The soft drinks industry has been historically profitable due to the impact of Porter’s five forces on the industry. First, the threat of new entrants is extremely low. CSD bottlers are the most capital-intensive part of the industry’s supply chain. In 1986, Coke acquired various different bottlers and created an independent bottling subsidiary, Coca-Cola Enterprises (CCE). Following their footsteps, Pepsi did the same and founded the Pepsi Bottling Group (PBG). By consolidating the bottlers, the top companies in the industry, Coca-Cola and Pepsi created an environment in which it is difficult for other companies to enter. Most new CSD companies would have difficulty finding bottlers and would not have the funds to develop their own independent
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Robert Woodruff, from Coca-Cola, was one of the first to push this initiative and made sure that Coke played a role in the consumer’s life. Pepsi, on the other hand, spent over $1 billion to redesign its logo in order to transform their image. Therefore, it is almost impossible for any new firm to acquire the amount of brand loyalty that these two companies have, making it even harder for anyone to enter the market.
Second, different from the bottled-water industry, where price-sensitive consumers can seek cheaper alternatives such as private label bottled-water and tap water, CSD consumers do not have any direct alternatives to CSD drinks if there is a spike in prices. For example, Coke’s formula for Coca-Cola is kept in a safe in Atlanta, which makes it extremely difficult for other companies to imitate. Therefore, the only substitutes to CSD drinks are juice and other non-CSD drinks, which are not direct substitutes. The threat of substitutes in Porter’s Five Forces is …show more content…
This competition is extremely health and causes both companies to adapt according to the other’s performance. According to Roger Enrico, former Pepsi CEO “If the Coca-Cola company didn’t exist, we’d pray for someone to invent them.” This interdependency in the competitive environment can be seen through several examples. When Coca-Cola switched from sugar to high-fructose corn syrup, Pepsi did the same three years later. When Coca-Cola intensified its marketing efforts and doubled its marketing spending in 1981, so did Pepsi. When one company ventured into the non-CSD drinks industry, so did the other. The competition causes both companies to evolve and adapt according to market changes and consumer
Robert Woodruff, from Coca-Cola, was one of the first to push this initiative and made sure that Coke played a role in the consumer’s life. Pepsi, on the other hand, spent over $1 billion to redesign its logo in order to transform their image. Therefore, it is almost impossible for any new firm to acquire the amount of brand loyalty that these two companies have, making it even harder for anyone to enter the market.
Second, different from the bottled-water industry, where price-sensitive consumers can seek cheaper alternatives such as private label bottled-water and tap water, CSD consumers do not have any direct alternatives to CSD drinks if there is a spike in prices. For example, Coke’s formula for Coca-Cola is kept in a safe in Atlanta, which makes it extremely difficult for other companies to imitate. Therefore, the only substitutes to CSD drinks are juice and other non-CSD drinks, which are not direct substitutes. The threat of substitutes in Porter’s Five Forces is …show more content…
This competition is extremely health and causes both companies to adapt according to the other’s performance. According to Roger Enrico, former Pepsi CEO “If the Coca-Cola company didn’t exist, we’d pray for someone to invent them.” This interdependency in the competitive environment can be seen through several examples. When Coca-Cola switched from sugar to high-fructose corn syrup, Pepsi did the same three years later. When Coca-Cola intensified its marketing efforts and doubled its marketing spending in 1981, so did Pepsi. When one company ventured into the non-CSD drinks industry, so did the other. The competition causes both companies to evolve and adapt according to market changes and consumer