The Concentrate Producer's Industry Analysis

The Concentrate Producer's Industry Analysis:

The Industry of carbonated soft drinks (CSD) was growing in a rapid pace since 1970 and 2000. Referring to exhibit 1, the consumption was 22.7 gallons/Capita in year 1970 which almost equal to Beer consumption during the same year. This numerical representation indicates that Beer may have been a major substitute to CSD during that period of time. In 2000, the consumption of CSD has doubled to 53.0 where Beer and other substitute drinks remained almost the same. During that quick growth and analyzing year 1990 in Exhibit 3 to see how market share was distributed; Coca-Cola Company and PepsiCo Inc dominated the market by almost 74%. After studying such Figures, we can assume that the Concentrate Producer of the CSD industry in oligopolistic competition where two main companies split 70% of the market share leaving 30% for the rest of competitors.

At the level of entry barriers, this industry requires low investment capital where a factory that can serve the entire market has $20-50 Million estimation costs. However, this is not enough; this industry requires the know how product where new entrants should create a concentrate in order to produce. Coke and Pepsi put the Know-How formula in Bank Vaults in order to sustain their competitive advantage. Patents and exclusive right and trademarks exists which make entry seems impossible. Coke sued a lot of companies trying to imitate the product, and it even sued its main competitor Pepsi in order to protect its market share. After 1990's, the market became almost saturated where Coke and Pepsi were presented as cultural icon to consumer and it would be hard for new rivals to breakdown this image. At the Level of Substitutes, the industry was competitive since there were many different substitutes to the CSD existed like Beer, Juices, and Milk… So the companies have to compete aggressively in order to make their product survive. This is why Coke and Pepsi ran huge advertising campaigns to brand their product, and they started producing substitutes of their own products to keep up the market share and increase profits. Such efforts done with huge budgets almost weakened the competitors as their share was shrinking and their budgets were low to stimulate their products.

On the side of the suppliers, there were few ingredients needed and certain packages. Such suppliers were National Can; Crown C & C, Reynolds Metals and others. The supplier's side was weak in that industry which could create opportunities for competition, but Coke and Pepsi backward integrated to produce their supplies and weaken the existing suppliers. On the other hand, Buyers were in powerful position since concentrate producers need them to fill in the chain production process. Packaging and bottling was almost the major asset in this business, this is why Pepsi and Coke were trying to keep good relations with the franchised bottlers where they advertise for them, fund them to upgrade factories and assist them in creating a valuable distribution channel. Since bottlers were in powerful position negotiating their contracts, prices and given many advantages, Coke and Pepsi tried to weaken them by Forward Integrating to their Market by creating their own bottling groups: Coca-Cola Enterprise, and Pepsi Bottling Group.

External environmental forces like crisis in Asia and Russia, political instability, restrictions and lack of infrastructure were powerful enough to inhibit the growth of the