Cola WarsCola WarsCoke and PepsiCoke and Pepsi

Deanna ChangJamie PrescottJonathan Wong

Shaistah BahrainwalaYau Lo

Overview

Industry Background

1886: John Pemberton

1893: Caleb Bradham

Production and Distribution

Industry Background

Problems

Recommendation

Focus on advertising and promotion to differentiate from competitor and to change the image and perception of cola to fit the

healthy living trend

Supplier Power

Buyer PowerMajor buyers of CSD are bottlers and fast-food restaurants

Low bargaining power

The Threat of Substitutes Ease of substitution is high Many alternatives to CSDs Different diet brands Customer switching costs are low

.

.

Beer

Milk

Coffee

Bottled Water

Juice

Tea

Powdered Drinks

Wine Sports Drinks

Distilled Spirits

Energy Drinks

Tap water

Historic Carbonated Soft Drink Consumption

The Threat of New Entry

Threat of Rivals

Rivalry Conclusions

This level of rivalry is expected given the strength of other forces

Which Force is Changing the Most?

Negative health perception of CSD

Negative health perception of CSD

RecommendationAdjust strategy to align with new climate

QUESTIONS?

APPENDIX

Overview Industry analysis using Porter’s 5-Forces

Model Bargaining power of buyers and sellers Threats of new entrants and substitutes Competitive rivalry withing industry

Level of rivalry given strengths of other industry forces

Force that is changing the most in the industry

Industry Background Coca-Cola was formulated in 1886 by John

Pemberton Pepsi Cola was formulated in 1893 by

Caleb Bradham Production and distriubtion of CSDs

involves concentrate producers, bottlers, retail channels, and suppliers Both companies developed a franchise bottling

system which changed over time

Supplier Power 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

Buyer Power 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

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 Splenda, No Caffeine.

Customer switching costs are low. Ease of substitution is high.

This industry force is high.

Threat of Rivals

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.

Substitutes!

Starting in late 1990s, demand seemed to have leveled off

2005, Federal Nutrition Guidelines identified regular CSDs as the largest source of obesity causing sugars in the American diet

Schools banned the sale of soft drinks on their premises

Which Force is Changing the Most?

Substitutes!

Starting in late 1990s, demand seemed to have leveled off

2005, Federal Nutrition Guidelines identified regular CSDs as the largest source of obesity causing sugars in the American diet

Schools banned the sale of soft drinks on their premises

Which Force is Changing the Most?