Cola Wars Continue: Coke and Pepsi in 2010 Strategy Implementation and Execution

Question 1: Analyze the CSD industry for its key economic dominant features, industry driving forces and critical success factors required for concentrate suppliers and bottlers. Answer 1: Economic Dominant Features Market Size Scope of competitive rivalry (global) Market Growth rate Position in business (PLC) No. of rivalry and sizes Industry fragmented / competitors No. of buyers and relative sizes Backward or forward integration Types of distribution channel to access consumers Pace of technological change Production and process innovation Product differentiation Economies of scale in activities Key industry participants / Clustered or not? Learning and experience curve Capacity utilization Capital requirement Ease of entry exit Industry profitability

Industry Driving Forces Increasing globalization (emerging markets) Changes in growth rate in industry Consumer behavior changes (who buys) P roduct innovation Technological change Marketing innovation Entry and exit of major firms Changes in cost and efficiency Growing buyer preferences for differentiated products Changing societal concerns, attitudes and lifestyles

Critical Success Factors for Concentrate Suppliers: Technology related Manufacturing Distribution Marketing Skills Organization capabilities Other types goodwill, brand

Question 2: Analyze the CSD industry attractiveness for concentrate suppliers and independent bottlers

Concentrate Suppliers Degree of Rivalry: High Concentration of the market share owned by national brands Coke and Pepsi added upto 72% in the US for 2009, followed by Dr. Pepper at 16% and Cott Corporation and Other companies adding upto 12% Presence of many other private-label manufacturers and other national and regional producers Threat of New Entrants: Moderate Low capital investment required to set up concentrate manufacturing process Heavy investment in innovative campaigns Presence of trademarks by companies makes entry difficult Significant costs of marketing, advertising, promotion and market research to create brand awareness for new products Employing large staff for sales force and operations Operating margins of about 32% in the industry Threat of Substitutes: Low No substitutes to Bargaining Power of Suppliers: High High bargaining power as negotiating for raw materials along with plastic canisters for the manufacturing of concentrate was often taken up by the CSD brand owner on behalf of the concentrate supplier as it was in bulk quantities. Bargaining Power of Buyers: Moderate The buyers had no bargaining power due to fixed pricing mechanisms earlier which did not consider the change in prices

Bottlers Degree of Rivalry: High Rivalry was increasing as the number of bottlers was decreasing but concentration was increasing with few players having greater market share The CSD brand owners started building nationwide bottling franchises Threat of New Entrants: Moderate Capital intensive industry as it involved setting up high speed production lines, bottling and canning lines cost anything in the range of $4mn to $10mn each Multiple line and automated warehousing required hundreds of millions as capital Investment required in trucks and distribution networks Low operating margins in the industry, about 8% Threat of Substitutes: Low No substitutes as such other than fountain sales Bargaining Power of Suppliers: High The concentrate suppliers had high bargaining power as the costs of the ingredients based on the CPI determined the price of the concentrate. Importance of the concentrate as the core product for the CSD production also gave them higher bargaining power The CSD brand owner negotiated on behalf of the bottlers with the metal can suppliers as they were the biggest customers and thus the suppliers Financial incentives offered by the concentrate suppliers to encourage investment Bargaining Power of Buyers: High Retailers like Walmart had Target had high bargaining power as they bought in bulk and had high market access through their expansive retail stores network

National and local accounts like Burger King has high bargaining power in fountain sales due to large network of their food joint

Question 3: Comment on the degree of vertical integration of the CSD. Importance of vertical integration as a source of competitive advantage. (strategic rationale why changing with environment) Question 4:Explain the rationale for different strategies adopted by Coke and Pepsi since inception. 1886 Coke, 1893 Pepsi Path dependence barrier to imitation - companies get different resources and capabilities over time Question 5: How have Coke and Pepsi managed the rivalry in the CSD industry from their perspective, to continue to be the top 2 players? Question 6: How should Coke and Pepsi maintain their market share and face this challenge of flattening demand of CSD. How to maintain profitability and growth? Recommendations. Question 7: What are the major cost drivers for the independent bottlers?