The Cola Wars Continue: Coke and Pepsi in the Twenty First Century - Industry Analysis

Market structure (Industry): Duopoly

Purpose: Beverages (Carbonated soft drinks)

Problems:

·         Flattening .falling Domestic sales

·         Revenue streams

·         External Environment (competition)

Competition: Milk, Coffee, Bottled water, Juices, Tea, Powdered drinks, Sports Drinks

To understand the problem in an industry, we first need to understand the value chain of this industry, which is as given below:

Concentrate producersàBottlersàRetail ChannelsàSuppliers (Restaurant, Offices, Fountain-machines)àConsumers

We then use The Porter's Five Forces tool for understanding where power lies in this value chain in the industry.Five Forces Analysis assumes that there are five important forces that determine competitive power in a business situation. They are:

1.      Barrier to entries

2.      Substitutes

3.      Bargaining power of buyer

4.      Bargaining power  of suppliers

5.      Rivalry

We will now analyze each element in the value chain of this industry through Porters Five Forces.

With respect to Concentrated producers(CP):

1.      Barriers to entry: Very high, as these players are deeply rooted, difficult to start a new cola company and high on investment.

2.      Substitutes: Substitutability in terms of economics and use is almost perfect.

3.      Bargaining Power of supplier: Very high, as they are the producers of major ingredients , directly deals with Bottlers and control the supply chain. They also carry out major chunk of advertising , promotion and market research

4.      Bargaining power of buyer: Low because Tied closely to CP’s, Consolidation of bottlers.

5.      Rivalry: Low as there is no scope for REAL differentiation. Only Fancy/apparent differentiation happens.

With respect to Bottlers:

1.      Barriers to entry: High, as high investment is involved(specialized plants for specific CP, Major CP being COKE), only few independent bottlers left.

2.      Substitutes: Moderate, Direct concentrate delivery, fountain sales don’t influence bottlers sales

3.      Bargaining Power of supplier: Low, as the bottlers are geographically scattered and pressure from CP’s forced them to cater only to the respective surrounding

4.      Bargaining power of buyer: Low as Coke bound them with long term contracts and gave better technology, which didn’t allow bottlers to cater to competition

5.      Rivalry: Among bottlers competition was high.

Contributed by:

Ayushi Thakur

Section A

Strategic Management

Class of 2013-15