Cola Wars Case Analysis
Porters 5 Forces Analysis
Barriers to Entry: HIGH- The barriers to entry in the bottling industry are relatively high. Two different methods of getting into the bottling business are franchising, or simply building your own bottling plant. Coke and Pepsi’s franchising agreements with their bottlers restrict the bottlers from working with other competing brands. Since Coke and Pepsi own or are franchised with almost all of the bottling companies, finding a bottler that can or will work with you is nearly impossible. The other method, building your won bottling plant, is extremely costly. According to the case, in 1998 it cost $75 million to build a sufficient plant, and roughly 80-85 plants were needed for full distribution in the United States. It would require a large amount of capital to compete with Coke or Pepsi. The barriers to entry in concentrate manufacturing are also quite high. Concentrate manufacturing is simple to do, and the process involves little capital, but problems arise when you take advertising into consideration. Coke and Pepsi both spend a ton of money on advertising, which makes it hard for a smaller competing company to get noticed. Another barrier to entry is shelf space competition. Pepsi and Coke pay a lot of money for good shelf space in stores, leaving no shelf space for competing products.
Bargaining Power of suppliers: LOW- Suppliers of concentrate have little power over buyers, due to the process of production being very cheap. The ingredients and raw materials required to make the concentrate are basic commodities, and cost very little. There is also littler differentiation between concentrations.
Bargaining Power of Buyers: Coke and Pepsi have high power as buyers of concentrate. Their Master Bottler Contracts control much of the purchasing and price of the concentrate. Concentrate producer have low buying power, because they are purchasing simple commodities. Buyers of...