Cola Wars Continue Media Management Camilla Minnhagen G östa Carlberg Xuan Zhao Hengchong Zhang January 19, 2010
Is the concentrate industry profitable ?
Porter’s five forces of competition SUPPLIERS POTENTIAL ENTRANTS SUBSTITUTES BUYERS INDUSTRY COMPETITORS Rivalry among existing firms Bargaining power of suppliers Bargaining power of buyers Threat of new entrants Threat of substitutes
It’s difficult for stores to not sell important brands like Coca Cola, but in distributors are also quite few on the Swedish market so they have a lot of power against small unknown brands
The buyers are big food chains and restaurants as well as small entrepreneurs. In Sweden ICA is a very dominant player together with Coop and Axfood
Bargaining power of suppliers
The economies of scale is good, but it costs to defend your market share
Strong customer loyalties if your brand is strong
There is limited access to distribution channels since companies like Coca Cola have agreements with all important players
Threat of new entrants
Low legal barriers- it’s coke
The capital requirements for a concentrate producer such Coca Cola is low. One plant costs about 25-50 million to build and can provide the whole US with concentrate.
There is low switching costs since it’s easy for consumers to choose another product
Threat of new entrants
A substitute is always a threat within the beverage industry since it’s easy to take an other product. After al, it has the same function. It should taste could, and make you less thirsty. Competitors are fighting with better prices and products. Red Bull is an example of a new innovation that “came out of nowhere”.
Threat of substitutes
The product portfolio could be seen as highly differentiated for big brand like Coca Cola
The competition between local breweries is quite high for well known brands
Bargaining power of buyers
You have a few quite balanced competitors on the concentrate business
The growth of the industry is low and are just above average GDP
The differentiation is sometimes high, but the switching costs is low
Rivalry among existing firms
All this leads to high rivalry between the firms which affects the companies strategies negative for example more marketing costs less profit low profit potential for other competitors.
A big problem for huge companies is that there is few line to hide behind, which you can defend you market share from. A new company’s brand can become cool and interesting just because the brand is new and unknown.
Example: Red Bull
Why is profitability so different between the concentrate business and the bottling business?
Cocentrate producers vs Bottling Plants
What challenges face these companies today?
financial crisis in the world
slow growth in sales volume
some other none-cola beverage into the market
The effect of the competition
The profit of the industry grows very slowly and the two companies take most of the market share.
CSD consumption of the total beverage consumption slowly decreases.