Cola Case

Five Forces Analyses

1. Concentrate producers

Industry competitors: The growth rate of the industry is slow, with an average of 3% per year. High level of competition is a result of slow industry growth. Besides, there are hundreds of local manufacturers in the U.S. soft drink industry. As there are many competitors, the level of competition is high.

Buyers: Bottlers are the buyers for concentrate. They use concentrate to produce CSDs products. Their bargaining power is low because they do not have information advantage over the seller, i.e. concentrate producers. Producers, such as Coke and Pepsi determine the price of concentrate and regularly raise the price, often by more than the increase in inflation.

Suppliers: The inputs for concentrate producers are consisted of caramel coloring, phosphoric or citric acid, natural flavours, and caffeine. These suppliers are fragmented, and they did not differentiate their products. Therefore, the bargaining power of suppliers is low. These suppliers do not exert influence or increase environmental uncertainty by threatening to raise prices.

Substitutes: There are quite a lot of substitutes for carbonated soft drinks, such as beer, milk, coffee, juices and tea, etc. The threat of substitute products is high because diet drinks are introduced and the switching cost for consumer is low.

Potential Entrants: The entry barrier for concentrate manufacturing industry is high due to product differentiation. Established firms, particularly Coke and Pepsi invested much in advertising, promotion and market research for many years. As a result, they enjoy their loyal customer base. Therefore, the threat of new entrants will be low.

2. Bottlers

Industry competitors: The number of U.S. soft drink bottlers had decreased from