Essay on The Porter’s Five Forces Analysis of the Cola Industry

Submitted By naz_stan
Words: 897
Pages: 4

As mentioned in the case, although there are alternatives to the consumption of soda, Americans have continued to drink more soda than any other beverage. The following will be a Porter’s 'five forces' analysis of the Cola industry, which show why the soft drink industry has been so profitable:
The first force is the threat of new entrants, which is low. As we’ve seen in the case, there is no major risk of new entrants in the Cola industry for Coca-Cola and Pepsi-Cola. Also as stated in the case, the number of U.S. soft drink bottlers has significantly decreased from more than 2,000 in 1970, when Americans were consuming only 23 gallons of CSDs annually, to fewer than 300 in 2004, when the industry was topping in the United States. There are many barriers to entry for new entrants. Not only do they have to compete with market share that Coca-Cola and Pepsi-Cola dominate, but also they have much less income to distribute for advertising and public bottling.
The second force is the threat of suppliers which is low: There is a huge amount of bargaining power within the main bottling companies behind Coca-Cola and Pepsi-Cola, Coca-Cola Enterprises for Coke and Pepsi Bottling Group for Pepsi. In 1986, Coke created their independent bottling subsidiary, CCE, which became their largest bottler by 2004 and handled an estimated 80% of Coke's North American bottle. The same has happened for Pepsi who imitated Coke's bottler model and obtained three major bottlers in the late 1980s for more than three billion dollars total and by 1999, formed Pepsi Bottling Group (PBG). PBG became their main bottler and supplier as it produced 57% of PepsiCo beverages in North America and 40% worldwide. The creation of both company's own independent bottlers caused reduction in the total number of bottlers. Such bottling companies, with CCE and PBG, became the heart of the bottling companies.
The threat of buyers and consumer demand is the third force in the five forces analysis. The threat of buyers is shown once prices increased, there was a decline in consumer sales and volume, which led to profits to drop. The consumer always show their demand to be heard in terms of what they buy and if they are not happy with a company's product, that company will find out in their quarterly sales report.
The fourth force is the threat of substitutes. Although there is some brand loyalty in the cola industry, if the price does not fit the product, the consumer will not buy the cola product. Although there are loyal customers to each company, many consumers of CSD products are willing more often not to buy the lower priced product whether it is Coke, Pepsi, Schweppes, or store brand. Other substitutes have mentioned in the threat of buyers and their demand for alternative beverages. Such substitutes included diet and non-carbonated drinks, and bottled water.
The fifth of the 'five forces' analysis is the threat of rivalry, which is high. The threat of new rivalry in the CSD industry is least. Based on the first page of the case, with the quotes by former CEO of Pepsi, Roger Enrico, it is clear that the Cola War between Pepsi and Coke have made both companies even stronger and more profitable than if there was just Pepsi or just Coke. Both companies have become major industry leaders because of their rivalry amongst one another that they have increased the barriers to entry for any new companies to develop and sustain profitability.
In addition, some