Essay on Cola Wars

Submitted By ebecks11
Words: 413
Pages: 2

1. The concentrate producers, Coke and Pepsi, purchase and blend raw material ingredients such as caramel coloring, phosphoric or citric acid, natural flavors and caffeine, then package the mixture and ship it to bottlers. Bottlers major purchases and inputs in the process are packaging (cans and bottles), and sweeteners (carbonated water, sugar and high fructose corn syrup). They add their contribution to the concentrate, package up the final concoction, and deliver it to the final customers, mainly supermarkets, fountain outlets, vending machines, mass merchandisers, convenience stores and gas stations. Because bottling plants are capital-intensive and include major variable costs, such as labor and overhead, concentrate producers began to franchise the bottling business.

2. The bargaining power of the supplier in the concentrate business is low. The raw materials that are needed for the concentrate are basic commodities. Therefore the producers of these materials have no pricing power. Because the concentrate industry has shifted to a highly intense, profitable business, especially for Coke and Pepsi, the threat of new entrants is low. Brand loyalty and expenditures such as advertising make it nearly impossible for a new entrant to survive in the marketplace. Overall the bargaining power of the buyers for in the concentrate industry is weak. Though there is threat of substitutes out there (coffee, tea, juice, etc.), concentrate firms (Coke, Pepsi, Cadbury) diversified their businesses to offer some of the similar substitutes to combat the threat. Along with diversifying, Coke and Pepsi’s brand equity makes it difficult for any substitute, not under their brand