The basic scope of this study is to understand and evolved the possible attractiveness of bottlers business and its profitability in CSD industry using Michael Porter five force analyses.
• Power of suppliers,
• Power of buyers,
• Threat of new entry
• Threat of substitutes, and
• Rivalry among competitors.
1) Power of suppliers:
Concentrate producers (CPs) negotiate directly with bottlers’ major suppliers – particularly sweetener and packaging suppliers – to encourage reliable supply, faster delivery, and lower prices Coca-Cola and Pepsi are among the metal can industry’s largest customers and Maintain relationships with more than one supplier, giving these suppliers less Bargaining power due to the availability of alternative suppliers
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Franchiser of CSD has fixed Bottlers territory to intervene any major competition due to high level brand competition. Individual or consumer buying power is very small but big distribution or retailer has high buying power for accommodating their product on to their venue. 1980 Soft Drink Inter-brand Competition Act preserved the right of CPs to grant exclusive.
Territories to their bottlers, giving less bargaining power to Bottler’s buyers because there is no alternative supplier Distribution statistic for the year 2010 shown in the figure below gives an indication of supermarket, Vending machine and fountain outlets are being the leader in distribution list. Fountain machine outlets are managed by concentrate producer without bottlers’ power. Super markets like wall mart, Costco, etc. has huge buying power to sell and attract customers for CSD products. But, due to high level of competition among CSD and to compete against retail store brand, bottlers always fought for store shelves space, which came to them at a cost. Competition among CSD drinks, gave bottlers less bargaining power and making this Industry force a weaker force in less favor of
Since SABMiller operate in the beer industry they face monopolistic competition, which according to Parkin et al. (2013:305) is a barrier-free market structure where many firms present, compete against each other. Each firm creates a product that differs from one another, also known as product differentiation, and competes on product quality, marketing programme and price. Consumers are usually very aware of the firms’ pricing of their products and available substitutes – so if a firm were to increase their price on a similar product, the quantity demanded of that variety would decrease and consumers would refer to close substitutes. Therefore firms in monopolistic competition have to be very observant of their consumer’s wants and preferences, what prices they charge and what quality is put into the process of production.
consumers continue to trade up for indulgent, high-quality products” (The Hershey Company , 2013). When evaluating the Hershey Company through Porter’s Five Forces analysis, the threat of new entrants is low because of the occurrence of economies of scale, the variance in products that are produced, the need for large capital requirements, the being of switching costs, the absence of access to distribution channels, and the regulations that are in place for the food manufactures. A hefty number of buyers and the relatively low-slung profits from the product amplify the bargaining power of prospective buyers. The bargaining power of suppliers is decreased because the supplier does not shame any likely threat of forward integrations. The prominence
Analysis of the carbonated soft drink (CSD) industry shows that there are 2 important players i.e. Concentrate Producers and Bottlers. Focusing on the downstream of the supply chain it is to be pointed out that concentrate producers incure relatively low fixed costs with respect to production plant, staff, equipment and R&D as the concentrate is produced of a more than 100 years old formula and relatively cheap raw material (e.g. caffeine). Concentrate is shipped to bottlers which incure relatively high fixed cost with respect to plant, equipment and staff and which add carbonated water and high fructose corn syrup to the concentrate, bottle or can, package and ship it to the respective retailer. Besides that CDS hold a big stake in the direct delivery of concentrate to diverse fountain accounts like McDonalds, Burger King etc.
The Porter’s model of competitive advantage of nations is based on four key elements including factor endowments, demand conditions, related and supporting industries and firm strategy, structure and rivalry. This makes it suitable in understanding the competition existing in the soft drinks industry in the Asian markets. The factor conditions identify the natural resources, climate, location, and demographics. Coca cola and Pepsi enjoy the growing population in the Asian markets (Yoffie, 2002). A higher population guarantees the two companies adequate revenues.
Development in the political arena would have been handled well if Coke would have evaded having to sell 49% of its equity by approving to start new bottling plants. The timing of entry into the Indian markets brought In terms of promotional activities, the advertising and giving away of free offers and vacations by Coca cola and Basmati rice by Pepsi, the coca cola’s goal in connecting the youth to the market, the different promotional TV campaigns in India using of celebrities, and the Pepsi sponsorship of cricket and soccer sports. In terms of pricing policies, Pepsi got a quicker market share by their belligerent pricing policies and coca cola’s 15-25% price cut down in the market. In terms of distribution arrangement, the bottling and packaging of products for better distribution around Also, to save and recycle the usage of water.
