Coke and Pepsi
Coke and Pepsi in the Twenty-First Century:
Threat of Entry:low
1. Economies of scale
- High production volume but merit not clear (1st paragraph on page 2)
2. Product differentiation
- Brand identification (high advertising expense, Exhibit 2)
3. Capital requirements
- CPs: little capital investment (1st paragraph on page 2)
- Bottlers: capital intensive (2nd paragraph on page 3)
4. Cost disadvantages independent of size - No
5. Access to distribution channels
- Food stores (35%): intense shelf space pressure (2nd paragraph on page 4)
- Fountain (23%): CPs dominated first food chain (1st paragraph on page 5)
6. Government policy (N/A)
Threat to entry is low because Coca-Cola Company, PepsiCo, and Cadbury Schweppes control 90.1% of the market share; 44.1%, 31.4%, and 14.7% respectively.
Although the growth rate of CSD consumptions have been steady at 3% a year, the capital requirement to enter the market is too great of an obstacle. In order to service the entire US, a firm would need $25-50 million to build a plant for concentrate producers, $6 billion ($75 million * 80 plants) to establish bottlers, cost associated to provide and maintain incentives to retailers, and the greatest cost to advertisements. Therefore, firms are deterred from entering the CSD market due to economies of scale couple with brand image that the firm must face. In order provide product differentiation, the entering firm would have to invest heavily to develop a brand image for CSD aside from the three market leaders.
Access to distribution channels is intense in CSD industry as bottlers are fighting for shelf spaces in grocery stores. In addition, PepsiCo is in the restaurant business of owning Taco Bell, Kentucky Fried Chicken, Pizza Hut by shutting down any opportunities for other CSD firms to sell fountain drinks in those restaurants. Other CSD firms like Coca-Cola has develop a relationship with remaining market leaders of restaurant for their fountain
Threat of Entry:low
1. Economies of scale
- High production volume but merit not clear (1st paragraph on page 2)
2. Product differentiation
- Brand identification (high advertising expense, Exhibit 2)
3. Capital requirements
- CPs: little capital investment (1st paragraph on page 2)
- Bottlers: capital intensive (2nd paragraph on page 3)
4. Cost disadvantages independent of size - No
5. Access to distribution channels
- Food stores (35%): intense shelf space pressure (2nd paragraph on page 4)
- Fountain (23%): CPs dominated first food chain (1st paragraph on page 5)
6. Government policy (N/A)
Threat to entry is low because Coca-Cola Company, PepsiCo, and Cadbury Schweppes control 90.1% of the market share; 44.1%, 31.4%, and 14.7% respectively.
Although the growth rate of CSD consumptions have been steady at 3% a year, the capital requirement to enter the market is too great of an obstacle. In order to service the entire US, a firm would need $25-50 million to build a plant for concentrate producers, $6 billion ($75 million * 80 plants) to establish bottlers, cost associated to provide and maintain incentives to retailers, and the greatest cost to advertisements. Therefore, firms are deterred from entering the CSD market due to economies of scale couple with brand image that the firm must face. In order provide product differentiation, the entering firm would have to invest heavily to develop a brand image for CSD aside from the three market leaders.
Access to distribution channels is intense in CSD industry as bottlers are fighting for shelf spaces in grocery stores. In addition, PepsiCo is in the restaurant business of owning Taco Bell, Kentucky Fried Chicken, Pizza Hut by shutting down any opportunities for other CSD firms to sell fountain drinks in those restaurants. Other CSD firms like Coca-Cola has develop a relationship with remaining market leaders of restaurant for their fountain