Professional Documents
Culture Documents
Cola Wars
Mitali Banerjee
Sept. 18, 2023
Returns Across Industries 1995-2015
Strat Mgmt
2
Profitability of Soft Drinks vs Other Industries
ROA ROE
Merck 8% 17%
US Steel 0% -2%
Strat Mgmt
3
You taste its quality ?
Strat Mgmt
4
“It Tastes Good Because It's My Favorite Brand”
People who were asked to blind-test Coca-Cola and two store brands of
cola split their preferences almost evenly among the three: 31% for Coke
and 33% and 35% for the others.
But when the samples were identified, 65% of the participants in the
experiment said they preferred Coke, according to Jennifer E. Breneiser
and Sarah N. Allen of Valdosta State University.
Strat Mgmt
5
Industry Analysis – 5 Forces
Strat Mgmt
6
Main Players in the Soft Drink Industry Value Chain
Concentrate
Suppliers Bottlers Retailers Consumers
Producers
Strat Mgmt
7
If given a choice which player would you want to be?
• Concentrate Producer?
• Bottler?
Strat Mgmt
8
Concentrate Producers (CPs) and Bottlers
Concentrate Bottlers
Producers (CPs)
Strat Mgmt
9
How do the five forces affect CPs?
Strat 10
Mgmt
Threat of new entrants to CPs
• Economies of Scale?
• Differentiation?
• Fixed Costs?
• Switching Costs of Buyers?
• Access to Distribution Channels?
• Value of Experience?
Strat 11
Mgmt
Threat of New Entrants to Concentrate Production
• Economies of Scale:
– Coke and Pepsi have higher economies of scale on adverstising
Ex. 8 Coke Dr. Pepper Gatorade
Ad spent per $15million $19million $38 million
market share
point
Strat 12
Mgmt
CPs: Intensity of Competition?
Strat 13
Mgmt
Factors that Affect Intensity of Competition Among
Incumbents
Strat 14
Mgmt
CPs Intensity of Competition
Strat 15
Mgmt
Profitability of CPs
Profitability of Concentrate Producers vs. Bottlers
CPs
• Sales 100 %
22 %
• COGS
• Gross Margin 78 %
• Return on Sales 32 %
Source: exhibit 4
Strat 16
Mgmt
Competition among CPs
• Competition on
– Shelf space
– Advertising on brand image to increase “perceived differentiation”
– Selective discounting on downstream products not upstream products
Strat 17
Mgmt
Bargaining Power of Suppliers to CPs
Strat 18
Mgmt
Coca-Cola’s Secret Recipe
Strat 19
Mgmt
Supplier Bargaining Power
Strat 20
Mgmt
CPs’ Buyers: Bottlers
Strat 21
Mgmt
Substitutes to CPs
Strat 22
Mgmt
Summary: Attractiveness of CP
• Highly attractive
– High barriers to entry given ad spend needed to build brand image
– Structural features limits intensity of price competition among incumbents
– Supplier bargaining power low
– Buyer bargaining power low
– Substitutes: Many but ease of access, brand and addictive nature of
product has historically limited substitutes.
Strat 23
Mgmt
Five Forces for the Bottlers
Strat 24
Mgmt
Bottlers: Supplier Bargaining Power
Strat 27
Mgmt
Bottlers: Buyer Bargaining Power
- Supermarkets – Yes
- Chain restaurants – Yes
- Fountains – Yes
- Vending Machines – Yes
Strat 28
Mgmt
Bottler Profitability
Profitability of Concentrate Producers vs. Bottlers
Bottlers
• Sales 100 %
58 %
• COGS
• Gross Margin 42 %
• Return on Sales 8%
Source: exhibit 4
Strat 29
Mgmt
Bottlers: Threat of New Entrants
Strat 30
Mgmt
Bottlers: Intensity of Competition
Strat 31
Mgmt
Substitute to Bottlers
Strat 32
Mgmt
Summary: Attractiveness of Bottling
Strat 33
Mgmt
CSD Industry Structure
Concentrate
Suppliers Bottlers Retailers Consumers
Producers
Supermarkets
Mass Retailers
Water/Packagi Convenience Stores
ng/Sweetener Drug Stores
Fountains
Vending Machines
Strat 34
Mgmt
Profitability of Concentrate Producers vs. Bottlers
CPs Bottlers
• Gross Margin 78 % 42 %
• Return on Sales 32 % 8%
Source: exhibit 4
Strat 35
Mgmt
Who is Losing the Colar Wars?
Strat 38
Mgmt
Evolution of CP/Bottler relationshio
• Price negotiations
• Vertical integration and spin-offs
• Historically bottling profitable but less so over time
Strat 39
Mgmt
What can we learn from the case?
Strat 40
Mgmt
Next Class: Business Level Strategy
Strat 41
Mgmt