Cola Wars Continued – Coke vs. Pepsi in 2006

Reading the case, special attention should be paid to the underlying economics of the soft drink industry and its relationship to average profits, the relationship between the different stages of the value chain in the industry, the relationship between competitive interaction and industry profits, and the impact of globalization on industry structure.

While preparing the case, you should start by carefully characterizing the carbonated soft drink industry. To do this, clearly specify Coke and Pepsi’s market in the value chain of the industry, their main suppliers and main buyers.

Both concentrate producers (CP) and bottlers are profitable. These two parts of the industry are …show more content…

With this high profitability, it seems likely that Coke and Pepsi bottlers negotiated directly with convenience store and gas station owners. So the only buyers with dominant power were fast food outlets. Although these outlets captured most of the soft drink profitability in their channel, they accounted for less than 20% of total soft drink sales. Through other markets, however, the industry enjoyed substantial profitability because of limited buyer power.

(v) Suppliers Power: Low – Main inputs to syrup are commodities, (cane sugar).. to bottlers… Aluminum. Both are in plentiful supply with large numbers of suppliers from which to choose on the open market. This force as also been reshaped by concentrate manufacturers by forward integrating into bottling or maintaining captive bottling networks with strong contractual terms which maintain balance of power with concentrate manufacturer.

2. How has the competition between Coke and Pepsi affected the industry’s profits?

Answer: Revenues are extremely concentrated in this industry, with Coke and Pepsi, together with their associated bottlers, commanding 73% of the case market in 1994 Adding in the next tier of soft drink companies, the top six controlled 89% of the market. In fact, one could characterize the soft drink market as an oligopoly, or even a duopoly between Coke and Pepsi,