This document analyzes the soft drink concentrate and bottling industries using Porter's Five Forces framework. It finds that the concentrate industry exhibits a duopoly between Coca-Cola and PepsiCo, with high barriers to entry. The bottling industry also has high consolidation and bottlers have limited choice of concentrate producers. While the carbonated soft drink market is declining, it still represents 40% of the soft drink market, and the big companies are focusing on value-added products and investing in growing markets like Asia to counter pressures in mature markets.

1. Coca-Cola Wars Sofia Kjellström Lu Lei Anna Mononen Lukas Rose RomainAubert

2. Concentrate producers:

3. Rivalry Highly concentrated industry: Duopolistic Industry growth: Mature for CSD. Similar products Low-fixed cost Capacity could be expanded easily Fierce competition: products and company structure are really similar, the major difference comes from their marketing efforts.

4. Threats of substitute For the concentrate producers, the threat is low because cost of switching are high for bottlers, but increasing due to changes in end-consumer taste.  Low

5. New Entrants Very high entrance costs to develop distribution and sign contractual agreements  unequal distribution channel access. Even for 3rd and 4th place of CSD, producers are still very large companies. Brand equity is extremely high. Bottlersare really affiliated to one of two giants. Current players have enormous financial power.  Barriers are high

6. Suppliers’ power (Artificial sweeteners, Caramel, Citric acid, Natural flavors. Caffeine...) More suppliers than producers. Relatively undifferentiated supplies. Suppliers power is quite low.

7. Power of buyers: Bottlers Territory exclusivity strengthens their position High market concentration Limited choice of concentrate producers Tight margins: volume requirement Majority of bottling business is owned by Coca Cola and PepsiCo  Low power

8. Market Attractiveness: Concentrate Producers Gross profit 83% Concentrate price increase higher than inflation CSD consumption is stagnating Increasing marketing costs CSD market size decreased from USD 10 billion in 2005 to USD 9.4 billion in 2009*  Still very profitable but not attractive *https://www.trefis.com/company?article=20065#

9. Bottlers

10. Bottle producers:

11. Rivalry Territorial exclusivity Market consolidation: CCE represents 70% of Coke’s North America business, PBG represents 54% of PepsiCo’s North America bottling business  Weak rivalry

12. Substitutes Limitations on bottling due to product characteristics  Low New Entrants High consolidation High capacity requirement – low margin products High fixed-cost vs. low marginal costs  Low

13. Suppliers Raw materials are easily available Help for the packaging from concentrate producers  Suppliers have high bargaining power Buyers of the bottlers (Vending machines, convenience stores, fountains, grocery stores) Vending Machines, Fountains: high bargaining power – contractual transactions Grocery stores: Also high because few buyers  Buyers have high bargaining power

14. Market Attractiveness: Bottlers Gross profit 35% CSD market size Retail price increase lower than inflation Huge initial investment in production (up to USD 75m) Complex and inflexible production Highly dependent on concentrate producers’ marketing efforts Concentrate producers’ business is more attractive

15. Current state of the industry Concentrate producers are buying their bottlers: - to be closer to the customers - own the market - secure the supply chain in times of financial crisis The carbonates market is the least growing

16. Current state of the industry ... declining but carbonated drinks still represent 40% of the soft drink market. Big two coming under pressure....

17. Today’s challenge Focus on value-added products: vitamin water, dairy segment, bottled water Large investment in Asia. (Coke in China, and Pepsi in India) New competitors need to be considered: Nestlé, Danone.

18. Q&A

19. Sources http://www.pr-inside.com/the-pepsi-bottling-group-inc-pbg-r2347878.htm http://www.ajc.com/business/the-pepsi-challenge-for-446766.html http://www.slideshare.net/xiaoyiliu/sse-cola-wars-group5?src=related_normal&rel=2947405 http://www.slideshare.net/guest89fff/sse-cola-wars-group8-presentation http://www.slideshare.net/akula77/sse-cola-wars-group3-2-presentation http://www.slideshare.net/SSEGroup9/cola-wars-2946604 Euromonitor International : Global Soft Drinks: Corporate Strategies – Diversification Drives Market Dynamics Soft Drinks Global Trends and Opportunities