The buyers of soft drinks range from Supermarkets, to mass retailers and supercenters, to gas stations. These consolidations took away much of suppliers’ bargaining power. By 2004 Coca-Cola had CCE bottling 80% of its North American bottle and can volume, while PepsiCo had PBG bottling 57% of their beverages in the region (C261). PepsiCo soon followed suit in the late 1980s with the Pepsi Bottling Group (PBG) and went public in 1999, retaining 35% of its shares (C261). This vertical integration essentially made Coke its own bottler, which almost cut out suppliers entirely. Coca-Cola’s CEO Roberto Goizueta looked to consolidate a large number of bottlers in 1986, creating an independent bottling subsidiary called Coca-Cola Enterprises (CCE), went public and sold 51% of its shares while retaining the remaining which enables Coke to have separate financial statements from CCE (C261). Bottling and packaging of the product don’t hold much of a bargaining position in the industry. Supplies to the industry don’t hold much competitive pressure. These substitutes are a large and powerful force in the industry, especially since the switching costs (the cost to switch from one product to the next) are essentially zero. These also come in a larger variety of flavors provided companies, such as Starbucks, that have become extremely popular over the past 20 years. Consumers can switch to coffee to decrease the amount of sugar and carbonation. Coffee and tea may also be substitutes for the consumer who drinks soda for the caffeine they contain. These drinks also allow for a larger variety of flavors the appeal to different consumers (C263). Most people are thinking about what carbonated soft drinks do to their bodies and replace them with sports drinks which appear to be healthier. This is an increasingly growing force since consumers are becoming more health conscious in society. These include: coffee, sports drinks, bottled water, tea, and juices. Substitute products come from competitors outside of the soft drink industry. Pepsi and Coke’s economies of scale allows them to do this since it costs so much less for them to produce their products than it would a new company. It’s difficult for a new firm with a small production capacity, and a high cost structure to compete when, as soon as their product is introduced to the market, the two leading firms drop prices below your cost structure. High fixed costs of production facilities, logistics, and economies of scale also deter entry. PepsiCo and Coca-Cola dominate the industry with their brand name and distribution channels, which makes it difficult for new entrants to compete with these existing firms. Order custom essay Cola Wars Continue: Coke and Pepsi in 2006 The risk of entry by potential competitors isn’t a strong competitive pressure in the industry. In some instances, they were selling cases of Dasani (Coca-Cola) and Aquafina (PepsiCo) for less than the cost of bottling it (C267). They did this by increasing the demand in their products, and gaining brand loyalty by their consumers. Both have learned to not only stay afloat, but flourish in an industry that has constantly grown since Coca-Cola began advertising in 1891 (C258). This rivalry has been to the benefit to the companies, the industry, and its consumers as a whole. Rivalry and power struggle have defined the existence of PepsiCo and Coca-Cola, looking for a competitive advantage to gain an edge on the competition. With little resistance from Cadbury Schweppes, the distant third largest company in the industry, the two companies’ main focus was to increase market demand by outdoing each other in promotions, advertisements, and corporate acquisitions. They have dominated the industry over the past 40 years with Coca-Cola leading in the category in 2004 (C256). When talking about market share, PepsiCo and Coca-Cola have the lions share. All companies in the industry, especially those thinking about entering, have to think about Porter’s 5-Forces model and the pressures it outlines rivalry among establish firms, risk of entry by potential competitors, substitute products, suppliers, and buyers. Recently the competition between established firms has only increased with the market nearing its saturation point. Spenser Garrison Strategic Management 3/17/10 Case 1: Cola Wars Continue: Coke and Pepsi in 2006 The soft drink industry is very competitive for all companies involved.
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