Cola Wars Continue

1. Compare the economics of concentrate business to that of bottling business: Why is the profitability so different?

The most of soft drinks industry tends to be connected, with many global brands. The first movers are leading the market. Highly leveled innovation and product development show their competitiveness. So price is most important part why profitability so different. The reason is cost. Aspects of cost concentrate business have to invest money to built factory and don't need for machine, indirect cost or labor expenses. This one factory supply liquid for all over the states. But in botttling case it cost too much for make factory and line cost is needed. and also packing costs, cost for buying liquid and sweetener. It is just basic cost for making bottling products. As we saw bottling business need more cost than concentrate business. Cause this problem profit is not good.

The another reason is liquid supplier and bottler is not the same position. Franchise bottler is only have selling in one local. Most part of profits of sales are managed by head company of soda. If soda’s price is going down but liquid’s price is going up.

- comparative costs of concentrate producer and bottler

And it also connected with Porter’s Five Forces. The wall to protect market is too high. This is mean that bottling need high fixed costs. But they cannot remove fixed cost. so they try to remove resulting cost and asset. And bottle is no subtitutable for any resources. So people who buy concentrate cannot find any subtitute prodcuct about bottle. Back to Porter’s Five Forces in Bargaining power of suppliers, Bottlers have limited rights. And they cannot convert another products. Because there is another bottler in that territory. On the other hand they have supply channer so Pepsi or Coke needs fixed cost but they have majority portion in omst of market. So Bottling is obviously less profitable than concentrate product but they overcome by supply chain.

As a result, there is difference in concentrate products and bottler is added value. Concentrate Business is depend on Pepsi and Coke bottling market. And they don't need any fixed cost. Finally one factory can supply entire market. In bottler’s case profits were high but margins were low. So bottlers deal with merchandising and they also work with non-soda brands. Compare this two business bottling is not profitable. Concentrate business have right so they can sustain profitable prices but bottlers are have no bargaining power with suppliers and also have high fixed cost. So bottler business have to under stand condition of resources. The most important to considering about is reducing manufactures and grow market share and bargaining power too. Cause bottlers are start in different position with concentrate