Cola Wars: Case Analysis: Cola Wars

Cola Wars
To begin with the carbonated soft drink Industry is a profitable industry as its products such as Pepsi or Cola sell extensively across the globe. The industry relies heavily on its concentrate producers and bottlers to reach out to its market. This is further analyzed through Porter’s five competitive forces;
- Threat to New Entrant: When an entrant wants to enter this industry it would need a distribution channel. However, most of the bottlers in the industry are linked with a contract or agreement with the dominant companies such as Pepsi or Coke that do not allow them to “carry any other competing brands” (p.3). So, it would be hard for new companies to obtain a distribution channel. Also, competing companies need to face the barriers of Mergers and acquisitions. Such as with Pepsi buying out “PBG and Pepsi America”, an independent bottling company new entrants will have difficulty finding other distribution channels (p.12). Further, dominant companies like Coca-Cola spend “2.34 million dollars” on advertising costs, which helps the company achieve brand value and brand loyalty for the company (p.19). And customers who are loyal towards the brands are not interested in trying the competitor’s products. Hence, the entrant would need to invest on marketing to promote its brand which would prove costly to the
CSD companies alone invest approximately $100 million dollars just on automated warehousing plants (p.3). Plus when inventory cost, employee payroll and management duties are added to the list the cost of expenditure and investment increases. For example, Coca-Cola long term assets as of 2009 amount to about $10.4 million (p.15, Exhibit 3a). So, the cost to enter into a business would require the company to invest its capital in huge numbers financially in the initial start up