COLAWARSCONTINUED

Whyhastheindustrybeensoprofitable?
TheCSDindustryhasbeenprofitabledueavarietyoffactorssuchasastrongbrand loyalty,patentedtrademarks,lowinputcostsetc.ColaCSDshaveruledtheirindustry from19601990.Untilrecently,theCSDindustryhasbenefitedfromthepopularbrands CocaColaandPepsi.Recenteventshaveshownashifttowardshealthierhabitsanda relativedropinCSDsales. Threatofnewentrants Duetothestrongbrandloyalty, uniqueconcentraterecipe, patentedtrademarksand franchisedsystemforbottlers wethinkthatitisverydifficult toenterCSDindustry. Bargainingpowerofthesuppliers Bargainingpowerofthecustomers Rivalryamongexistingfirms Concentrateproducerssupply Themainchannelsare: ConsolidatedIndustry bottlerswhohavefollowingcost ShareSupermarkets(Walmartetc.) OligopolisticMarket structure45%packaging+45% 31%lowprofitability,highbargaining Industrygrowth~1% concentrateand510%sweeteners power Strongbrandloyaltyandlow andtheconcentratesuppliers FountainandVending34%low Productdifferentiation. controlandinfluencethevalue profitability,highbargainingpower chainasawhole. Threatofsubstitutesproducts Risingcompetitionin substitutes,verylowswitching costsandhighpropensityto buy.Bothcompaniesentered thismarketheavily.

 CarbonatedSoftDrinkIndustryAnalysis AspecificMarket.CokeandPepsiowntheconcentraterecipeandcombinedawidebrands portfolioandstrongmarketshares. Strongbarriersattheentryofthebusinesswithhighcostsandrisks Thebottlingbusinessandothersuppliersstronglydependsonsyrupproducersneeds Cokewasthefirstconcentrateproducertobuildanationwidefranchisedbottlingnetwork, followedbyPepsiandCadburySchweppes.Theirroleintheindustryisveryimportantbecause theyoftenparticipateinbottlersmarketingorsalesactivities,orevennegotiatethesales conditionsnationwideorevenworldwide.

CompetitionandIndustryProfits

Thesaturationofthemarketbecamesodense,thattheonlywayhowtokeepexistingor attractnewretailchannelswasbydiscountingwhichhasanegativeeffectonindustry's profits. Thissituationcreatednonesurvivableconditionsforsmallerconcentrateproducersand letCadburySchweppesachance,thankstosuccessfulacquisition,tobecomethe3rd largestconcentrateproducer. Answer2 25 BeingthetoptwoplayersintheU.S. SoftDrinkMarket,CokeandPepsi 20 havebeencompetingagainsteach 15 otherforprofitmaximization.From Coke 10 exhibition1,generallyspeaking,they Pepsi 5 bothhaveanupwardcurveofprofit growthratefrom1975to2009.For 0 seekingprofitsandmaintaining growthrate,theykeepboosting originalsalesanddevelopingnew marketsbymeansofpricing,newproductlaunchesandcreatingbrandequity.Ina dynamicindustry,theirintraindustrycompetitionsaffectedothermembersinthe sameindustrydifferentlyatdifferenttime. Different Forms of Competitions 1970s: Branding, Pricing (to Retailer end and Bottler end)

-Countering Pepsis Challenge in 1974, Coke waged retail price discounts in markets where a company-owned Coke competed against an independent Pepsi bottler. -In late 1970s, Coke increased its concentrate price significantly after securing its new agreement with bottlers. Pepsi followed with a 15 price increase of its own. 1980s-1990s: Cost Reduction, Advertising, New Product Launches -In 1980, Coke replaced its using sugar with a lower-priced alternative, HFCS, which was followed by Pepsi three years later. -1981~1984, in response to Cokes doubled advertising expenditures, Pepsi doubled its advertising spending as well. -With numerous new products launches, by the late 1980s, the struggle between Coke and Pepsi for market share and shelf space intensified. We saw retail price discounts and smaller concentrate producers being squeezed over this period. -Bottlers Refranchising, Consolidation and Spin-Off. In 1986, after undertaking a series of bottlers acquisitions, Coke established Coca-Cola Enterprises(CCE); Pepsi followed to create the Pepsi Bottling Group after a decade of bottler consolidations. With consolidated bottler networks, Coke and Pepsi have gained more power over cost-control and the entire soft drink industry. 2000s: New Product Launches in New Fields -Both Coke and Pepsi have been trying to shift to non-CSDs. By 2009, Pepsi had 43 of the U.S. non- carbs market share compare to Cokes 32 . Impacts that different means had on different actors profits Price War: a) Bottlers suffered more from the direct decreasing revenues. b) In the long run, concentrate providers still need to cut down the cost of New Product Launches a) Both bottlers and concentrate providers received direct profits from sales. b) However, bottlers ended up with less profits because it cost more to distribute and bottle diversified drinks. c) Concentrate providers bypassed bottlers to produce drinks with higher marginal profits. Branding a) Concentrate providers enjoy most benefits coming from brand equity. Conclusion On the value chain of the soft drink industry, concentrate providers are the most pivotal part to create product values. Thus, as long as Coke and Pepsi keep making profits, it will benefit the industry overall.