Why is the soft drink industry so profitable

soft drink industry analysis

Each bottler could only negotiate with one supplier for its premium product. Their other source of profitability is their contract relationships with CPs, which grant them exclusive territories and share some cost savings.

Cola wars continue coke and pepsi in 2010 five forces

Pizza Hut. Coke has protected its recipe for over a hundred years as a trade secret, and has gone to great lengths to prevent others from learning its cola formula. Regulatory blessing of intrabrand sole districts. So the only buyers with dominant power were fast food outlets. Sugar could be purchased from many sources on the open market, and if sugar became too expensive, the firms could easily switch to corn syrup, as they did in the early s. Over time, however, other beverages, from bottled water to teas, became more popular, especially in the s and s. Coke and Minute Maid , and internal product innovation e. Misdemeanor of this judicial admission would ensue in expiration of the contract.

We shall address each of these individually to formally refute the plausibility of vertical integration of CPs into bottling. The soft drink industry is one of the most highly profitable industries in the USA.

Their lone power was control over premium shelf infinite.

carefully explain why the soft drink industry has been so profitable for so long.

Suppliers became so powerful that they eventually bought their own bottling plants. The entry barriers are pretty high.

Soft drink industry five forces analysis

Coke and Nestea , acquisitions e. Through long-term, in depth relationships with their customers, they are able to serve customers effectively. To further build glass houses, as described by Nalebuff and Brandenberger Co-opetition, p. This pattern keeps bottlers comfy plenty. Through DSD programs, they lower their customers costs, making it possible for their customers to purchase and sell more product. Coke and Pepsi found these channels of import. Bottlers have significantly less added value. Unlike their CP counterparts, they do not have branded products or unique formulas. Bottlers were able to overcome these operational challenges through consolidation to achieve economies of scale. In the plastic bottle business, again there were more suppliers than major contracts, so direct negotiation by the CPs was again effective at reducing supplier power. CPs, meanwhile, could continue increasing the prices for their concentrates with the consumer price index. It further ensured that its bottlers would be captive to its monopoly status by buying major bottlers and then selling them into the CCE holding company, which would only produce Coke products. This industry as a whole generates positive economic profits. The stores counted on soft drinks to generate consumer traffic, so they needed Coke and Pepsi products. Substitutes: Through the early s, soft drinks were synonymous with colas in the mind of consumers.

Coke and Pepsi are respected household names. The real difference between the fortunes of CPs and bottlers through this period, then, is in top line revenues. This practice keeps bottlers comfortable enough, so that they are unlikely to challenge their contracts.

cola wars case study

Overall, because of the CPs efforts in diversification, however, substitutes became less of a threat. This industry as a whole generates positive economic net incomes.

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Cola wars between Cocacola and Pepsi