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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
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
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
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
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
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
LOW
NEW ENTRANTS
LOW
BOTTLERS
SUBSTITUTES
LOW
BUYERS
HIGH
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)