Cola Wars
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Reasons for profitability in the soft drink industryOnly a few major players in the market (Coca-Cola, PepsiCo, DPS Group)Strategic partnerships with restaurants for exclusive pouring rightsHigh market demand Low cost of product(concentrate)High profit marginsSeveral areas for competition: grocery, discount retailers, vending machines, restaurantsEconomics: Concentrate vs. BottlingConcentrate:Low cost of overhead-inputs, labor, machineryLimited inputs-caramel coloring, phosphoric or citric acid, natural flavors, caffeinePackaged concentrate, ship to bottlerFinanced higher portions of marketing programs (in conjunction with bottlers)Large staff focused on sales, company standards, and process improvementsGross Profit-78%BottlingCapital IntensiveHigh overhead for laborLimited number of inputs-concentrate, syrup, sweeteners, packaging materialsHigh cost and multiple options of packagingTypically pays 50% or more of promotional/advertising costsGross Profit-42%Operating Margin-8%Profitability of the concentrate vs. bottlers differs significantly because of the cost of overhead to produce the products, as well as the number of inputs required for each. Additionally, the cost and multiple options of the packaging, as well as the selling and delivery expense were significantly higher for the bottler $0.85 per case, vs. the concentrate producer $0.00. Impact of Coke and Pepsi on the Soft Drink Industry
Essentially Coke and Pepsi have a duopoly on the soft drink industry (71.8% market share in combined unit case volume). The more successful each company becomes, the more the other one has to keep up. The relationship is a perfect push-pull, and has encouraged both companies to continually seek innovation both in their product assortment as well as their business models, and processes. Additionally, both companies are now focused on the growth of the international market share, which is a contributing factor the continuation of the Cola Wars. Maintaining ProfitabilityIn order to sustain profits in the wake of the flattening demand and the growth of non-CSD beverages both companies should continue to explore the international market and the opportunities that may provide. Both companies should continue to align their product offering to meet the consumer demand. They should revisit their processes and see if there is any way to cut cost, thus increasing profit margin. Overall they must continue to shift their model to ensure that the consumer is receiving the product they want from the brands they trust.