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    Busmhr 4490 PP

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    Jennifer Brandeberry
    This document summarizes the competitive dynamics of the concentrate and bottling industries within the carbonated soft drink industry. It describes the manufacturing processes of concentrate producers and bottlers. It analyzes the competitive forces facing each using Porter's Five Forces framework. Key points are that Coca-Cola and Pepsi dominate the concentrate industry with 72% market share, giving them strong supplier power over bottlers. Continual rivalry between Coke and Pepsi led to increased advertising spending and consumption growth overall. However, bottlers face greater threats of substitution and have lower profit margins than concentrate producers.

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    Busmhr 4490 PP

    Uploaded by

    Jennifer Brandeberry
    227 views20 pages
    This document summarizes the competitive dynamics of the concentrate and bottling industries within the carbonated soft drink industry. It describes the manufacturing processes of concentrate producers and bottlers. It analyzes the competitive forces facing each using Porter's Five Forces framework. Key points are that Coca-Cola and Pepsi dominate the concentrate industry with 72% market share, giving them strong supplier power over bottlers. Continual rivalry between Coke and Pepsi led to increased advertising spending and consumption growth overall. However, bottlers face greater threats of substitution and have lower profit margins than concentrate producers.

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    This document summarizes the competitive dynamics of the concentrate and bottling industries within the carbonated soft drink industry. It describes the manufacturing processes of concentrate producers and bottlers. It analyzes the competitive forces facing each using Porter's Five Forces framework. Key points are that Coca-Cola and Pepsi dominate the concentrate industry with 72% market share, giving them strong supplier power over bottlers. Continual rivalry between Coke and Pepsi led to increased advertising spending and consumption growth overall. However, bottlers face greater threats of substitution and have lower profit margins than concentrate producers.

    Copyright:

    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    227 views20 pages

    Busmhr 4490 PP

    Uploaded by

    Jennifer Brandeberry
    This document summarizes the competitive dynamics of the concentrate and bottling industries within the carbonated soft drink industry. It describes the manufacturing processes of concentrate producers and bottlers. It analyzes the competitive forces facing each using Porter's Five Forces framework. Key points are that Coca-Cola and Pepsi dominate the concentrate industry with 72% market share, giving them strong supplier power over bottlers. Continual rivalry between Coke and Pepsi led to increased advertising spending and consumption growth overall. However, bottlers face greater threats of substitution and have lower profit margins than concentrate producers.

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    © All Rights Reserved
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    Download as pptx, pdf, or txt
    of 20

    Cola Wars Continue

    Michelle Anderson, Stacey Blunt, Jennifer Brandeberry

    Manufacturing Process
    Concentrate Producers
    Blend raw material
    ingredients
    Diet CSDs (carbonated soft
    drinks), concentrate makers
    add artificial sweeteners
    Package mixture into plastic
    canisters
    Ship containers to bottlers

    Manufacturing Process
    Bottlers
    Purchase concentrate
    Add carbonated water and
    high-fructose corn syrup
    Bottle or can product
    Deliver to customer accounts

    Competitive Forces - Concentrate


    Business
    Threat of Substitutes
    Health-conscious
    consumers

    Bargaining Power of
    Suppliers
    Concentrate required
    few inputs

    Rivalry
    Among
    Concentrate
    Producers
    Threat of New
    Entrants
    Coke & Pepsi claimed
    72% of US CSD sales
    volume in 2009

    Bargaining Power of
    Buyers
    Bottlers had little
    bargaining power

    Competitive Forces - Bottling


    Business
    Bargaining Power of
    Suppliers
    Concentrate is the main
    cost component to bottling
    process

    Threat of Substitutes
    Bottlers frustrated by
    growth of non-carb
    popularity

    Rivalry
    Among
    Bottlers
    Threat of New Entrants
    Bottler refranchising in
    1980s diminished threat of
    new entrants

    Bargaining Power of
    Buyers
    Retail sector consolidation
    allows companies like
    Walmart to exert pricing
    pressure

    Profitability
    Concentrate Industry

    Bottling Industry

    Little capital - large plants 50-100


    million
    Most significant costs:
    advertising, promotion, market
    research, bottling support
    Coke and Pepsi hold 72% of
    market
    Brand recognition

    A lot of capital - plants can cost


    hundreds of millions
    Main costs: concentrate and
    syrup
    Franchise contracts: concentrate
    business can decide on price and
    bottlers can not carry directly
    competing brands

    Profitability cont...
    Concentrate industry more profitable due to supplier power
    Cola wars weakened small, independent bottlers
    More money spent on advertising, product and packaging
    proliferation,and retail price discounting - higher capital
    requirements and lower profit margins
    Exhibit 5:
    Retail price per case continuously decreasing
    1988: $10.79 per case
    2009: $7.98 per case
    Concentrate price per case continuously increasing
    1988: $0.79 per case
    2009: $1.65 per case

