Uploaded by Sandrine Heller

Cola Wars Case Study Bullet

Sandrine Heller
Question: Using your knowledge of industry structure (Porter’s five forces) please compare the
industry structure of the concentrate producers to the industry structure of the bottlers – which one is
more attractive – why?
Bottlers Industry
Threat of new entrants (barriers):
- High startup cost (CAPEX)
- Sunk cost in machinery purchased (it
cannot be used for anything else than
- Existing relationships and contracts
- Monopolistic competition (Pepsi and
coke have their own bottling franchises)
- Loyalty to concentrate industry
The Power of suppliers:
- Raw Material is a commodity (cans and
The Power of buyers:
- Low profitability so lower power (Exhibit
4 shows gross profit per case is only 42%
of net sales compared to 78% in
concentrate industry)
- More power if they buy large volumes
from bottlers
- No Substitutes
Rivalry among existing firms:
- Franchise agreements where bottlers are
not allowed to produce products of
Concentrate Industry
Low Capex
Oligopoly industry (threat of retaliation)
Relationships that already exist in
industry (agreements and contracts)
Retail Shelf Space (Pepsi and Coke can
offer a significant margin that newcomers
won’t be able to match)
Brand loyalty
Raw Material is a commodity (Sugar,
caffeine, additives, etc.)
Pepsi and Coke have vertically integrated
into the bottler market (who are the ones
buying from them) So they have less
Individual consumers have no power
Large customers who buy in volume such
as supermarkets have more power
Non CSD (water, juices, etc.)
Consumption of water has been rising at
5% over the years whereas CSD has had
negative growth rates (Exhibit 7)
Long lasting rivalry between Pepsi and
Coke. They have been fighting for largest
market share and try and win over
contracts from competitor
The bottler industry, although there is a large entrance cost, is more attractive for new entrants since
there is not an oligopoly, however it does not provide a high profit margin (8%). The threat to entry for
the concentrate industry is low since the barriers to new entrants are very high. For the bottler industry
it seems that the threat is slightly higher bur still low, since it is not completely dominated by two firms.
However, since the cost to entry is relatively high, it will keep the threat low. Coke and Pepsi are so well
known in their industry that it is almost impossible to start new since they will likely retaliate and lower
their prices to make your product not worth buying for customers. Even a new company enters the
industry it seems from past experience that they will buy the new company and add it to their huge
collection of brands. In the bottler industry at least there is some chance of entering but there is a very
high risk of sunk cost with the initial startup cost.