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Cola Wars Continue

Media Magagement course


Ahmed Hassan Cecilia Teljas Adit Rahman Nataliia Danylchenko Yunyun Han

The Five Forces of the Concentrate Business


SUPPLIERS

NEW ENTRANTS

CONCENTRATE

BUSINESS

SUBSTITUTES

BUYERS

Porters five-forces
Rivalry
Highly concentrated industry Two main competitors Coca cola Pepsi Aggressive growth strategies High barriers to exit (major fixed costs) Slow market growth Little product differences Perishable products Strategic stakes are high

Threat of Substitute products


Extensive substitute products Juice, Coffee, Tea, Beers, Wine, Milk, Energy drinksd Low switching costs

Porters five-forces
Threats of New Entrants
Well established brand names Have strong distribution systems Huge investments need to be made in market research and bottler relations Economies of scale

Bargaining Power of suppliers


Inputs
Artificial sweetner, caramel coloring, phosphoric and citric acid, natural flavours, caffine

Packaging Many suppliers are available Buyers threaten for backward integration Very less differentation

Porters five-forces
Bargaining Power of Buyers
Five main channels Food store, Fountains, Mass merchandiser, Convenient stores, Vending machine Bargaining power for fountain is higher Low power of negotiation Industry products are standardised Buyers are fragmented Little diffrentiation Distributor can influence end users purchase decisions

The Five Forces of the Concentrate Business


SUPPLIERS

LOW

HIGH
NEW ENTRANTS

HIGH
CONCENTRA TE BUSINESS
SUBSTITUTES

HIGH

BUYERS

HIGH

Industry Attractiveness
High Attractiveness 1996-2006 the US average industry ROIC was 14.9 % Over the same period ROIC for soft drinks was 37.6 % Soft Drinks second after security brokers and dealers Low Attractiveness Over all consumption has decreased Advertisement and marketing costs are high

The Five Forces of the Bottlers Business


SUPPLIERS

NEW ENTRANTS

BOTTLERS

SUBSTITUTES

BUYERS

Q2

Bottlers
Low Threat from Substitutes concentrators are always seeking for bottlers Huge investments are required Development of special management skills
Low Power of suppliers Raw materials are easily available in the market

High Power of buyers Five main channels


Food store, Fountains, Mass merchandiser, Convenient stores, Vending machine

Bargaining power for fountain is higher Low power of negotiation Have to fight for shelf space

Barriers to entry Good relation ships with retailers Defend by discounting and other tactics New bottler cannot start in a region of an existing supplier

Pretax profit
Concentrate 35% Concentrate Producers input in ingredients is small The production process is basically simple invloves little overhead, or labor Bottler 9% bottlers have to invest at least $25million to $35 million to build a small bottling plant, and up to $75 million (in 1998) to build an efficient large plant

For selling and delivery


Concentrate Producers deals with normal delivery of blended ingredients Bottlers serves direct store door (DSD) delivery, which involved route delivery sales people physically placing and managing the CSD brand in the store This is obviously large amount of cost for labor

Advertising and marketing


Concentrate Producer initiate programs and plays an active role in advertising, promotion, market research send staff to work with bottlers in store to ensure quality of in-store activities. Bottlers Also participate in advertising costs

Economics and Attractive Business


Concentrate Producers business model is more intensive and efficient bottler takes more risk, as they invest more on fixed assets and rely much on different relationships

The Five Forces of the Bottlers Business


HIGH
SUPPLIERS

LOW
NEW ENTRANTS

LOW
BOTTLERS
SUBSTITUTES

LOW

BUYERS

HIGH

What challenges face these companies today?


Pepsi has long been the biggest challenge of Coke, and vice versa Decline of sales in the US and other markets due to:
the global economic crisis consumers re-orientation to healthier beverages plenty of various substitutes and potential entrants

Competing, substitute and potential entrants brands have to be prevented Negative stereotypes of Pepsi and Coke Pepsi and Coca-Cola develop new beverages:
Substantive amounts are invested Often result in cannibalism

Differing regulations in different national markets prevent business synchronizing worldwide Protectionism of national brands in certain national markets ( e.g. Brazil) Huge amounts spent on advertisements Conquering of new markets:
Often lack certified, experienced and reliable local suppliers and distributors

Dependence on bottlers (sometimes mutual) Tough competition makes Pepsi and Coke engage in increasingly risky business operations

Five Forces Analysis


1. 2. Pepsi has long been the biggest challenge of Coke, and vice versa Decline of sales in the US and other markets due to: the global economic crisis consumers re-orientation to healthier beverages plenty of various substitutes and potential entrants Competing, substitute and potential entrants brands have to be prevented Negative stereotypes of Pepsi and Coke Pepsi and Coca-Cola develop new beverages: Substantive amounts are invested Often result in cannibalism Differing regulations in different national markets prevent business synchronizing worldwide Protectionism of national brands in certain national markets (e.g. Brazil) Huge amounts spent on advertisements Conquering of new markets: Often lack certified, experienced and reliable local suppliers and distributors Dependence on bottlers (sometimes mutual) Tough competition makes Pepsi and Coke engage in increasingly risky business operations

3. 4. 5.

6. 7. 8. 9. 10. 11.

We considered the challenges mentioned from the prospective of the five forces: Industry competitors (1, 2, 5, 8, 11) Suppliers (9, 10, 12) Substitutes (2, 3, 5) Buyers (2, 4, 8) Potential entrants (3, 4) At the same time, the five-forces analysis does not take into account the factor of national states (6, 7)

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