Cola Wars Continue: Coke and Pepsi in Essay

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Cola Wars Continue: Coke and Pepsi in 2010

Harvard Business Case 9-711-462

Five Forces in the cola industry: Porter's Five Forces Framework

Power of buyers

For concentrate owners: Strong. The power of buyers is extremely strong within the soda industry, given that consumers can quickly shift their alliance from one beverage to another. Also, cola is not strictly a 'necessity' as a product -- no one needs to drink soda, and consumers can easily eliminate it from their budgets if necessary.

For bottlers: Strong as well. Bottlers are extremely dependent upon soda manufacturers for their business, given that they are among bottlers' largest customers.

Power of suppliers

For concentrate owners: Medium. Concentrate owners broker agreements with large and small retailers, agreeing to assume costs of marketing in exchange for shelf space. They have the right to grant exclusive territories to their bottlers and to prohibit bottlers from selling competitor products. They set the specifications for the bottlers in terms of how they want the bottlers to present their product. Concentrators have had to renegotiate agreements to gain additional leverage in pricing their concentrates and syrups, rather than solely allow this to be determined by market conditions. But the major soda companies can always buy up smaller bottlers and sell them to larger bottlers to consolidate their networks, which give them considerable leverage in their dealings with bottlers.

For bottlers: Strong. Bottlers that can broker longstanding agreements with the soda companies have some power. Bottlers can theoretically choose whether to market a new product. They also have some leverage in deciding what type of sweetener to use when manufacturing the product, to cut input costs. Smaller bottlers find themselves struggling to keep up with the needed advertising and promotional requirements in the wake of the fiercely competitive 'cola wars.' The additional packaging demands put a strain on their budgets.

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A major soda concentrator's drive to consolidate the supply chain is ultimately more powerful than the ability of bottlers to negotiate, given the power of the soda companies to pressure the bottlers to present their product in a specific manner. The drive of Coke and Pepsi to create more streamlined production networks has put smaller, independent bottlers out of business.

Competitive rivalry

For concentrate owners: Strong. Competitive rivalry between soda companies is fierce. First and foremost, consumption of soda has been steadily declining in recent years, effectively ensuring that there is greater competition for a narrower range of consumers. Despite the rhetoric of 'Cola Wars,' there is really very little difference between the products sold by the major soda manufacturers. This intensifies competitive rivalry, given that they must work extremely hard to convince consumers that 'Coke is it' or that Pepsi is truly the drink of the 'Next Generation.'

For bottlers: Medium-to-strong. During earlier eras, bottlers' rights to exclusive geographic territories had the effect of reducing competition, giving them security for their contracts with the major soda companies in perpetuity. Back then, competition between bottlers was less intense than that of concentrators for consumers. However, the competition between the soda companies had a devastating impact upon the economic situation of the bottlers. They were forced to deal with an ever-expanding array of new products and sizes demanded by the major soda companies, and small bottlers simply could not keep up.

Threat of substitutes

For concentrate owners: Strong. Cola choices are not merely framed as a choice of Coke vs. Pepsi,….....

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