Sse cola wars_group8b_2011

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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

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

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