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Cola Wars Continue : Coke and Pepsi in 2006 1. Why historically has the soft drink industry been so profitable? * High rate of consumption increasing at an average of 3% per year * Increasing availability of CSDs * Introduction of diet and flavoured varieties Year| 1970| 1975| 1981| 1985| 1990| 1994| 1996| 1998| 2004| Consumption in Cases (million)| 3090| 3780| 5180| 6500| 7780| 8710| 9290| 9880| 10240| 2. Compare the economics of concentrated business to that of bottling business? Why is the profitability so different? Concentrated business was Less capital investment, while Bottling business was More capital investment * Concentrate business was more flexible to accommodate diverse product than bottling business * Concetrate business focussed more on R&D and marketing, while bottling business worked more in manufacturing and logistics * Concetrate business held a higher bargaining power than bottling * Concentrate business can push its business to large no.
Of bottles, while bottlers cannot engage in doing business from rival firms 3. How has the competition between Coke and Pepsi affected the industry’s profits? a.
Increased the per capita consumption: 22. 7gallons in 1970 to 52. 3gallons in 2004 b. Expanded the industry volumes: 3090 cases in 1970 to 10240 cases in 2004 c.
Expanded the industry in different regions of the world d. Monopolistic competition raises the entry barrier e. Innovative packaging and product range: Teas, Coffees, Juices and flavoured water, 20 new products with emphasis on health and diet in Mexico, etc. 3. Can coke and pepsi sustain their profits in the wake of flattening demand and the growing popularity of non-CSDs? Yes, Coke and Pepsi can continue to increase their profits inspite of reaching a plateau in 2000’s.
Some of the steps which are taken/can be taken are: a.
Geographically diverse markets b. Shift towards “Diet” version which catered to the health conscious audience c. Expected increase in non-US per capita consumption of CSDs as it is very low d. Innovative business and distribution models: Vending machines in Japan, Small returnable glass bottles in India and China, etc. e. Well established water business with considerable market share which still has a high growth rate f. Innovative distribution models which helps maximizing the sales volumes g. Innovative packaging to boost the existing customer base
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