Cola Wars Continue – Coke & Pepsi in the Twenty-First Century
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Competitive Strategy[pic 1]2018-19 (Term-2)Group Assignment 1Cola Wars Continue:Coke & Pepsi in the Twenty-First CenturyGroup – L12Harsh 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% ofPorter’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]SummaryCola Industry Factsthe 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 ofNewEntrants:LOWSwitching costs are low.[pic 11]High number of suppliers.[pic 12]BargainingCompetitivePower ofRivalry:Suppliers:HIGHLOW[pic 13][pic 14]Threat fromsubstituteproducts:LOWHigh entry costs. High Brand Loyalty for Coke & Pepsi.Market almost a duopoly
between Coke & Pepsi.[pic 15]Bargaining[pic 16]Power ofBuyers:MODERATEDiversification 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 betweenCapital$25 million- $50 million. One plant could serve theentire US. Whereas it was High for Bottlers. BetweenInvestment$25 million- $75 million. 80-85 plants required for theentire US[pic 19]• Concentrate Producers focused on product planning,Marketingmarketing research and advertising and made hugeinvestments in them. Whereas, Bottlers focused moreProgramson the consumer side of marketing which includedtrade and consumer promotions[pic 20]ProductionConcentrate Producers add artificial sweeteners whilemaking their soda concentrates. Bottlers add sugar /processhigh fructose corn syrupConcentrateBottlerProducer(Dollars(Dollars per case)per case)Net Sales0.715.80COGS0.123.77Gross Profit0.592.03Selling &0.341.51distributionexpensesNet Profit0.250.52[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 BottlersQ3. Can Coke and Pepsi sustain their profit in future ? Why ?[pic 32]