Cola Wars Bottling vs Concentrate
Cola Wars
Compare the economics of the concentrate business to that of the bottling business: Why is the profitability so different?
The returns received by concentrate producers differ from those received by bottlers for several reasons …
Concentrate producers:
Capital investment. Concentrate production business is less capital intensive than bottling. It requires less funds to be invested in machinery, labor and modernization. "A typical concentrate manufacturing plant cost about $25 million to $50 million to build, and one plant could serve the entire United States" (Yoffie, 2007).
The number of significant costs is small. The major ones are: advertising, Market Research and product development. However, concentrate producers tended to employ large number of people to work with bottlers and their suppliers to ensure quality control and efficiency of production as well as reliable supply of raw materials (e.g. cans) and low prices (Yoffie, 2007).
Franchising. The concentrate producers work using the principle of franchising. It means that bottlers pay them in order to become part of the bottling network and are granted "the sales operation in an exclusive geographic territory...(Yoffie, 2007)"
Concentrate price. Coca-Cola was able to determine its concentrate prices since 1987 when the Master Bottling Contract was established. Pepsi 's Master Bottling contract was a bit different to Coke 's as it obliged bottlers "to purchase raw materials from Pepsi at prices, and on terms and conditions, determined by Pepsi". They based the price of the concentrate on CPI and negotiated it with bottlers. "From the 1980s to the early 2000s, concentrate makers regularly raised concentrate prices, even as inflation-adjusted retail prices for CSD products trended downward", - another reason for greater returns in concentrate production business. As brand promotion was very strong and formula was always kept a secret the whole thing with concentrate was kind of exclusive, so
Compare the economics of the concentrate business to that of the bottling business: Why is the profitability so different?
The returns received by concentrate producers differ from those received by bottlers for several reasons …
Concentrate producers:
Capital investment. Concentrate production business is less capital intensive than bottling. It requires less funds to be invested in machinery, labor and modernization. "A typical concentrate manufacturing plant cost about $25 million to $50 million to build, and one plant could serve the entire United States" (Yoffie, 2007).
The number of significant costs is small. The major ones are: advertising, Market Research and product development. However, concentrate producers tended to employ large number of people to work with bottlers and their suppliers to ensure quality control and efficiency of production as well as reliable supply of raw materials (e.g. cans) and low prices (Yoffie, 2007).
Franchising. The concentrate producers work using the principle of franchising. It means that bottlers pay them in order to become part of the bottling network and are granted "the sales operation in an exclusive geographic territory...(Yoffie, 2007)"
Concentrate price. Coca-Cola was able to determine its concentrate prices since 1987 when the Master Bottling Contract was established. Pepsi 's Master Bottling contract was a bit different to Coke 's as it obliged bottlers "to purchase raw materials from Pepsi at prices, and on terms and conditions, determined by Pepsi". They based the price of the concentrate on CPI and negotiated it with bottlers. "From the 1980s to the early 2000s, concentrate makers regularly raised concentrate prices, even as inflation-adjusted retail prices for CSD products trended downward", - another reason for greater returns in concentrate production business. As brand promotion was very strong and formula was always kept a secret the whole thing with concentrate was kind of exclusive, so