Cola WarsCoke and PepsiGyan PrakashBikash AcharyaVishal RanaAnkush TiwariPratap Reddy

Overview

Industry Background1886: John Pemberton 1893: Caleb Bradham Production and Distribution

Industry Background

Problems

RecommendationFocus on advertising and promotion to differentiate from competitor and to change the image and perception of cola to fit the healthy living trend

Supplier Power

Buyer PowerMajor buyers of CSD are bottlers and fast-food restaurantsLow bargaining power

The Threat of SubstitutesEase of substitution is highMany alternatives to CSDsDifferent diet brandsCustomer switching costs are low..BeerMilkCoffeeBottled WaterJuiceTeaPowdered DrinksWineSports DrinksDistilled SpiritsEnergy DrinksTap water

Historic Carbonated Soft Drink Consumption

The Threat of New Entry

Threat of Rivals

Rivalry ConclusionsThis level of rivalry is expected given the strength of other forces

Which Force is Changing the Most?

Negative health perception of CSD

Negative health perception of CSD

RecommendationAdjust strategy to align with new climate

OverviewIndustry analysis using Porters 5-Forces ModelBargaining power of buyers and sellersThreats of new entrants andsubstitutesCompetitive rivalry withing industryLevel of rivalry given strengths of other industry forcesForce that is changing the most in the industry

Industry BackgroundCoca-Cola was formulated in 1886 by John PembertonPepsi Cola was formulated in 1893 by Caleb BradhamProduction and distriubtion of CSDs involves concentrate producers, bottlers, retail channels, and suppliersBoth companies developed a franchise bottling system which changed over time

Supplier PowerLow bargaining power

Raw materials required in the production of CSD: Caramel coloring, phosphoric or critic acid, natural flavors, and caffeine

Commodities and easy to purchase in the market

Choose their suppliers based on their needs and costs

Low switching cost of suppliers

Buyer PowerLow bargaining powerMajor buyers of CSD: bottlers and fast-food restaurantsWeaken the bargaining power of bottlers by having a franchise agreement with themCokes Master Bottler Contract granted Coke the right to determine concentrate price and other terms of salesPepsis Master Bottler Contract granted Pepsi the right to force its bottlers to purchase raw materials from Pepsi at prices, and on terms and conditions, determined by PepsiWeaken the bargaining power of big fast-food restaurants by acquisitionPepsi acquired Pizza Hut (1978), Taco Bell (1986), and KFC (1986)Coke retained exclusively deal with Burger King and McDonald

The Threat of SubstitutesAlternatives to CSDsBeer, Milk, Coffee, Bottled Water, Juice, Tea, Powdered Drinks, Wine, Sports Drinks, Distilled Spirits, Energy Drinks, and Tap Water.Different diet brandsDiet, With Splenda, No Caffeine. Customer switching costs are low.Ease of substitution is high.This industry force is high.

Threat of Rivals

The Threat of New EntryHigh investment costs to build a concentrate manufacturing plant and bottling processes.Soft Drink bottlers fell from 2,000 to fewer than 300 in 2004. (High Competition.)Competition for shelf space.Concentrate makers raised prices.Trademark Infringements.Demand for CSDs seemed to have leveled off.This industry force is low.

Substitutes!

Starting in late 1990s, demand seemed to have leveled off

2005, Federal Nutrition Guidelines identified regular CSDs as the largest source of obesity causing sugars in the American diet

Schools banned the sale of soft drinks on their premises

Which Force is Changing the Most?

Substitutes!

Starting in late 1990s, demand seemed to have leveled off

2005, Federal Nutrition Guidelines identified regular CSDs as the largest source of obesity causing sugars in the American diet

Schools banned the sale of soft drinks on their premises

Which Force is Changing the Most?

*Water: low brand loyalty & high price sensitivity (vs. CSD)Therefore, expanding into other non-carb drinks not the answer**CSDs market share in 1990: 71% vs. 2004:60%