Soft Drink Industry Porter's Five Forces Analysis:
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Soft Drink Industry Five Forces Analysis:
Soft drink industry is very profitable, more so for the concentrate producers than the bottler’s. This is surprising considering the fact that product sold is a commodity which can even be produced easily. There are several reasons for this, using the five forces analysis we can clearly demonstrate how each force contributes the profitability of the industry.
Barriers to Entry:
The several factors that make it very difficult for the competition to enter the soft drink market include:
Bottling Network: Both Coke and PepsiCo have franchisee agreements with their existing bottler’s who have rights in a certain geographic area in perpetuity. These agreements prohibit bottler’s from taking on new competing brands for similar products. Also with the recent consolidation among the bottler’s and the backward integration with both Coke and Pepsi buying significant percent of bottling companies, it is very difficult for a firm entering to find bottler’s willing to distribute their product.
The other approach to try and build their bottling plants would be very capital-intensive effort with new efficient plant capital requirements in 1998 being $75 million.
Advertising Spend: The advertising and marketing spend (Case Exhibit 5 & 6) in the industry is in 2000 was around $ 2.6 billion (0.40 per case * 6.6 billion cases) mainly by Coke, Pepsi and their bottler’s. The average advertisement spending per point of market share in 2000 was 8.3 million (Exhibit 2). This makes it extremely difficult for an entrant to compete with the incumbents and gain any visibility.
Brand Image / Loyalty: Coke and Pepsi have a long history of heavy advertising and this has earned them huge amount of...
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... already setup. The will lack the clout that have with the bottler’s in the US.
Suppliers: Since the raw material’s are commodities there should be no problems on this front this is not any different
Customers: Internationally retailers and fountain sales are going to be weaker as they are not consolidated, like in the US Market. This will provide Coke and Pepsi more clout and pricing power with the buyers
Substitutes: Since many of the markets are culturally very different and vast numbers of substitutes are available, added to the fact that carbonated products are not the first choices to quench thirst in these cultures present additional significant challenges.
The consumption is very low in the emerging markets is miniscule compared to the US market. A lot more money would have to be spent on advertising to get people used the carbonated drinks.
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