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...
... middle of paper ...
... 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.
Need Writing Help?
Get feedback on grammar, clarity, concision and logic instantly.Check your paper »
- ... Due to innovation, economies of scale and cost reduction, a strong wave of competition increases on some established manufacturers. Johnson, Scholes and Whittington (2006. p480) postulated that “…competitive rivalry amongst organisations can raise through the process of generic specifications or diminished if one firm develops a new product or process...” therefore the leading automobile manufacturers determines the desirability of the industry as competitors will be struggling to uphold their power in that industry.... [tags: defintion, model, differentiation, cost]
1223 words (3.5 pages)
- The market for chocolate bars is a highly competitive field within the fast moving consumer goods sector. Also in the Fairtrade market the number of producers is rising and competition and demand increase. The attractiveness of an industry influences a firm’s profitability effectively and competition within the industry can be described by conducting a five forces analysis as suggested by Porter (1985). This framework addresses the following fundamental factors: Threat of New Entrants, Threat of Substitute Products, Determinants of Buyer Power, Determinants of Supplier Power and the Rivalry among Existing Firms.... [tags: Marketing, Food Industry]
1272 words (3.6 pages)
- Porter’s Five Forces Analysis I choose to do the porter’s five forces analysis over the automotive industry. But before I start talking about the automotive industry I would like to talk about what the porter’s five forces model is and what it does. “The porter’s five forces model is a tool for examining the industry level competitive environment, especially the ability of firms in that industry to set prices and minimize costs” (McNamara, 2012). This model describes the competitive environment in terms of five basic competitive forces.... [tags: Automotive industry, General Motors]
1429 words (4.1 pages)
- Porter’s Five Forces Strategy Analysis as it Applies to the Auto Industry Bargaining Power of Buyers The bargaining power of buyers has been increasing in the American auto market over recent years. I think that this is first due to the fact that due to the recent local and global economic woes would be buyers are much more reluctant to make the big purchase and sign up for a new car any new car in fact. Also, the market has stiff completion and the competitors are producing relatively the same item which makes it difficult for the Detroit big three to differentiate themselves and their products effectively from the crowed.... [tags: Automotive industry, Automobile, Tata Motors]
1206 words (3.4 pages)
- I am going to conduct a 5-forces analysis of the industry "Fresh Connections" is involved in, that is to say the fresh food industry. These forces help us to analyse everything from the intensity of competition to the profitability and attractiveness of the industry. We are going to use this model to better understand the industry in which "Fresh Connections" operates. So, the five forces are rivalry, buyer power, supplier power, barriers to entry and threat of substitutes. 1) The rivalry among competing sellers First and foremost, competitive rivalry describes the intensity of competition between existing firms in an industry.... [tags: Five Forces Model Analysis Food Industry]
1770 words (5.1 pages)
- Porter’s five forces analysis Ford has survived for many years and will continue to do so. The threat of new entrants into the automobile industry continues to be ever present regardless of the substantial cost and very competitive environment. Ford is at a crossroads. Continue to monitor the existing competitors or monitor for those new entrants (Investopedia.com, 2014). New automobile manufacturers are a continuing threat for Ford such as if China decided to enter the automobile industry, a very powerful and flush with cash threat.... [tags: Automotive industry, Automobile, Renault]
1355 words (3.9 pages)
- 1. What is your assessment of the external pressures on the industry and company. In completing a Porter 's Five Forces Analysis, what information does this provide for positioning and for strategic tactics. The external pressure assumed a noteworthy part in deciding the corporate technique and execution. The effect of external pressure on the Under Armor is one of the progressions investigated in new prizewinning exploration that looks at the administrative and communal environment in which organizations work.... [tags: Porter five forces analysis, Strategic management]
891 words (2.5 pages)
- The forces driving the competition and the intensity of the competition in an industry, are due to its principal economic structure and the behavior of the competitors (Porter, 1998). Therefore, the state of competition as shown in Figure 1 depends on five competitive factors such as industry competitors - rivalry, potential entrants, buyers, suppliers, and substitutes. As Porter(1998) states “ the collective strength of these forces determines the ultimate profit potential in the industry, where profit potential is measured in terms of long terms of long run return on invested capital.” Therefore, this chapter will focus on the strengths of the competitive forces that driv... [tags: competition, industry profitability, hayleys]
1414 words (4 pages)
- Introduction In today’s competitive and rapidly changing business environment, it’s important to understand the strategic issues opposite organizations and enhance the ability for long term success; Organizations must study the external and internal environment. Porter’s five forces model exams organizations external environment and value chain exams internal environment. Five forces aid businesses to determine the attractiveness and the profitability of a market they competing and assist organizations to make a qualitative evaluation of their strategic position.... [tags: Porter's Five forces and value chain analysis]
1543 words (4.4 pages)
- Michael Porter's five forces model is a strategic framework by which an attempt is made to predict how an industry, behaves, grows and responds within a competitive environment. In his own words the creator of the concept offers an insight; "The five forces determine the industries profitability because they influence the prices, costs, and required investments of firms in an industry the elements of return on investments ." It is the aim of this essay to apply Porter's model to Europe's rapidly growing budget airline industry.... [tags: Business Industry Market Analysis]
793 words (2.3 pages)