89% of the market. You could go as far as describing the market as a duopoly with Coke and Pepsi, resulting in positive economic profits for them two. To be sure, therewas tough competition between Coke and Pepsi for market share, and this occasionally hampered profitability.For example, price wars resulted in weak brand loyalty and eroded margins for both companies in the 1980s.The Pepsi Challenge, meanwhile, affected market share without hampering per case profitability, as Pepsi wasable to compete on attributes other than price.
  • Which makes the consumers turn to non carbonated products. Both coke and Pepsi has vigorously expanded their portfoliosAnd they are getting used to having a wide variety of products like lemon-lime, juice, bottled water and coffee. All of these has taken both sales and shelf space from coke and pepsi. But these new non-cola, non carbs offers growth potential today The non-carborated drinks stands for the growth today
  • The war has made “Cola” the dominating soft drink which benefits both companies.

Sse cola wars_group8b_2011 Sse cola wars_group8b_2011 Presentation Transcript

  • Coca Cola Wars
    - An analysis of the soda drink industry in the twenty-first century
    Course 2304 Media Management By Group 8b;
    Dr. Robin Teigland Charles Florman Lindeberg, chafl@kth.se
    Karin Rimbäck. 21405@live.hhs.se
    Johanna Sjöblom, 21183@live.hhs.se
    Carl Waldenor, 21370@live.hhs.se
  • The Soda Drink Network (dynamic)
    • Restaurants
    • Vending Machines
    • Supermarkets
    • Fountains
  • Concentrate Industry
    Suppliers
    • Raw material – i.e. caramelcoloring, phospheric, caffeine
    • Fragmented market
    • Low risk of forward integration
    Lowinfluence on the market
  • Concentrate Industry
    Buyers
    • Direct buyers – Bottlers
    • Number of buyers compared to sellers are high (300 vs. 2 big)
    • High threat of suppliers to forward integrate
    • Low threat of buyers to backward integrate
    • Indirect buyers – i.e. Supermarkets, Vending machines
    • High ordering volume
    • High profit margin in most cases
    • However, the strong brands leads to a Pull strategy that lowers the indirect buyers’ influence1.
    MEDIATE influence on the market
    1. Barbara de Lollis, USA Today
  • Concentrate Industry
    Threat of entry
    • High capital requirements (25–50 mn $/plant)
    • Access to distribution channels – interlocked activities2
    • Economies of scale
    • Product differentiation and strong brands
    LOW threat
    2. Porter, 1996
  • Concentrate Industry
    Threat of Substitutes
    Direct Substitutes - The concentrate blend
    The secret blend of the concentrates makes it impossible to copy the Coca Cola or Pepsi taste and therefore the threat is considered to be low.
    Indirect Substitutes – The soft drink
    • Increasing consumption of other beverages such as bottled water, tea, coffee, juice e.g.
    • The Concentrate Producers’ diversification and expansion of product portfolio  substitutes less of a threat for existing actors.
    MEDIATEinfluence on the market
  • Concentrate Industry
    Rivalry Among Existing Firms
    • Extremely concentrated revenues.
    Coca Cola and Pepsi Cola claimed 75,5 % of the U.S. CSD market in sales volume in 2000.
    • Characteristics of a duopoly
    • Buyers switching costs between the largest CSD brands are low
    HIGHrivalry
  • Concentrate Industry - Summary
    Suppliers LOW Influence
    HIGH rivalry
    Substitues MEDIATE Influence
    Threat of entry LOW Influence
    Buyers MEDIATE Influence
  • Bottling Industry
    Entrants (low threat)
    • Entry barriers high due to capital intensity
    • Margins very low – not attractive
    • Brand identity low (generic)
    Rivalry (high)
    Buyers (high power)
    Supplier (mediate power)
    • 7000 bottlers in 1970, 300 bottlers in 2000. High industry concentration.
    • Brand identity low
    • Some big retailer chains have much bargaining power (e.g. Wal-mart)
    • Shelf space; low power
    • Pepsi & CC (biggest customers) negotiate with can & sweetener suppliers
    • Bottlers have relationships with several suppliers
    • However, Pepsi & CC have large supplier power over the bottlers
    Substitutes (med./low)
    • Fountains
    • Concentrate producers will always need bottling
  • Concentrate vs Bottling Industry
    Industry
    Analysis
    Percentage of sales
    Sales 100 %COGS (17 %)
    Gross profit 83 %
    Selling & delivery (2 %)
    Marketing (39 %)
    General/admin (8 %)
    Pre-tax margin 35 %
    $
    Percentage of sales
    Sales 100 %COGS (65 %)
    Gross profit 35 %
    Selling & delivery (21 %)
    Marketing (2 %)
    General/admin (4 %)
    Pre-tax margin 9 %
  • Challenges
    The consumers are getting more health conscious
    The consumers wants a wide variety of products
  • The Coke war
    The war has made both Coca Cola and Pepsi more profitable.3
    3. David B. Yoffie, 2004