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2.
Compare the economics of the concentrate business with that of the bottling business. Why is the profitability so different?
In 1970, Americans consumed 23 gallons of CSDs annually. The growth of 3% per year over the next 3 decades (refer Exhibit 1)
attributed to availability increase of CSDs and introduction of diet and flavored varieties. In Exhibit 4, we see the gross profit and
operating profit of concentrate producer is as high as 78% and 32% but the bottlers being capital intensive could only garner 42%
and 8% respectively. Also, the concentrate price is on a rise from 1988 to 2009 often more than the inflation (refer Exhibit 5)
which in turn affected the bottlers as their main cost components were concentrate and syrup. But the retail pricing was with
bottlers while concentrate makers preserved the right to grant exclusive territories under Soft Drink Interbrand Competition Act.
3.
How has the competition between Coke and Pepsi affected the industrys profits?
With the Cola Wars, The cola giants Coca-Cola and Pepsi have brought about a revolutionary change in soft drink industry. The
rivalry has affected the profits in positive manner. Both companies compete for the top spot have managed to create high quality
products for CSDs, Juice, Non-CSDs, bottle water. They diversified themselves to packaged foods and drinks to increase the
customer base and industry. Over the years, the competition has shown a push-pull effect on profits because one companys
innovation/distinct move inspires the other company to rise to the new level of competition and make decisions to act according
to it as to gain maximum market share against competitor. The war between Coke and Pepsi not only enable them to expand
revenue, but also broaden their base of innovation in form of products, distribution channel, marketing campaign, Discounting
schemes which overall bring up the soft drink industry.
4.
How can Coke and Pepsi sustain their profits in the wake of flattening demand and the growing popularity of non-CSDs?
To curb the hit to the growth of CSDs, both have to devise strategies to shift focus towards healthier beverage options keeping
the customer demand in focus. In Exhibit 9 and 10, non-CSDs have showed a sharp rise through 2002 to 2009 in 4 out of five
beverages. Sales increase should come as a result of customers association with brand image, personal connection and nostalgia.
A go-to plan could be to replace high-fructose corn syrup by sugar to address the need of healthier option. Operation of bottlers
kept under check for cost minimization.
5.
http://beta.fortune.com/fortune500/coca-cola-62; http://beta.fortune.com/fortune500/pepsico-44
http://www.businessinsider.com/soda-wars-coca-cola-pepsi-history-infographic-2011-11?IR=T
http://www.hongkiat.com/blog/battle-of-the-brands-pepsi-vs-coke-advertisements/
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http://www.businessinsider.in/The-future-of-Coke-and-Pepsi-depends-on-this-unlikely-beverage/articleshow/51970363.cms
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