SSE Cola Wars Group3 2

Cola Wars Continue: Coke and Pepsi in the Twenty-First Century Group3, Friday, January 23, 2009 Yi Xiong [email_address] Qifeng Pan [email_address] Muhammad Faraz Khan [email_address] Jae Won Jung [email_address]

Porter’s Five Force Analysis – Concentrate producer INDUSTRY COMPETITORS Rivalry among existing firms BUYERS - Low Two main buyers are Bottler and Fountain. Concentrate producers have cooperative merchandising agreements with bottlers. The number of bottlers had fallen continuously. Some of big food chain stores, such as Pizza hut and Kentucky Fried Chicken were obtained by concentrate producers. ENTRANTS - Low It’s hard for new entrants to market, because they need a lot of resources and distribution channels are dominated by previous concentrate producers. SUBSTITUTES - Low Two concentrate producers(Coke and Pepsi) have dominated the market. SUPPLIERS - Low Concentrate producers have established long term relationship with suppliers. Switching cost of suppliers is low. Concentrate producers often maintained relationships with more than one suppliers. Bargaining power of suppliers Threat of new entrants Bargaining power of buyers Threat of substitutes

New chances Consumers’ preference is changing : Non CSD market is growing fast International soft drink industry is growing day by day. (The annual growth rate of Brazil, Argentina, China and Philippines is over 6% in 1992 - 1999.) Retail price A concentrate producer’s most significant costs were for advertising, promotion, market research because of high competition bewteen two concentrate producers. The growth of CSD market had increased until 1999, but it looked saturated in 2000. But, their retail price has been increased or at least maintained. (1988 : $8.78 -> 2000 : $9.08) Is the soft drink industry profitable? Source: Daniel Andersson’s presentation Barging power of buyers, Barging power of suppliers, Threat of new entrants, Threat of substitutes are low, but Rivalry among the existing players is high Rivalry Market Growth

Porter’s Five Force Analysis – Bottlers INDUSTRY COMPETITORS Rivalry among existing firms BUYERS - High The CSD market in U.S. Seems to be saturated. Switching cost is somewhat low. Rivalry between Coca-cola and Pepsi is heavily severe. But the retail price of CSD has increased a little or been maintained. ENTRANTS - Low Bottlers’ profit is low. Making new distribution channels is hard and expensive. The number of bottlers is deceasing continuously. The market growth of CSD is low or decreased. SUBSTITUTES - Low Bottlers can not be easily replaced by other marketing channels. Selling soft drinks through bottlers still has a big portion of Concentrates’ sales. SUPPLIERS - Medium Concentrate producers have obtained small bottlers. Bottlers have maintained relationship with more than suppliers. Concentrate producers often maintained relationships with more than one suppliers. But Concentrate producers’ sales figure depend on bottlers’ competitiveness in the market. Bargaining power of suppliers Threat of new entrants Bargaining power of buyers Threat of substitutes

Local market Local bottlers in each countries are somwhat powerful. (Coke lost more than 10% of its market share to low-cost local drinks.) The number Rivalry among bottlers is also very high. Bottlers have paid marketing expenses – typically 50 % or more. (Net profit of CCE is 1.6% and PBG is just 2.9%.) The growth of CSD market had increased until 1999, but it looked saturated in 2000. The number of bottlers has decreased from over 2,000 in 1970 to less than 300 in 2000. Why is profitability so different between the concentrate business and the bottling business? Source: Daniel Andersson’s presentation Barging power of buyers is high, Barging power of suppliers is medium, and Threat of new entrants and substitutes are low, but Rivalry among the existing players is high. Rivalry Market Growth

Porters Five Forces of Competition
Buyer Power: Medium
Buyer: Consumer
The American consumed 53 gallons of Carbonated soft drinks per year.
The worldwide CSD consumption consistently increases.
The switching cost is low
A large number of buyers, and not concentrated.
Buyers have no ability to integrate backward

Supplier Power: Low
Supplier: raw material providers
Coca-cola and Pepsi have established long term relationship with their suppliers
The supplier groups depend heavily on the industry for its revenues.
The switch cost is low and then Coca cola and Pepsi can easily switch from one supplier to another
The product is standardized so the Coca-cola and Pepsi have many choices

Substitutes Power: High
the switch cost is low
a lot of other drink can be substitutes
it offers an attractive price-performance trade-off to the soft drink product market.

New Entrants: Low
The most important fact is Coca cola and Pepsi have dominated this market
Low possibility access to the established distributed channels ,etc.
Heavy invest capital required

Competitor Rivalry: High
the exist barriers are high
industry growth is slow

What challenges face these companies today?
The soda drink market is almost saturated.
More and more customers prefer non-soda drinks since they think it is not healthy.
We think of the competition between Coke and Pepsi, it enhanced the industry profitability, since the entire market grows bigger and bigger from beginning till now.

SSE Cola Wars Group3 2

by Jaewon Jung

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