School Papers

With capita is somewhat fixed, growth of the

With
market saturation, waning demand, and a surge in the popularity of substitutes
for carbonated soft drinks (CSDs), Coke and Pepsi must make strategic decisions
to help them maintain profitability and growth. One decision they are faced
with is whether to expand their non-CSD businesses. Another is whether to
acquire their bottlers in order to cut costs and increase efficiency.

 

By
analyzing the external environment, several conclusions can be reached. First,
the risk of new entrants to the CSD industry is very low. The industry has become
increasingly concentrated over the years, now with three companies accounting
for nearly 90% of the market share. Second, with the concentration of the
retail industry, customers such as WalMart and wholesale clubs have been able
to exercise significant power over the price of CSDs in the take-home market.
Third, suppliers to CSD concentrate producers and bottlers do not have
significant bargaining power. Cans, sweeteners, and caffeine, for example, are
all commodities with many available suppliers. Fourth, there is growing
competition from non-CSDs. Bottled water and sports drinks in particular have rapidly
gained popularity over the last few decades and have taken a significant market
share from CSDs. Lastly, the industry competition is strong, yet stable. Coca
Cola Company has consistently led overall CSD consumption, with PepsiCo and Dr.
Pepper Snapple Group taking second and third place, respectively.

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Using
the information gathered from the external analysis, it is recommended that the
leading CSD companies continue to expand their offerings of non-CSD products,
both through acquisitions and through the development of existing brands. The continued
acquisition and refranchising of bottlers is also strongly suggested. The
increased concentration of bottlers reduces costs, increases bargaining power
with suppliers and retailers, and enables more efficient cooperation between
concentrate producers and bottlers.

 

The
primary limitation of this recommendation, however, is the overall saturation
of the beverage market. Since American consumers already rely on purchased beverages
for the vast majority of their liquid consumption and since overall liquid
consumption per capita is somewhat fixed, growth of the beverage market as a
whole is limited.

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