Case: Cola Wars

Alayne Corum

Professor Perrault

Business Policy (MGMT 408)

9 September 2015

Thinking Question 1

Case: Cola Wars Continue, Coke and Pepsi in 2010

Using your knowledge of industry structure (Porter’s five forces) please compare the industry of the concentrate producers to the industry structure of the bottlers – which is more attractive – why?

        The Cola Wars case involves the many parts that goes into making and selling the carbonated soft drinks we know and love. The CSD industry is worth more than $74 billion in the United States and is dominated by Coke and Pepsi. Two major parts of the entire process involve two major industries- Concentrate Producers and Bottlers.  Based on the facts presented in the case, the industry structure of the Concentrate Producers is more attractive than the industry structure of the Bottlers.

        The Concentrate Producer is responsible for blending the raw materials, packaging the mixture in plastic canisters, and shipping those containers to the bottlers. Their most significant costs include advertising, promotion, market research, and bottler support. For entry into this industry, little capital investment is needed in machinery, overhead, and labor. On the contrary, location is an important factor because you need a massive space, which costs $50 to $100 million to build. Therefore there are medium barriers meaning medium threat of entry into the industry. Suppliers include machinery, raw materials as in sugar and artificial sweeteners, plastic canisters, and the trucks that deliver the canisters to the bottlers. There are several suppliers for each type of equipment needed, meaning there are many manufacturing companies to choose from, therefore supplier power is low.  The buyers for this industry are the bottlers. Buyer power is high because there is only one type of buyer  -the bottlers- so the concentrate producers will do everything to satisfy them. Competitors include Coke and Pepsi, who control 72% of the market, followed by Dr. Pepper Snapple Group (DPS), Cott Corporation, and other smaller companies. Rivalry among existing competitors is at a medium to high level because there are few bottling companies to choose from and each concentrate producer wants and needs to sell their product, but many companies also make agreements with specific bottlers to keep their business. This industry revolves around the function of making the actual product –soda- and therefore the substitutes include the makers of other drinks including tea, juice, etc. This makes the threat of substitutes at a medium level because the making of other drinks may be cheaper than soda and therefore the buyers can get the concentrate cheaper and make more of a profit, but soda drinks are also very popular and almost every outlet sells carbonated soft drinks.