sse cola wars_group8b_2011

Coca Cola Wars

- An analysis of the soda drink industry in the twenty-first century

Course 2304 Media Management By Group 8b; Dr. Robin Teigland Charles Florman Lindeberg, chafl@kth.se

Karin Rimbäck. 21405@live.hhs.seJohanna Sjöblom, 21183@live.hhs.seCarl Waldenor, 21370@live.hhs.se

The Soda Drink Network (dynamic)

• Restaurants• Vending Machines• Supermarkets

• Fountains

Concentrate Industry

Suppliers

• Raw material – i.e. caramel coloring, phospheric, caffeine• Fragmented market• Low risk of forward integration

Low influence on the market

Concentrate Industry

Buyers• Direct buyers – Bottlers

– Number of buyers compared to sellers are high (300 vs. 2 big)– High threat of suppliers to forward integrate– Low threat of buyers to backward integrate

• Indirect buyers – i.e. Supermarkets, Vending machines – High ordering volume– High profit margin in most cases– However, the strong brands leads to a Pull strategy that lowers the

indirect buyers’ influence1.

MEDIATE influence on the market

1. Barbara de Lollis, USA Today

Concentrate Industry

Threat of entry

• High capital requirements (25–50 mn $/plant)• Access to distribution channels – interlocked activities2

• Economies of scale• Product differentiation and strong brands

LOW threat

2. Porter, 1996

Concentrate IndustryThreat of Substitutes

Direct Substitutes - The concentrate blendThe secret blend of the concentrates makes it impossible to copy the Coca Cola or Pepsi taste and therefore the threat is considered to be low.

Indirect Substitutes – The soft drink • Increasing consumption of other beverages such as bottled water, tea, coffee, juice

e.g. • The Concentrate Producers’ diversification and expansion of product portfolio

substitutes less of a threat for existing actors.

MEDIATE influence on the market

Concentrate Industry

Rivalry Among Existing Firms• Extremely concentrated revenues.

Coca Cola and Pepsi Cola claimed 75,5 % of the U.S. CSD market in sales volume in 2000.

• Characteristics of a duopoly• Buyers switching costs between the largest CSD brands are

low

HIGH rivalry

Concentrate Industry - Summary

HIGH rivalry

Buyers MEDIATE Influence

Suppliers LOW

Influence

Threat of entry

LOW Influence

Substitues MEDIATE Influence

Bottling Industry

Rivalry (high)• 7000 bottlers in 1970,

300 bottlers in 2000. High industry concentration.

• Brand identity low

Entrants (low threat)• Entry barriers high due to

capital intensity • Margins very low – not

attractive• Brand identity low (generic)

Buyers (high power)• Some big retailer chains have

much bargaining power (e.g. Wal-mart)

• Shelf space; low power

Supplier (mediate power)• Pepsi & CC (biggest

customers) negotiate with can & sweetener suppliers

• Bottlers have relationships with several suppliers

• However, Pepsi & CC have large supplier power over the bottlers

Substitutes (med./low)• Fountains• Concentrate producers will

always need bottling

Concentrate vs Bottling Industry

Percentage of sales

Sales 100 %COGS (17 %)Gross profit 83 %Selling & delivery (2 %)Marketing (39 %)General/admin (8 %)Pre-tax margin 35 %

Industry Analysis

$ Percentage of sales

Sales 100 %COGS (65 %)Gross profit 35 %Selling & delivery (21 %)Marketing (2 %)General/admin (4 %)Pre-tax margin 9 %

Challenges

• The consumers are getting more health conscious

• The consumers wants a wide variety of products

The Coke war

• The war has made both Coca Cola and Pepsi more profitable.3

3. David B. Yoffie, 2004