2304 Media Management - Cola Wars case After analysis of the CSD (carbonated soft drinks) and the bottler industry one can conclude that the threat of external forces are less present in the CSD industry than in the bottler industry. This results in higher attractiveness for the CSD industry. Group 7a: Erik Bengtson email@example.com Gustaf Sundlöf firstname.lastname@example.org Richard Gullberg email@example.com Allison Schiffman firstname.lastname@example.org
Presentation outline• CSD industry analyzed according to PortersFive Competitive Forces• Conclusion• Bottler industry analyzed according to PortersFive Competitive Forces• Conclusion and comparison• Future challenges for the industry
Threat of new entrantsBargaining power CSD Bargaining power of suppliers industry of buyers (Coke, Pepsi, etc) Threat of substitute products or services
CSD industry analysis CSDProducts relevant: Carbonated beverages industry (Coke, Pepsi, etc)Geographic scope: United States marketLevel of rivalry: Saturated market resulting in highrivalryMajor actors Coca-Cola and Pepsi accounted for 76%of the US CSD market share in 2000.(Yofﬁe, 2004. Cola Wars Continue)
Bargaining power of suppliers Bargaining power of suppliersSize matters - power of major corporations like Coke andPepsi provides a beneﬁcial advantage in negotiations.Standardized commodity products result in manysuppliers lowering switching costs for CSD companies.Bargaining power of suppliers -> lowThreat of new entrants Threat of new entrantsRelatively low capital investment requiredMajor capital investment needed for market success(marketing, building brand equity) -> relatively low threat
Bargaining power of buyers Bargaining power of buyersConcentrate producer -> Bottler -> retailer -> customerHence, bottlers are the buyersFranchise agreements with Coca-Cola and PepsiFor successful sales to retailers, bottlers are heavilydependant on the major CSD producer brands -> lowbargaining power Threat of Threat of substitutes substitute products or servicesSubstitutes: all non-alcoholic beverages (non-CSD)Given a ﬁxed consumption per capita, substitutes likebottled water and juices have kept rising, whilst theCSD industry has slowed down since the late 1990’s.-> high threat of substitutes
ConclusionsPorter analysis indicates multiple beneﬁcial forces(suppliers, buyers and new entrants).The CSD market has been a very lucrative andattractive industry for the past century.However emerging threats of substitutes and increasingrivalry within the industry, makes for a uncertain proﬁtpotential given the current strategy.
Threat of new entrantsBargaining power Bottler Bargaining power of suppliers industry of buyers Threat of substitute products or services
Bottler industry analysis Bottler industryProducts relevant: bottling service ofCSD concentrateGeographic scope: United States marketLevel of rivalry: Many bottlers of similar size, high exitbarriers due to committed resources resulting in highlevel of rivalry.
Bargaining power of suppliers Bargaining power of suppliersHeavily dependent on CSD producers result in veryhigh bargaining power of suppliers.Threat of new entrants Threat of new entrantsHigh capital investment to establish bottling plant andlong term contracts for existing bottlers result in lowthreat of new entrants.
Bargaining power of buyers Bargaining power of buyersBuyers sell the bottled products to end customers andthereby control the exposure of bottled productsdirectly inﬂuencing sales. High bargaining power ofbuyers.Threat of substitutes Threat of substitute products or servicesNo apparent threat of substitutes. LowSoda Stream?
Conclusions and comparisonProﬁtability differs greatly. Bottler proﬁtability is heavilyaffected by both suppliers and buyers high bargainingpower, resulting in low margins. CSD producers are lessinﬂuenced negatively by external forces leaving themwith higher margins.After ﬁve-force analysis one can conclude that the CSDindustry is more proﬁtable than the bottling industry.Attractiveness based on proﬁtability is greater with theCSD producers.
Future challenges for the industry->1990’s beneﬁcial rivalryRecently saturated market may decrease proﬁts due toﬁercer rivalry.Health issues (sugar related diseases) -> substitutesEnvironmental issues (plastic bottles) -> bottler marginsdecrease due to change of material”Finding a new pie” to avoid price competition
Sources:Readings:Porter, M.E., ”The Five Competitive Forces That ShapeCompetitive Strategy”, HBR, 2008.Yofﬁe, D.B., ”Cola Wars Continue: Coke and Pepsi in theTwenty-First Century”.Videos:Porter, M.E., ”The Five Forces that Shape Strategy”: http://www.youtube.com/watch?v=mYF2_FBCvXw