Cola Wars Strategic Management.docx

Cola Wars Strategic Management.docx - 1 Why is the soft...

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1. Why is the soft drink industry so profitable? A look at Porters 5 forces can quickly explain the profitability of the soft drink industry. Competition within the industry is limited. Coke and Pepsi have commanded the industry, the two responsible for 50% of the market share in the 60s, and growing to over 70% by the 21st century. The third major player is Cadbury Schweppes coming decades later and never securing even half of Pepsis market share of 31.7%. Slim competition can be attributed to significant barriers of entry . The industry is successful because of the independence between concentrate producers and bottlers. A firm unable to bridge the gap between the two entities would not be able to compete successfully in the industry. Franchisee agreements dividing territories, alliances/acquisitions, and barring substitutes made it significantly difficult for new firms to find appropriate distribution channels and garner visibility. Amassing the capital to compete in such a arena is formidable. Even upon entrance marketing budgets required to create brand awareness present another barrier for entrants. Firms like Cadbury created their defined third place, behind the giants, by focusing on the non-carb segment, which proliferated during health concerns. All the firms, as well as other small competitors, can attribute success to the supply chain as well. Soft drink formulas are simple, comprised of stably priced ingredients leaving many suppliers for a limited amount of contracts. Buyer relations are the most complex aspect in reference to Porters model when we discuss the soft drink industry. Pepsi focused on retail
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