Cola’s competitive advantage has proven its sustainability over the last 100 years.
This can be ascribed to:
The secret recipe for Coca-Cola, which arguably tastes better than other cola drinks.
Their ability to continue developing new products and re-inventing old ones – Coca-
Cola currently offers over 400 brands in 200 markets worldwide.
The world’s most comprehensive distribution system has made Coca-Cola accessible
to billions of people worldwide. Coca-Cola is often available in ample supply to
people in areas where other consumer goods companies would never consider
delivering their products. The African continent is an excellent example – it’s fairly
common to see a small shop selling cold Coke in the middle of nowhere.
Coca-Cola’s production techniques are so well developed that it costs a fraction
of the selling price to manufacture their product, resulting in high profit margins.
1. Soft Drink Industry Five Forces Analysis:
Soft drink industry is very profitable, more so for the concentrate producers than the bottler’s. This is
surprising considering the fact that product sold is a commodity which can even be produced easily.
There are several reasons for this, using the five forces analysis we can clearly demonstrate how each
force contributes the profitability of the industry.
Barriers to Entry:
The several factors that make it very difficult for the competition to enter the soft drink market
include:
Bottling Network: Both Coke and PepsiCo have franchisee agreements with their existing bottler’s
who have rights in a certain geographic area in perpetuity. These agreements prohibit bottler’s
from taking on new competing brands for similar products. Also with the recent consolidation
among the bottler’s and the backward integration with both Coke and Pepsi buying significant
percent of bottling companies, it is very difficult for a firm entering to find bottler’s willing to
distribute their product.
The other approach to try and build their bottling plants would be very capital-intensive effort with
new efficient plant capital requirements in 1998 being $75 million.
• Advertising Spend: The advertising and marketing spend (Case Exhibit 5 & 6) in the industry is
in 2000 was around $ 2.6 billion (0.40 per case * 6.6 billion cases) mainly by Coke, Pepsi and
their bottler’s. The average advertisement spending per point of market share in 2000 was 8.3
million (Exhibit 2). This makes it extremely difficult for an entrant to compete with the
incumbents and gain any visibility.
• Brand Image / Loyalty: Coke and Pepsi have a long history of heavy advertising and this has
earned them huge amount of brand equity and loyal customer’s all over the world. This makes
it virtually impossible for a new entrant to match this scale in this market place.
• Retailer Shelf Space (Retail Distribution): Retailers enjoy significant margins of 15-20% on
these soft drinks for the shelf space they offer. These margins are quite significant for their
bottom-line. This makes it tough for the new entrants to convince retailers to carry/substitute
their new products for Coke and Pepsi.
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