Soft Drink Industry Analysis

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Introduction The soft drink industry remains a profitable one despite the constant cola wars between the two largest players in the industry i.e. Coca-Cola Company (subsequently referred to as Coke) and PepsiCo, Inc (subsequently referred to as Pepsi). In order to fully understand the soft drink industry, this paper will use the five competitive forces and SWOT (Strengths, Weaknesses, Opportunities, and Threats) analysis to analyze the industry. The Five Competitive Forces for Soft Drink Industry Industry Competitors The soft drink market was a highly concentrated market with two companies owning over 70% of the U.S market share in 2004. Coke had 43.1%, Pepsi had 31.7% and Cadbury Schweppes had 14.5%. The rest were shared by many small companies such as Coot Corporation, Royal Crown Cos, etc. In fact, one could characterize the soft drink market as almost a duopoly between Coke and Pepsi. Coke and Pepsi traditionally competed mainly on advertising, promotion and new products rather than price (although sometimes the competition did eventually lead to some price competition). For consumers, the products are relatively homogenous (as evidenced by the “Pepsi Challenge”) and therefore there is low switching cost. As the growth of soft drink industry slows down, internal rivalry becomes more intense. Potential Entrants Strong barriers deter entry to the industry. In addition to the market being highly saturated, Coke and Pepsi dominate the industry with their strong brand names such that placing another cola on the market is not an attractive value proposition. These companies also have very close relationships with their retail channels by providing Direct Store Door (DSD) delivery, offering discounts and promotions to reduce retailers’ costs, which makes new entrants difficult to access the retail channels. Though concentrate producers industry is not

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