Control of market share is the key issue in this case study. The situation is both Coke and Pepsi are trying to gain market share in this beverage market, which is valued at over $30 billion a year. Just how is this done in such a competitive market is the underlying issue. The facts are that each company is coming up with new products and ideas in order to increase their market share.
There were fierce competitions among the producers that have scale and scope of operations which were similar to each other. For instance, the Pepsi Co. and Coca Cola companies have developed the strategy and infrastructure, which are hard for the local sellers to complete with them. However, there were still many producers including new entrants that try to access the market and compete seriously with low price and differentiation- strategies among rival...
The small packaging and express surrender industry is a complicated and competitive industry. Most of the firms in this industry has apply the Michael Porter’s Five Forces model to have an idea about potency of make profit with less risk of entry and a weak bargaining power of dealers. There has been a strong competition among these firms and intense bargaining power of receiver has had an unfavorable influence over the prices which have started to lower incomes for some firms.
Mainly, it is price-based competition. The switching costs and product differentiation remains low, which increases the competition. The article mentioned that “10 to 25 percent of consumers looking for a specific brand and an additional two-thirds considering only a few brands acceptable,” which means that the brand of bottled water is not that important as long as the price remains low. Therefore, efficient distribution systems are needed in order to survive in this industry. For example, a company has to “maximize the number of deliveries per driver since distribution included high fixed costs for warehouses, trucks, handheld inventory tracking devices, and labor.” If a company has efficient distribution system, then it will possibly lower the selling price and keep the
Soft drink industry is very profitable, more so for the concentrate producers than the bottler’s. This is surprising considering the fact that product sold is a commodity which can even be produced easily. There are several reasons for this, using the five forces analysis we can clearly demonstrate how each force contributes the profitability of the industry.
The beverage industry is highly competitive and presents many alternative products to satisfy a need from within. The principal areas of competition are in pricing, packaging, product innovation, the development of new products and flavours as well as promotional and marketing strategies. Companies can be grouped into two categories: global operations such as PepsiCo, Coca-Cola Company, Monster Beverage Corp. and Red Bull and regional operations such as Ro...
The CSD (carbonated soft drink) industry is one that is very competitive. A few firms dominate this industry, most notably Coca Cola and Pepsi Cola. This is due to substantial barriers to entry. Cadbury-Schweppes, producer of products such as 7up and Dr. Pepper is the third leading company in this industry. Due to the dominance of Coca Cola and Pepsi, Cadbury-Schweppes faces the daunting task of having to fight for market share and survive in this fiercely competitive industry. Using economic analysis for support, Cadbury-Schweppes will need to use its strengths in the non-cola categories to compete in this CSD industry.
People can afford to buy more soft drinks under current economic situation. Recessions do not seem to affect sales of CSD. Although produced by main market players soft carbonated drinks cost more than similar products of local and private label manufacturers, consumers are willing to pay an extra price for the name, particular taste, and image. Fierce competition in CSD industry forces Coca-Cola and PepsiCo to expand into new and emerging markets which present high potential for the company’s development. However, some foreign markets proved to be highly competitive. Coca-Cola Company’s operation in China faced antitrust regulations, advertising restrictions, and foreign exchange control.
This competitive advantage has been rendered sustainable as other players have found it difficult to catch up with the company's competitive strategy. In spite of this clear advantage, it was noted that the company faces some challenges being the world leader in soft drink distribution. The canning and bottling of the product which is done in many countries have now fallen into the hands of independent companies, thus it becomes hard for a given company to control the quality of the packaging
The case study "Cola Wars Continue: Coke and Pepsi in the Twenty-First Century" focuses on describing Coke and Pepsi within the CSD industry by providing detailed statements about the companies’ accounts and strategies to increase their market share. Furthermore, the case also focuses on the Coke vs. Pepsi products which target similar groups of customers, and how these companies have had and still have great reputation and continue to take risks due to their high capital. This analysis of the Cola Wars Continue case study will focus mainly on the profitability of the industry by carefully considering and analyzing the below questions. Why is the soft drink industry so profitable? Compare the economics of the concentrate business to the bottling business: Why is the profitability so different?