Coca-Cola vs. Pepsi
Introduction
The carbonated soft drinks' (CSD's) sector is dominated by three major players: Coke is dominant company of the soft drink industry and boasts a global market share of around 44%, followed by PepsiCo at about 31%, and Cadbury Schweppes at 14.7% (Exhibit 3). Separately from these major players, smaller companies such as Cott Corporation and Royal Crown form the remaining market share.
Coke and Pepsi are the main pieces of this market. They struggle for over a century to conquer the number one position in the market, competing fiercely in last few years, following each one's strategic decisions.
Nevertheless, something seems to threaten the profitability of these two giants. The increasing share of non-carbonated soft drinks seems to be able to decrease the high margins that once ruled in the CSD's industry. In this sense, what will the future of Coke and Pepsi be? How will Concentrate Producers (CP's) and bottlers face this new challenge?
In this assignment it's our intent to discuss the economics behind this situation. We will start by analysing the profitability within the soft drink industry; the differences between CP's and bottlers' profitability and, in the end we will explain the main consequences of competition between this two giants over the industries profitability. To conclude this work, we will also discuss the future of Pepsi and Coke regarding the non-carbonated soft drink industry.
The facts behind the soft drink industry profitability
In order to understand the levels of profitability in the soft drink industry we need to determine what main forces are affecting the industry's structure. These forces allow to determine the intensity of competition and hence the profitability and attractiveness of an industry.
The U.S. Carbonated Soft Drink Industry
The industry of CSD's is composed by concentrate producers (CP's), bottlers, retail channels and suppliers. Nevertheless, the main players in such industry regarding
The carbonated soft drinks' (CSD's) sector is dominated by three major players: Coke is dominant company of the soft drink industry and boasts a global market share of around 44%, followed by PepsiCo at about 31%, and Cadbury Schweppes at 14.7% (Exhibit 3). Separately from these major players, smaller companies such as Cott Corporation and Royal Crown form the remaining market share.
Coke and Pepsi are the main pieces of this market. They struggle for over a century to conquer the number one position in the market, competing fiercely in last few years, following each one's strategic decisions.
Nevertheless, something seems to threaten the profitability of these two giants. The increasing share of non-carbonated soft drinks seems to be able to decrease the high margins that once ruled in the CSD's industry. In this sense, what will the future of Coke and Pepsi be? How will Concentrate Producers (CP's) and bottlers face this new challenge?
In this assignment it's our intent to discuss the economics behind this situation. We will start by analysing the profitability within the soft drink industry; the differences between CP's and bottlers' profitability and, in the end we will explain the main consequences of competition between this two giants over the industries profitability. To conclude this work, we will also discuss the future of Pepsi and Coke regarding the non-carbonated soft drink industry.
The facts behind the soft drink industry profitability
In order to understand the levels of profitability in the soft drink industry we need to determine what main forces are affecting the industry's structure. These forces allow to determine the intensity of competition and hence the profitability and attractiveness of an industry.
The U.S. Carbonated Soft Drink Industry
The industry of CSD's is composed by concentrate producers (CP's), bottlers, retail channels and suppliers. Nevertheless, the main players in such industry regarding