1. Why, historically, has the soft drink industry been so profitable?
In just the American economy alone, there are so many beverages consumers have the option of
choosing from; either fruit juice products, coffee, wine, water, etc. It then begs the question of
why carbonated soft drinks have had such an impact on not only the American economy, but the
entire world as well. This industry was a slow start at the beginning, in just the takeoff stage of
its time. It wasn’t until the formula for Coca-Cola was created and branded that the industry
started to really take off. Coca-Cola secured a safe position in the growing industry in the United
States by branding themselves and identifying themselves with the consumers. With the
cooperation of both Robert Woodruff and President Eisenhoward, it was possible that “every
man in uniform gets a bottle of Coke for five cents. Wherever he is and whatever is costs the
company”. It was this mindset that Woodruff stated that their product should be available for all
consumers, that they are “in arms reach of desire”. World War II granted Coke immense
opportunities of expansion, setting up 64 plants overseas and now reaching international markets.
However, even with all the patents and protections Coke had on their products, especially the
classic formula, Pepsi was still able to keep their company and product. Pepsi was the company
Coca-Cola needed in the long run, although Coca-Cola clearly had the competitive advantage,
Pepsi still fought hard and it was during the Great Depression. Their 12 oz soft drinks were
offered at the same price for a 6.5 oz can of Coca-Cola, coining the phrase “Twice as much for a
nickel too”. This competition kept the companies in check, making sure their prices were
competitive in the market, but in the grand scheme of things, the industry requires little raw
materials to operate. At the concentrate producers there is little capital investment and material
cost. They include that machinery, overhead, labor, and materials. The machinery, overhead, and
labor are the basic requirements and for soft drink industry. After going through bottlers, there
are so many marketing channels that the drinks can go through from just stores alone to
restaurants and more. In those markets, the CSD industry is available to everyone at every age,
which is why they are marketed so easily to the general public.
2. Compare the economics of the concentrate business to that of the bottling business . Why
is the profitability so different?
Comparing the two deals with two different powers; the concentrate business is at the mercy by
the supplier power (when getting their raw materials to create the mixture), whereas the bottling
business is driven by the buyers power. However, it is important to recognize the multiple
barriers in this business, whether it be barriers to entry such as substitutes; suppliers, buyers,
rivals, etc. It is also important to note the VRIO model and how this plays in accordance to their
different profit mutters. Concentrate businesses tend to have higher profit margins, take CocaCola concentrate businesses, they have a strict code to follow in terms of keeping the “secret
formula” also known as “Merchandise 7x”. They have secured the entire VRIO model,
especially the organization to exploit profit part. The bottling businesses have a smaller profit
margin, a ⅓ of the concentrate’s business, but it is because they fall after the concentrate and
have to buy what they have in comparison to just having their own supply on hand. Concentrate
manufacturers still want bottling manufacturers to buy and carry their product. Therefore,
although concentrate manufacturers can decide some prices about sweetener costs, they still had
to make attractive prices for the bottling manufacturers buy their product. Profitability is
ultimately different due to the nature of the bargaining power held by the different players in
businesses, and cost of investment.
3. How has the competition between Coke and Pepsi affected the industry's profits?
The competition between Coke and Pepsi has been going on since almost the explosion of the
industry, with this, other ideas were able to come out from this constant competition and the
industry has then had a continuance of innovative ideas and growing market shares.Once a
fragmented business (concentrate and bottling businesses) that featured hundreds of local
manufactures, the U.S. soft drink industry had changed dramatically; Coke and Pepsi claimed a
combined 72% of the US CSDs marker sales volume in 2009. They increased efficiency through
these marketing channels by offering direct store door delivery, an arrangement whereby route
delivery sa;es people manager the CSD brand in stores securing shelf space. Both of these brands
recognize their consumers and an outsource example is Coke having international flavors that are
only for that certain part of the world, such as the flavor “Beverly” made in Italy. To go more
into detail about the just the industry’s profits, however, would be to highlight the main points
such as vertical integration.Coke was the first concentrate producer to build nationwide
franchised bottling network, which had Pepsi and DPS follow suit. New franchise agreements
allowed bottlers to handle the non-cola brands of other concentrate producers. Bottlers could not
carry directly competing for brands. Throughout the 1980s, the growth of Coke and Pepsi put a
squeeze on smaller concentrate producers. Brands that stayed were of course the in house
products that were branded by the actual store. Shelf space for small brands declined and
shuffled from one owner to another, some companies eventually died out from the lack of
sustainability. The last and final point that has affected the industry profits has been here this
entire time, and that is the Cola wars. These two companies alone kept each other in check,
without that competitive player in the market, the brand may have well turned into an entire
monopoly and take away from consumer’s agency.
4. How can Coke and Pepsi sustain their profits in the wake of flattening demand and the
growing popularity of non-CSDs?
Coke and Pepsi can still maintain their profits and possibly even continue to increase them even
if there is now a shift in demand for non-CSDs. This can be surely said because of the
companies’ strong strategies and positions in the markets. It is also important to note that Coke
and Pepsi know their strategies and have stood the test of time and trials by adjusting their
strategies to either play defensively or offensively, but never considering to back out of the CSD
business. They focus their products into fields they know will win, instead of penetrating a new
market right away. They can improve recognition and brand awareness of their products, pay
attention to substantial managerial influence in bottling and distribution network by anchor
bottling model and deepen their traditional products as well as introduce a variety of new
products. This can be done by utilizing the different strategies as well as keeping both the
diamond tool and VRIO model in mind. These companies know how to identify their markets,
conduct analyses on their markets, as well as how to derive the necessary information to expand
their product line and fit the consumer’s needs. What is also important to note that these
companies are not behind in the fact that they have already branched out into the oversea
markets, holding down their positions there. Coke and Pepsi as well as other similar brands will
be able to grow in new markets to come by having to be aggressive in both their marketing and
sales.