Cola Wars Continue: Coke vs. Pepsi in the 1990s
Angel L. Lombardi
Economics of Organizational Architecture and Strategy
Assignment week two: “Cola Wars Continue: Coke vs. Pepsi in the 1990s”
Professor: Orlando Rivero D.B.A.
April, 3, 2008
Cola Wars Continue: Coke vs. Pepsi in the 1990s
Overview
This paper will explore Porter's Five Forces ( Porte 6) and Branderburger and Nalebuff’s Value Net to answer this questionnaire and describe soft drinks industry characteristics. The soft drink industry is concentrated with the three major players, Coca-Cola, Pepsi, and Cadbury Schweppes Plc., making up 90 percent of the $52 billion dollar a year domestic soft drink market. This market is a mature one with annual growth of 4-5% causing intense rivalry among brands for market share and growth.
1. Why is the concentrate business or industry so profitable?
Soft drinks concentrate producers gross margins were more than 60% and an average return on assets of 17% between 1990 and 2000. There are many reasons for that: even if a new concentrate plant big enough to provide all the USA would cost less than $50 million, it is almost impossible for new investors to get into the soft drink industry , basicly because the existence of high barriers as brand positioning, bottling and distribution structure and point of sale space.
Concentrate producers and bottlers are profitable. These two parts of the industry are extremely interdependent, they share costs in procurement, production, marketing and distribution.
The industry is already vertically integrated and both of them deal with similar suppliers and buyers. Entry into the industry would involve developing operations in either or both disciplines.
The Porter’s five forces analysis reveals that the Soft Drinks industry is profitable, especially for Concentrate Producers (83% gross profit margin versus 35% for bottlers) the oligopoly structure of the industry, product and market diversification, demographic trends, and entry barriers are the main factors
Economics of Organizational Architecture and Strategy
Assignment week two: “Cola Wars Continue: Coke vs. Pepsi in the 1990s”
Professor: Orlando Rivero D.B.A.
April, 3, 2008
Cola Wars Continue: Coke vs. Pepsi in the 1990s
Overview
This paper will explore Porter's Five Forces ( Porte 6) and Branderburger and Nalebuff’s Value Net to answer this questionnaire and describe soft drinks industry characteristics. The soft drink industry is concentrated with the three major players, Coca-Cola, Pepsi, and Cadbury Schweppes Plc., making up 90 percent of the $52 billion dollar a year domestic soft drink market. This market is a mature one with annual growth of 4-5% causing intense rivalry among brands for market share and growth.
1. Why is the concentrate business or industry so profitable?
Soft drinks concentrate producers gross margins were more than 60% and an average return on assets of 17% between 1990 and 2000. There are many reasons for that: even if a new concentrate plant big enough to provide all the USA would cost less than $50 million, it is almost impossible for new investors to get into the soft drink industry , basicly because the existence of high barriers as brand positioning, bottling and distribution structure and point of sale space.
Concentrate producers and bottlers are profitable. These two parts of the industry are extremely interdependent, they share costs in procurement, production, marketing and distribution.
The industry is already vertically integrated and both of them deal with similar suppliers and buyers. Entry into the industry would involve developing operations in either or both disciplines.
The Porter’s five forces analysis reveals that the Soft Drinks industry is profitable, especially for Concentrate Producers (83% gross profit margin versus 35% for bottlers) the oligopoly structure of the industry, product and market diversification, demographic trends, and entry barriers are the main factors
Cited: 1.- Ghemawat, Pankaj (1999) Startegy and the Business Landscape: Text and cases. New York: Addison-Wesley, 1999. 2.- Michael E. Porter, Competitive Advantage (New York : Free Press, 1985) 3.- Adam J. Brandenburger and Barry J. Nalebuff, Co-opetition ( Doubleday, New York 1997)