Carbonated Soft Drinks (CSD) was preferred
to any other beverage in America. The consumption grew from 23 gallons in 1970
to 53 gallons in 2000(growing at a rate of 3% every year).Although many
substitutes existed in the market, Americans preferred CSD’s to any other
beverage.
CSD typically consisted of a flavour base and artificial sweetener provided by Concentrate Producers, carbonated water and sugar syrup added by the bottlers. Retail channels and suppliers were also part of production and distribution activities.
The Concentrate Providers had a secret formula each for Pepsi and Coke (CSD). The concentrate produced by them served as an input for bottlers who added carbonated water and sugar syrup into the final product. Thus, the bottlers are dependent on the Concentrate producers to complete their drink.
Since CSD is the most preferred beverage, bottlers have no choice but to cater to concentrate producers’ needs, else they would lose out on their clients (the concentrate producers for CSD).This would increase their costs (because of loss in business) especially their fixed costs.
Bottling is capital Intensive unlike Concentrate Production. They cannot afford to displease the concentrate producers who provide them business. Apart from the concentrate that was obtained from the concentrate producers, bottlers needed other raw materials like carbonated water and sugar. It is the concentrate producers who negotiate with the suppliers of these raw materials to encourage reliable supply, faster delivery and lower prices. This played a major role in increasing the revenues of the bottlers.
Moreover, concentrate producers are actively involved in product planning, market research and advertising. This helps in estimation of demand for existing product and possible creation of demand, which meant more business for CSD manufacturers including bottlers.
Bottlers for CSD were the major clients for either Pepsi or Coke. They followed a franchised bottling network system. Coca Cola and Pepsi priced their concentrates (an input for the bottlers) almost equal. Thus any change in the prices would affect the cost structure of the bottlers and hence their profits.
The concentrate producers have an option of forward integration; they can foray into bottling business as well. Thus in order to keep themselves up and running, bottlers had to work in line with the concentrate producers’ demands.
Based on the above mentioned facts, we can conclude that the bottlers were at the mercy of concentrate producers so as to maintain their business.
CSD typically consisted of a flavour base and artificial sweetener provided by Concentrate Producers, carbonated water and sugar syrup added by the bottlers. Retail channels and suppliers were also part of production and distribution activities.
The Concentrate Providers had a secret formula each for Pepsi and Coke (CSD). The concentrate produced by them served as an input for bottlers who added carbonated water and sugar syrup into the final product. Thus, the bottlers are dependent on the Concentrate producers to complete their drink.
Since CSD is the most preferred beverage, bottlers have no choice but to cater to concentrate producers’ needs, else they would lose out on their clients (the concentrate producers for CSD).This would increase their costs (because of loss in business) especially their fixed costs.
Bottling is capital Intensive unlike Concentrate Production. They cannot afford to displease the concentrate producers who provide them business. Apart from the concentrate that was obtained from the concentrate producers, bottlers needed other raw materials like carbonated water and sugar. It is the concentrate producers who negotiate with the suppliers of these raw materials to encourage reliable supply, faster delivery and lower prices. This played a major role in increasing the revenues of the bottlers.
Moreover, concentrate producers are actively involved in product planning, market research and advertising. This helps in estimation of demand for existing product and possible creation of demand, which meant more business for CSD manufacturers including bottlers.
Bottlers for CSD were the major clients for either Pepsi or Coke. They followed a franchised bottling network system. Coca Cola and Pepsi priced their concentrates (an input for the bottlers) almost equal. Thus any change in the prices would affect the cost structure of the bottlers and hence their profits.
The concentrate producers have an option of forward integration; they can foray into bottling business as well. Thus in order to keep themselves up and running, bottlers had to work in line with the concentrate producers’ demands.
Based on the above mentioned facts, we can conclude that the bottlers were at the mercy of concentrate producers so as to maintain their business.
Contributed By:
Aparna Shankar
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