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Case: The Cola Wars Continue: Coke vs. Pepsi in the 21st Century
Question 1 – How does a five-forces analysis explain industry profitability?
Power of Supplier – Number of suppliers are large, and distribution are through many channels
like Supermarket, Fountain Outlets, Vending machines, mass merchandize, convenience store,
drug store and other outlets. As stated, the competition for fountain sales was intense. These
circumstances give the supplier more bargaining power.
Power of Buyer – CDS is worth $60 Billion industry in USA, with and average consumption of
53 Gallons of CDS per year by an American. This show the Industry is very huge. Since this
Industry is very competitive the switching the supplier is very easy, giving more power to
buyer.
Threat of New Entrant – Since this industry is very well established the and there is very high
customer loyalty the threat of new entrants is less.
Threat of Substitute – There are large number of substitutes for CSD industry like water, milk,
juice, tea, beer, wine, etc. With time the threat of these substitutes has increased. Hence, the
major player in this industry has also added some of the substitute as part of their product
portfolio to counter of the threat from substitutes.
Competitive Rivalry – There is very high competition in this industry with major between 2
player Coca-Cola & Pepsi.
Above analysis shows the market forces the favourable to profitability of this industry.
2) Why has the soft drink industry been so profitable?
Due very high demand in this industry, very less willingness of consumer to switch to the
substitute, quenching thirst with freshness, low cost of production the soft drink industry is
been so profitable
3) Can Coke and Pepsi sustain their profits in future? Why or why not?
