Case 1 Cola Wars ContinueGroup 4Erika Brag (20200) Anna Ohlsson (20313) Xin Guo (70397) Liang Wang (70404)

2

Major Participants involved the production and distribution of CSDs

Concentrate producers Bottlers Retailer channels Suppliers

3

Concentrate Industry

Dependent on:

Technology: R&D for soft drinks recipes Buyers: customer base, retailers,

distributors Geographic location of production,

outsourcing. Local distribution channels

http://www.youtube.com/watch?v=muH-zcOYnFc

Porter’s Five Forces (I)

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THREAT OF ENTRY• CSD market

• More profitable to produce CSDs other than cola• Time and capital

requirements for building of brand image /

recognition /Customer loyalties

• Economies of scale• High profit margins

compared to bottlers• Switching costs

• Product differentiation and positioning for success

• Access to distribution channels, contracts,

retaliation• Legal/ regulatory barriers

• Cost disadvantages dependent on scales

SUBSTITUTECOMPETITION

• Buyers’ propensity to substitute

• Substitutes: non alcoholic

Beverages ( tea, coffee…)• Relative prices &

performance of substitutes

BUYER POWER• Buyers’ price sensitivity• Low price, fast decision

making• Large customer base

• Relative bargaining power

INDUSTRY RIVALRY• Concentration

• Competitors: All CSDs (red bull…)

• Coca Cola and Pepsi are market leaders brands• Diversity of competitors

• Product differentiation• Excess capacity &

exit barriers• Cost conditions for

competition (advertising…)

SUPPLIER POWER• Suppliers of ingredients / raw

material • Not very high supplier power• Suppliers’ price sensitivity • Relative bargaining power

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Bottling Business Brand distribution strategy---”Direct Store Door”

(Industrial leaders) bottler’s relationship with retail trade networks is

crucial for brand availability and maintenance. Franchised bottling networks for industrial

leaders Cooperative merchandising agreement---promote

soft drink sales Bottlers need to adapt to Coca Cola and Pepsi

demands Higher opportunities for local bottlers (no direct

store door delivery from brands (DSD) ) Higher demand for CSDs and therefore bottles, in

countries with higher customer base ex: china

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Porter’s Five Forces (II)

THREAT OF ENTRY• Producers started to

launch bottling business: Pepsi Bottling

• Switching barriers• Contracts with

producers• Relationships with

material suppliers • Economic conditions,

high costs of sale• Packaging technology

and cost threats

SUBSTITUTECOMPETITION

• Relative prices &

performance of substitutes• Restaurants

automatic dispensers (Mc

Donalds…)

BUYER POWER• Long term relationship

with producers• Relationship based

INDUSTRY RIVALRY• Producers have

more than one bottling suppliers

• Competition based on relationships

SUPPLIER POWER• Two or three can

manufacturers competed for a single contract

Buyers• Long term

relationship with customers

• Dependence on suppliers

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Economics comparison: Concentrate Producers and Bottlers

2.90%

1.60%

10.60%

10.70%

0.00%2.00%4.00%6.00%8.00%10.00%12.00%

Pepsi Bottling Group

Coca Cola Enterprises

Pepsi Cola Company

Coca Cola Companies

Net profit/sales (year 2000)

Net profit/sales (year 2000)

Source: Company annual reports.

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Attractiveness

Concentrate Producers (more) Higher industrial profit margins Lower cost for production Few inputs from suppliers-less rely on suppliers More costs for advertising, promotion, and

bottling relationship -more external relationship- high risks but high net profit

Bottlers: High dependence on producers-Relationship with

producers More inputs(packaging and sweeten) -High

reliable with suppliers

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Challenges

Repositioning of Cola Industry http://www.youtube.com/watch?v=YoMQjc

OhzkU Jack Trout Q&A: Cola Wars