Coke and Pepsi Case
Laura Sanchidrian Fuertes
Laura Sanchidrian
INTB 4202
Prof. Grigorios Livanis
Spring 2014
Coke and Pepsi Discussion Assignment
Compare the economics of the concentrate business to that of the bottling business: Why is profitability so different?
Comparing the financial statements of the largest concentrate producers (Coca-Cola Company and PepsiCo) and those of the largest bottlers (CCE and PBG) we can easily identify numerous factors affecting their economies and profitability. The first, and probably greatest difference in the economies of the concentrate and bottling businesses is the initial capital investment: while concentrate producers require a relatively little capital investment in machinery, overhead or labor; bottler businesses are capital-intensive and involve specific production lines for different products. At first sight, it is easier for concentrate producers to earn a higher return on investment since this figure is smaller than for bottlers.
Moreover, both businesses have developed different cost structures, and as we can see in Exhibit 1, Cost of Goods Sold, for starters, just account for 22% of net sales for concentrate producers, whereas it increases to an astonishing 58% for bottlers. We can also observe a surprising 0% expense in selling and delivery for concentrate producers (18% for bottlers), which can be due to the fact that bottlers incur in delivery costs to all retail establishments.
On the other hand, however, there are certain external factors that can affect both types of industries and which can lead to a high profitability for the concentrate producers. If we take a look at the 5 forces of Porter, we can easily see that the Power of Suppliers is the most relevant factor affecting the cost-structure of the businesses.
For the concentrate producers, the power of suppliers is very low since they purchase raw materials. The prices of these products are very stable
Laura Sanchidrian
INTB 4202
Prof. Grigorios Livanis
Spring 2014
Coke and Pepsi Discussion Assignment
Compare the economics of the concentrate business to that of the bottling business: Why is profitability so different?
Comparing the financial statements of the largest concentrate producers (Coca-Cola Company and PepsiCo) and those of the largest bottlers (CCE and PBG) we can easily identify numerous factors affecting their economies and profitability. The first, and probably greatest difference in the economies of the concentrate and bottling businesses is the initial capital investment: while concentrate producers require a relatively little capital investment in machinery, overhead or labor; bottler businesses are capital-intensive and involve specific production lines for different products. At first sight, it is easier for concentrate producers to earn a higher return on investment since this figure is smaller than for bottlers.
Moreover, both businesses have developed different cost structures, and as we can see in Exhibit 1, Cost of Goods Sold, for starters, just account for 22% of net sales for concentrate producers, whereas it increases to an astonishing 58% for bottlers. We can also observe a surprising 0% expense in selling and delivery for concentrate producers (18% for bottlers), which can be due to the fact that bottlers incur in delivery costs to all retail establishments.
On the other hand, however, there are certain external factors that can affect both types of industries and which can lead to a high profitability for the concentrate producers. If we take a look at the 5 forces of Porter, we can easily see that the Power of Suppliers is the most relevant factor affecting the cost-structure of the businesses.
For the concentrate producers, the power of suppliers is very low since they purchase raw materials. The prices of these products are very stable