Coke vs. Pepsi
The goal of this project is to examine the soft drink industry heavyweights Coke and Pepsi. We will use the Porter’s Five Forces model to examine the impact of each force of the soft beverage industry. Each forces impact will be observed based on intensity.
1. Supplier power – the number of US bottlers has fallen from nearly 2000 in 1970 to a mere 300 in the year 2009. The intensity of suppliers in the market has remained low due to many barriers of entry. Coca Cola was the first company to introduce franchising and focus on geographic distribution and Pepsi soon followed. Suppliers hold the ingredients but little power as sugar /high fructose corn syrup, packaging and artificial sweetener are easily attainable and plentiful goods. Both Coke and Pepsi have gained their market shares by building a loyal brand image with their customers and not by selling a scarce or luxurious good.
2. Substitutes- Substitutes have continued to have a high impact on the industry as health and obesity has become a visible enemy in America. An industry once unaffected by substitutes such as tea, sports drinks and juices has had to adapt. This has been done in backing products with minimal calories that still satisfy soft drink consumers. Ex- Coke Zero, Diet Coke, and Pepsi Max. Both Companies have also started creating substitutes themselves with Coke owning Minute Made Juices, and even Dasani water. While Pepsi overseas Aquafina and Gatorade. Regarding the world following there are few replacements for an ice cold Coke.
3. Barriers to entry- significant barriers exist to entering the soft drink industry. Bottling operations have high efficiency scale and require fixed assets, which are specific to bottling and packaging. Therefore making exit costs high as well. As noted above in substitutes the CSD market has fallen from 81% in earlier decades, this would appear to be an opportune time to gain entry. Or would it? The loyal followings make it...