Cola Wars Case Study

Colin Angele

Case 2 Cola Wars

Due 2/13/13

1. Why, historically has the soft drink industry been so profitable?

Historically the soft drink industry has been profitable for a number of reasons. The first reason being, competition. The cola wars have been raging since the early 1900's. Coke was the original player in this industry. Pepsi was in the top 5 but when bankrupt in 1923. They reopened there operations in 1932 and soon became a major player in the industry and starting the still ongoing cola war. These two companies are consistently trying to be better than the other one. This head lead to strategies such as expanding into emerging markets and creating long time relationships with other countries. Coke was the first to move into emerging markets. Their sales in these markets have continued to increase over the years making Coke more profitable and boosting the revenues. After years of Coke revenues in other countries with not competition from Pepsi, Pepsi adopted cokes strategy and started moving into untapped emerging markets such as Africa.

The Second reason the soft drink industry has been so profitable is there ability to create and produce what the consumer wants. Coke and Pepsi became associated with weight gain due to high sugar contents in the 1980's. In response to this, the two companies created diet colas that did not contain the sugars that were contributing to obesity. They also figured out how to target the man with a healthier soda. In the late 2000's Coke introduced Coke Zero. This was a product that appealed to men because it was healthier than regular Coke and didn't have "diet" in the title, which became associated with women who wanted to stay skinny.

2. Compare the economics of the concentrate business to that of the bottling business: Why is the profitability so different? (Hint, consider a "five-forces comparison)

Porter's 5 forces

1. Threat of new entrants

Concentrate- low because Coke ,Pepsi, and the other large concentrates are already established and have always increased market share which makes it hard for new people to enter the industry.

Bottling - The threat of new entrants is high. This is because people can start up small bottling companies that produce the bottles and fill them with concentrate at a cheaper price than ones currently in the industry.

2. Bargaining power of suppliers

Concentrate - The people that supple the ingredients for concentrate don't have a lot of bargaining power because the contents of the concentrate can be found almost anywhere around the globe. Sugar can be found around the globe along with food dye for coloring.

Bottling - The bargaining power of suppliers is high. This is because they are buying the concentrate to fill these bottles. With only few large companies in the cola industry, it makes it hard for the bottles to say no to one brand and move to the other.

3. Bargaining power of buyers

Concentrate - The bargaining power of buyers is low. There are many companies that would love to bottle and cola and sell it. If you are charging to high of a price, the concentrate company will simply just go somewhere else.

Bottling - The bargaining power of buyers is weak to medium. If the bottling company in the region is one of the only ones, then the retailer doesn't have much bargaining power. If there is many bottling companies within the area, then the buyer has more bargaining power because the can just switch distributers.

4.