Coke&Pepsi Case

646 Words3 Pages
According to the case, the soft drink industry has historically been a profitable industry. In my definition, soft drink industry contains concentrate producers. The major competitors within US soft drink industry include Coca-Cola Company, PepsiCo Inc., Cadbury Schweppes and so on. This long-term profitability could be explained with Porter's Five-Force analysis. Threat of Entry Threat of entry is low as barriers to entry are high. Although concentrate manufacturing process involves little capital investment in buildings, machinery, overhead or labor, there are major advertising, promotion, market research and bottler support expenses. These result in high entry cost. Another reason, which leads to difficult entry, is incumbents' established relationships with retailers, bottlers, and even bottlers' suppliers. For example, Customer Development agreements help build and sustain long-term relationships with retailers. New entrants without these relationships could find it difficult to distribute their products or have to distribute them at a discount. Besides this, soft drink market has become a lot more concentrated. Comparing to the once fragmented business that featured hundreds of local manufactures, the industry right now has more national concentrate producers like Coke and Pepsi. These two companies occupied more than 74% market share in 2004. As such companies usually have a better reputation and are better recognized, they could have higher customer loyalty. Therefore, consumers are less likely to switch to other producers. Moreover, economies of scale could also help some incumbents to cut average costs, making it even more difficult for new entrants to survive. The Power of Suppliers Suppliers supply raw materials including caramel coloring, phosphoric or citric acid, natural flavors and caffeine to concentrate producers. As most of the raw materials
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