2. Coca Cola vs Pepsi
And the Soft Drinks Industry
Presented by Group 17

3. Questions
 Using Porter’s Framework - Analyse the concentrate producers
over the years? What makes them so special on most economic
performance parameters?
 How the major developments in the last few decades affect the
fortunes of smaller players?
 What should coca cola do next in India?

4. Overview
Industry analysis using Porter’s 5-Forces Model
 Bargaining power of buyers and sellers
 Threats of new entrants and substitutes
 Competitive rivalry within industry
 Level of rivalry given strengths of other industry forces
 Force that is changing the most in the industry

5. Industry 5 forces Change Rec.
Industry background
1886: John 1893: Caleb
Pemberton Bradham
Production and Distribution
Concentrate Retail
Bottler Supplier
producer Channel

6. Industry 5 forces Change Rec.
Industry background (Contd.)
Industry
$66 billion
carbonated soft drink
(CSD) industry
Growth
Between 1975 Customer
and the mid Americans
1990s Pepsi and consumed 23
Coca-Cola had an gallons of CSDs in
average growth 1970
of 10%

7. Industry 5 forces Change Rec.
Problems
Growth in
sales falls
Is the war still
short of
about ‘cola’?
investors’
expectations
Need for new
Is there a products to
new form of keep up with
rivalry? the current
health craze?

8. Industry 5 forces Change Rec.
Supplier Power
Commodities: easily Choose suppliers
available in the based on needs and
market costs
Raw materials
required: Caramel
Low switching cost
coloring, critic
of suppliers
acid, natural
flavors, caffeine Low Supplier
Bargaining
power

9. Supplier Power (Contd.)
 Low bargaining power
 Raw materials required in the production of CSD: Caramel
coloring, phosphoric or critic acid, natural flavors, and caffeine
 Commodities and easy to purchase in the market
 Choose their suppliers based on their needs and costs
 Low switching cost of suppliers

10. Industry 5 forces Change Rec.
Buyer Power
Major buyers of CSD are bottlers and fast-food restaurants
Bottlers- Franchise Fast-food restaurants –
Agreements Acquisitions
• Coke’s Master Bottler • Coke retained exclusively
Contract – Coke deal with Burger King and
determines concentrate McDonald
price and other terms of • Pepsi acquired Pizza Hut
sales (1978), Taco Bell
• Pepsi’s Master Bottler (1986), and KFC (1986)
Contract - Pepsi can force
bottlers to purchase raw
materials from Pepsi at
prices and conditions
determined by Pepsi
Low bargaining power

11. Buyer Power (Contd.)
 Low bargaining power
 Major buyers of CSD: bottlers and fast-food restaurants
 Weaken the bargaining power of bottlers by having a franchise
agreement with them
 Coke’s Master Bottler Contract granted Coke the right to determine
concentrate price and other terms of sales
 Pepsi’s Master Bottler Contract granted Pepsi the right to force its bottlers
to purchase raw materials from Pepsi at prices, and on terms and
conditions, determined by Pepsi
 Weaken the bargaining power of big fast-food restaurants by
acquisition
 Pepsi acquired Pizza Hut (1978), Taco Bell (1986), and KFC (1986)
 Coke retained exclusively deal with Burger King and McDonald

12. Industry 5 forces Change Rec.
The Threat Of Substitutes
 Ease of substitution is high
 Many alternatives to CSDs
 Different diet brands
 Customer switching costs are low
Bottled Water Wine Sports Drinks Milk
Beer Energy Drinks
Juice Powdered Drinks
Coffee Tea Distilled Spirits Tap water

13. The Threat Of Substitutes
 Alternatives to CSDs
 Beer, Milk, Coffee, Bottled Water, Juice, Tea, Powdered
Drinks, Wine, Sports Drinks, Distilled Spirits, Energy Drinks, and Tap
Water.
 Different diet brands
 Diet, With Artificial Sweeteners, No Caffeine.
 Customer switching costs are low.
 Ease of substitution is high.

14. Historic Carbonated Soft Drink Consumption

15. Industry 5 forces Change Rec.
The Threat Of New Entry
High
Competition
in bottling
High
investment Shelf space
costs for competition
bottling
This
industry
force is
low
Leveled off High prices
demand for for
CSD concentrate
Trademark
Infringement
s

16. The Threat Of New Entry
 High investment costs to build a concentrate manufacturing plant and
bottling processes.
 Soft Drink bottlers fell from 2,000 to fewer than 300 in 2004. (High
Competition.)
 Competition for shelf space.
 Concentrate makers raised prices.
 Trademark Infringements.
 Demand for CSDs seemed to have leveled off.
 This industry force is low

17. Threat Of Rivals
Number of 2 major players: Coke, Pepsi
competitors Combine market share: 74.8%
Competitive Focused on advertising and promotion
strategy Main strengths from advertising campaigns
Industry Average of 10% till 1990s and then demand leveled off
Growth Diversify to address beverage need
Competitor Coke and Pepsi are very similar products
Diversity Similar changes made
Relatively low costs to exit
Exit Barriers
Contractual agreements with bottling companies
Proprietary Secret and famous cola recipe for both Coke and Pepsi
Information Difficult to copy by other firms
Competitive Famous, international brands
Advantage Partnered with fast food franchises as well

18. Industry 5 forces Change Rec.
Rivalry Conclusions
Competition is
Market share Industry is Large amount of
Industry rivalry is based on price
captured by 2 dominated by two capital is required to
high (premium) but even
players -74.8% major players compete
more on branding
This level of rivalry is expected given the strength of other forces

19. Scope of Smaller Players
 High intensity of rivalry due to slow industry growth and two equal
sized, highly committed rivals Pepsi and Coca-Cola that strive for
leadership, is questioning the existence of smaller players.
 High capital investments required for research, branding, advertising
etc. and unequal access to distribution channels are forcing smaller
players to depend on bottler networks of Coke & Pepsi.
 When Coca Cola or Pepsi view a smaller player as a potential threat,
they retaliate by reducing the price, providing incentives to bottlers and
retailers to kill it.
 Starting in late 1990s, demand seemed to have leveled off
 CSDs were believed to be unhealthy and the largest source of obesity
causing sugars in the American diet

20. Industry 5 forces Change Rec.
Recommendation – What should Coca Cola do in India?
Adjust strategy to align with new climate
A vast portion of market
untouched (esp. rural
market)
Develop
Consolidation “nutritious”
of bottlers CSD’s
Change “unhealthy” stigma
via marketing campaign

21. Thank You