The Cola War: Coca Cola versus Pepsi

Résumé du document

The soft drink industry is divided into two categories of product: the non carbonated soft drink and the carbonated soft drink (CSD). During the next 30 years, CSD consumption rose constantly and grew at an average of 3% per year. The consumption of CSD in USA is about 53 gallons per year! So the average consumption of CSD is very high and quite amazing. But since the beginning of the twenty-first century, the market of the CSD stops growing and became consequently less profitable. But fortunately, on the other hand, the market of non carbonated drink explodes. So thanks these new opportunities and the important consumption of soft drinks which rises constantly, we can say that nowadays soft drink industry is always very profitable and can induce huge profits. Otherwise, if this industry is so profitable it's because there are only few actors on this market. Indeed, Coca and Pepsi have almost the monopoly in the soft drink industry (In 2000, Pepsi and Coca made 76% of the total sells of soft drink).

Extraits

[...] Indeed, Coca Cola and Pepsi represent 76% of the american market in 2000. The necessary infrastructures The infrastructures for the concentrate business are reduced but they are raised for the bottling business. For example, the US market needs only one structure (25 to 50 million each) for the concentrate producers. But concerning the bottlers, an important market like US market needs around 80 infrastructures (25 to 75 million each). The production cost The cost of production of the concentrate business is lower than the bottlers. [...]

[...] Another important point that we have to take into account is the fact that Pepsi, Coca and the other companies of the soft drink industries benefit from low production costs because they exert a strong pressure on their suppliers and their under treating in order to cause a drop in the prices. The competition between suppliers to win a contract with one of these big firms is effectively very strong, and thus they accept all their conditions. Furthermore, the prices of raw materials are in the same way low. So with low production costs and high prices, the soft drink industry is very profitable. [...]

[...] Bottlers purchased concentrate, added carbonated water and high fructose corn syrup, bottled or canned the CSD, and delivered to customer accounts.” The most important profit is realized by concentrate business, indeed, the profits before tax is 35% of sales for the concentrate producers and for the bottlers. (Annexe 5). The profitability is so different between concentrate producers and bottlers because of 4 main elements: The number of concentrate producers and bottlers There are few concentrate producers but an important variety of bottlers. The concentrate producers are superior both for the level of price and for the decisions with the bottlers. [...]

[...] The coca Cola brand is a synonym of American culture since 1916. This popularity is indisputable, indeed Coca Cola is recognized everywhere around the world. Thanks an international implementation, Coca Cola is a premium brand on the international market. The firm has a closest competitor: Pepsi and its success provides to a long term rivalry between the two competitors. Indeed, when Coca launches a new product, Pepsi answers launching the same product. This interdependent success generated Cola War. In the soft drink industry, Coca & Pepsi are the two dominants companies (Coca: 44% market share vs. [...]

[...] So, these countries are an important stake for the brands cause of the flattening demand in the domestic market. So, the companies have an important profitability, and thanks to their strategy, they can sustain their profit. However, globalization made coca cola consider its business differently. The internationalization has to face to intercultural conflicts. For example, Coca Cola in India is generated local issues such as the water war increasingly phenomenon. So, international implementation generates intercultural conflicts, and Coca has to adapt their strategy in the way of the culture of the country. [...]