Cola Wars Continue - Coke & Pepsi in the Twenty-First Century
Essay by Harsh Vardhan • June 17, 2018 • Case Study • 670 Words (3 Pages) • 1,137 Views
Essay Preview: Cola Wars Continue - Coke & Pepsi in the Twenty-First Century
Competitive Strategy[pic 1]
2018-19 (Term-2)
Group Assignment 1
Cola Wars Continue:
Coke & Pepsi in the Twenty-First Century
Group – L12
Harsh Vardhan (61910582)
Oshin Aggarwal (61910336)
[pic 2]
Saroj Jadhav (61910789)
Suvigya Awasthi (61910536)
Q1. Why has the soft drink industry been so profitable?[pic 3]
[pic 4]
The soft drink industry has historically been a very profitable industry because the core product has a low cost to production, the consumption has witnessed a steady growth and the industry has been dominated by Coca-Cola and Pepsi for over a century now (which together hold more than 70% of
Porter’s Five Force analysis further demonstrates how the market forces favor high profitability in the Soft drink industry.
[pic 5][pic 6][pic 7][pic 8][pic 9]
Summary |
Cola Industry Facts |
the market share), creating almost a duopoly market.
[pic 10]
- Since the 1970s the cola industry has grown by an average of 3% year on year.
- From 1975 to 1995 Coke and Pepsi both achieved average annual growth of about 10%.
- The Americans consumed cola more than any other beverage.
- The competition between Coke and Pepsi increased the brand recognition for each other. We may conclude that marketing added to both companies profits rather than eating up.
- Coke and Pepsi both have an average Net profit/sales of about 10.65%.
- Combined market share of 75.5% in the year 2000.
Threat of
New
Entrants:
LOW
Switching costs are low.
[pic 11]
High number of suppliers.
[pic 12]
Bargaining | Competitive | |
Power of | ||
Rivalry: | ||
Suppliers: | ||
HIGH | ||
LOW | ||
[pic 13][pic 14]
Threat from
substitute
products:
LOW
High entry costs. High Brand Loyalty for Coke & Pepsi.
Market almost a duopoly
between Coke & Pepsi.
[pic 15]
Bargaining
[pic 16]
Power of
Buyers:
MODERATE
Diversification into Non-CSD drinks by existing players to protect from substitutes.
Q2. Compare and analyse the economics of the concentrate business to[pic 17]
the bottling business.
The concentrate business and bottling business in the US CSD market worked in close association with each other but differed in the following areas:
[pic 18]
• Low for Concentrate Producers, generally between | ||||
Capital | $25 million- $50 million. One plant could serve the | |||
entire US. Whereas it was High for Bottlers. Between | ||||
Investment | ||||
$25 million- $75 million. 80-85 plants required for the | ||||
entire US | ||||
[pic 19]
• Concentrate Producers focused on product planning, | ||||
Marketing | marketing research and advertising and made huge | |||
investments in them. Whereas, Bottlers focused more | ||||
Programs | ||||
on the consumer side of marketing which included | ||||
trade and consumer promotions | ||||
[pic 20]
Production | Concentrate Producers add artificial sweeteners while | |||
making their soda concentrates. Bottlers add sugar / | ||||
process | ||||
high fructose corn syrup | ||||
Concentrate | Bottler | |
Producer | (Dollars | |
(Dollars per case) | per case) | |
Net Sales | 0.71 | 5.80 |
COGS | 0.12 | 3.77 |
Gross Profit | 0.59 | 2.03 |
Selling & | 0.34 | 1.51 |
distribution | ||
expenses | ||
Net Profit | 0.25 | 0.52 |
[pic 21][pic 22][pic 23][pic 24][pic 25][pic 26][pic 27][pic 28][pic 29][pic 30][pic 31]
Even with a higher net sales for the Bottlers in the U.S, the net profit for the Concentrate Producers (35%) was higher than Bottlers (9%) because of the high COGS of Bottlers
Q3. Can Coke and Pepsi sustain their profit in future ? Why ?[pic 32]
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