Case Analysis Of Coca Cola And Pepsi

885 Words 4 Pages
1- Concentrate producers requires low capital investment and fixed costs (as low as 50M$). Few relatively cheap raw material ingredients are needed as inputs in order to produce the concentrate hence incurring low cost of goods sold (0.22$  22% of net sales exhibit 4). Concentrate producers main expenses come from marketing and administration expenses that account for 46% of net sales (exihbit4).
Using the Master bottler contracts, the concentrate prices increased steadily in the last two decades (exihbit5) which further increased the profitability of the Concentrate producers reaching an operating income of 32% of net sales as of 2009(exhibit4). On the other hand, the bottling business required high capital investment and high fixed cost
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The two brands historically tried to top each other and are spending so much on marketing that they created a very high brand equity and strong barriers to entry to any new competitor and wiped out the profit for the rest as it is very difficult to match their spending in order to compete against them. However, this high competition negatively affected the bottling businesses. The constant discount strategies and increasing pressure on bottlers to increase advertising spending and package proliferation has shrunk their profit and pushed family owned bottlers out of business and later led to the consolidation of the bottling system by both companies in order to remain competitive, cut costs for bottlers while increasing concentrators …show more content…
The 2 companies already strong brand equity, increasing marketing budget for their flagship brands and constant innovation (e.g. freestyle soda machine) should retain customers’ loyalty. By diversifying their product portfolio through new acquisitions and introduction of a variety of new CSDs such as diet products that already proved their profitability and non CSDs, the two companies should be able to respond and adapt to the customers changing demand and preferences such as increasing health concerns, rising interest in sports and nutritional drinks.
The international market remains a key opportunity for Coca cola and Pepsi to sustain and increase their profitability. Even though Coca Cola is already a leader on the international level with 80% of sales in contrast with roughly 50% of sales for Pepsi, many foreign untapped markets are still far from being saturated and constitute a good profitable business, especially within the rising economies in Asia, Africa and the Middle East as growth means higher purchasing power. Finally, the two companies’ consolidation of their bottling system again in 2009 should cut down operating costs and increase

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