This case explains the economics of the soft drink industry and its relation with

profits, takinginto account all stages of the alue chain of the soft drink industry! "t focuses on the
war #etweenCoca$Cola and Pepsi as they are the market leaders in this industry ! %0& of the market
share isi n c a r # o n a t e d # e  e r a g e s ! T h e c a s e s t u d y a n a l y s e s t h e d i f f e r e n t
s t a g e s o f t h e  a l u e c h a i n 'concentrate producers, #ottlers, retail channels,
suppliers( and the impact of the modern timesand glo#ali)ation on competition and interaction
in the industry!Coke and Pepsi are two leading companies in the soft drink industry!
*rom the past we
can seet h e s o f t d r i n k i n d u s t r y h a s # e e n s o p r o f i t a # l e ! P o r t e r + s * i  e $
* o r c e s  o d e l o f i n d u s t r y competition can define and analy)e an industry in terms of fie
main factors!To understand the profita#ility of the industry, " hae used the Porter *ramework,
where " identified the forces closeto the firms affecting their a#ility to ser e customers and make a
profit!They are as follows:
1.Barriers to Entry:
The seeral factors that make it ery difficult for the competition to enter the soft drink
marketinclude:-ottling .etwork: -oth Coke and PepsiCo hae franchisee agreements with their
existing #ottler+s who hae rightsin a certain geographic area in perpetuity! These
agreements prohi#it #ottler+s from taking
onn e w c o m p e t i n g # r a n d s f o r s i m i l a r p r o d u c t s ! / l s o w i t h t h e r e c e n t c o n s o l i d a t
i o n a m o n g t h e #ottler+s
and the #ackward integration with #oth Coke and Pepsi #uying significant percent of #ottling compa
nies, it is ery difficult for a firm entering to find #ottler+s willing to distri#utetheir product! The
other approach to try and #uild their #ottling plants would #e ery capital$ intensie
effort with new efficient plant capital reuirements in 1%% #eing 34 million!5/d ertising
6pend:*rom the 7xhi#it 4 and 8 the ad  ertising and marketing spend in the industry is
in 2000 wasaround  2!8 #illion '0!90 per case  8!8 #illion cases( mainly #y Coke, Pepsi and
their #ottler+s!The aerage adertisement spending per point of market share in 2000 was !;
million '7xhi#it2(! This makes it extremely difficult for an entrant to compete with the incum#ents
and gain anyisi#ility!5-rand "mage < =oyalty:Coke and Pepsi hae a long history of heay
adertising and this has earned them huge amountof #rand euity and loyal customer+s all o er
the world! This makes it irtually impossi#le for anew entrant to match this scale in this
market place!