5. Concentrate
Producer
• Key
produc+on
investment
areas
• Manufacturing
plant
• Customer
Development
Agreements
(CDA)
• Spent
for
adver+sing,
promo+on,
market
research
6. Bo.lers
•
Purchased
concentrate
•
Added
carbonated
water
and
high-‐fructose
corn
syrup
•
BoEled
or
canned
the
resul+ng
CSD
product
•
Delivered
it
to
customer
account
7. Suppliers
•
Coke
and
Pepsi
were
among
the
Metal
Can
industry’s
largest
customers.
•
Major
Can
producers-‐
Ball,
Rexam,
Crown
Cork
&
Seal
8. Retail
Channels
In
2004,
distribu+on
of
CSDs
in
U.S.
was
through:
•
•
Fountain
outlets(23.4%)
•
Vending
Machines(14.5%)
•
Mass
Merchandisers(11.8%)
•
Convenience
Stores
&Gas
Sta+ons(7.9%)
•
Super
Markets
(32.9%)
Other
outlets(9.5%)
9. Sales
through
Retail
Channel
Supermarkets
7.90%
9.50%
Fountain Outlets
32.90%
Vending Machines
11.80%
Mass Merchandisers
14.50%
23.40%
Convenience stores
and Gas Stations
Other Outlets
11. Bottlers UP!
— Relationship with the bottlers has been critical to
Pepsi’s success over Coke
— Coke raised its concentrate prices leaving the
bottlers a narrower proBit margin in the highly
price sensitive industry
12. 1.
Why
has
the
so<
drink
industry
been
so
profitable?
13. Threat Of New Entrants –Low
• Bottling Network
-‐ Have franchisee agreements with their existing bottlers
who have rights in a certain geographic area in perpetuity
•
Access to distribution is limited
•
High brand loyalty
• Advertising Spend
-‐huge advertising and marketing spend required
14. • Commodity Ingredients
• Majority of the U.S. CSDs were packed in
metal cans
- Coke and Pepsi were among the largest
customers for metal can industry
- Cans are commodity, 2-3 manufacturers
competed for single contract
• Plastic Bottles - 42% of CSD packaging
- Bargaining power of them was low
15. Bargaining power of Buyer -‐ moderate
Fountain and
Vending, 34%
Super
markets, 31%
Convenience
and Gas, 15%
Drug stores,
3%
Club stores,
4%
Mass
retailers, 4%
Supercenters,
9%
16. Supermarkets (Food stores)
- Several chain stores , Intense competition for
shelf space
Mass Merchandiser
- Have private label CSDs
- Extremely fragmented
Fountain
- Intense competition : Sacrificed profits to land
and keep Fountains
17. Threat of Substitutes - Low
• Large
number of substitutes were available
• Americans
drank more soda than any other
beverage with cola market share 71% in 1990
• Huge
advertising, brand equity, and making easy
availability of product reduced the threat of
substitutes
18. Extent of Rivalry - High
• Concentrate
Producer Industry – DUOPOLY
• Rest
of the competition too small to cause any
upheaval of pricing or industry structure
• Strategic
convergence
• Head-to-Head
• Coke
Competition between both
and Pepsi reinforced brand recognition of
each other
19. 2.
Compare
the
economics
of
the
concentrate
business
to
the
bo.ling
business:
why
is
the
profitability
so
different?
Concentrate Producers
• Blend raw material ingredients, packaged the mixture and
shipped those to the container bottler.
• A typical manufacturing plan costs $25 million to $
50million.
• Significant costs were for advertising, promotion, market
research and bottler relations
• Invest heavily in their trademarks and innovative marketing
campaign
20. Bottler
• Cost of sale is more in bottlers than concentrate producers
• Bottled or canned is the resulting CSD product
• Bottling process is capital - intensive plant, and involved
specialized lines
• Invest a lot of capital in trucks and distribution networks
• Purchase major inputs: packaging in can, bottle and class ,
sweetener …
21. 3.
How
has
the
compeIIon
between
Coke
and
Pepsi
affected
the
industry’s
profits?
• The war between Coca-cola and Pepsi enables
them to elevate their level of innovation
• Overseas operations after 1960s.
• Tw o c o m p a n i e s c h a n g e d f r o m A m e r i c a n
companies to international ones.
• Coca-cola and Pepsi share the most of the
market;
22. 3.
How
has
the
compeIIon
between
Coke
and
Pepsi
affected
the
industry’s
profits?
• Advertising budgets are significantly increased.
• The cola wars weaken the other competitors by
their advantages of plants and equipments
• Many small bottlers fold
• Coca-cola and Pepsi are both able to share the
market with high profits.
23. 4.
Can
Coke
and
Pepsi
sustain
their
profits
in
the
wake
of
fla.ening
demand
and
the
growing
popularity
of
non-‐CSDs?
Alternative beverages bring increasing profitability due to
the health consciousness of the consumers.
• Coca-cola and Pepsi can sustain their profits in the industry
• Adding new products allows larger margins and brings more
potential opportunities.
• Shifting the advertising budget and marketing slogans to
deliver the messages related to health consciousness also
increase the demand of the consumers.
24. Number of competitors
• 2 major players: Coke, Pepsi
• Combine market share: 74.8%
Competitive strategy
• Focused on advertising and promotion
• Main strengths from advertising campaigns
Industry Growth
• Average of 10% till 1990s and then demand leveled off
• Diversify to address beverage need
Competitor Diversity
• Coke and Pepsi are very similar products
• Similar changes made
25. Exit Barriers
• Relatively low costs to exit
• Contractual agreements with bottling companies
Proprietary Information
• Secret and famous cola recipe for both Coke and Pepsi
• Difficult to copy by other firms
Competitive Advantage
• Famous, international brands
• Partnered with fast food franchises as well
26. • Initially through the early 1960s Coke was the
winner.
• But passage of the time Pepsi creates strong
hold on the market.
• Coke was focused on overseas markets, while
Pepsi focused on the US grocery channel.
• Coke and Pepsi hold almost 75% the whole
market and 25% have other local CSDs or non
CSDs brands.