    Profitability cont...
    Bottlers operating profits much less compared to concentrate producers
    o Exhibit 3a-b
    Coke and Pepsis acquisitions of smaller bottlers
    o 2009: Pepsis bottlers decreased from over 400 to just 106

    Supplier Power
    Number of suppliers: few large concentrate producers
    o Coke (41.9% 2009), Pepsi (29.9% 2009), Dr Pepper Snapple (16.4%
    2009), Other (11.8% 2009)
    Size of suppliers
    o Coke and Pepsi claimed 72% of U.S. CSD market - have most control
    o Pepsi: acquisition of PBG and PepsiAmericas (80% operations)
    o Coke: acquisition of CCEs North American operations (90%
    operations)
    Ability to substitute
    o No other companys have same amount of market share or brand
    recognition as Coke and Pepsi
    Cost of changing
    o Lose a lot of market share
    o Product uniqueness

    Competitive Spirit
    If the Coca-Cola Company didnt exist, wed pray for someone to invent them.
    Roger Enrico, Former CEO of Pepsi

    The War With No Blood


    Competition
    o Without Pepsi, Coke would have a tough time being an original and
    lively competitor and innovator
    o The true winner of this war is the consumer
    Industry Growth
    o 1970 Consumption of CSDs : average 23 gallons/year
    o Average consumption grew 3% per year for the next three decades
    o Coincidence or Byproduct of the Cola Wars?

    Staggering Facts
    Timeline
    o Carefully Waged Competitive Struggle

    Growth
    o Annual Revenue Growth of around 10% per year
    o Constant U.S. and Worldwide CSD consumption growth

    Competition Ripple Effects


    Causes of Increased Industry Profits
    o
    o
    o
    o

    Increasing availability of CSDs


    Introduction of diet & flavored varieties
    Declining real (inflation-adjusted) prices
    Affordability
    Total consumption of CSDs grew from 12.4% of total beverage consumption in 1970 to a
    high of 29% in 2000 (Exhibit 1)

    Ripple Effects cont...


    Growth of Coke and Pepsi put a squeeze on smaller concentrate
    producers
    o Shelf space declined - small brands continuously changing owners
    Bottler consolidation made smaller concentrate producers increasingly
    dependent on the Pepsi and Coke bottling networks
    o DPS in response formed its own bottler
    Health concerns about the effects of CSD consumption
    Smaller brands have slowly been grabbing more market share
    o Exhibit 2

    Alternatives
    Adapting To The Times
    o

    As with any company in a competitive industry, to survive you must adapt

    o Coke and Pepsi Adapted by

    Consolidating Bottlers
    Providing Healthy Alternatives for Schools
    Sponsorships (Sports Teams, Colleges, Concerts)
    Breaking into International Markets
    Buying out Competitors

    o CSD consumption declines, Pepsi & Coke Profits Increase

    Advertisement war
    Pepsi vs Coca-Cola
    o http://youtu.be/IVndvFoQt34?list=RDmuH-zcOYnFc
    Coca-Cola Its Mine
    o http://youtu.be/xiMf5cCDy1I?list=RDmuH-zcOYnFc

    More recently...
    Pepsis stock up 14% compared to just 7% for Coke - why?
    o Pepsi owns the Frito-Lay snack business
    Food business grew at a higher rate compared to beverage
    business
    o Strong results from Latin America and Asia
    o Pepsi is cheaper
    Trades at 19X 2015 earnings forecast compared to Coke at 20X
    BUT Pepsis expecting earnings to grow 7% annually while Coke
    only expects to grow 4.6% annually (according to analysts)
    Best performing beverage stock - Dr Pepper Snapple
    o Shares up nearly 35%
    o Cheaper shares and earnings growth expected to outpace Coke and
    Pepsi
    Numbers from October 9, 2014

    New Cola Wars?

    Coca-Cola Life: 35% less calories, sweetened with cane sugar and stevia
    Pepsi True: 30% fewer calories, sweetened with sugar and stevia
    In response to consumers looking for reduced-calorie soft drinks
    Industry wide effort to reduce beverage calories by 20% by 2025

    Questions?

    Works Cited
    http://money.cnn.com/2014/10/02/news/companies/coke-pepsi-stevia/
    http://money.cnn.com/2014/10/09/investing/pepsi-earnings-stock-coke/
    Rothaermel, Frank T. Strategic Management. 2nd ed. New York: McGrawHill Irwin, 2013. Print.
    Yoffie, David B., and Renee Kim. "Cola Wars Continue: Coke and Pepsi in
    2010." (2011): n. pag. Web.

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