Cola Wars Continue: Coke and Pepsi in 2006 Essay

873 Words Oct 6th, 2008 4 Pages
Cola Wars Continue: Coke and Pepsi in 2006
1. Why is the soft drink industry so profitable?
In an industry dominated by two heavyweight contenders, Coke and Pepsi, in fact, between 1996 and 2004 per capita consumption of carbonated soft drinks (CSD) remained between 52 to 54 gallons per year. Consumption grew by an average of 3% per year over the next three decades. Fueling this growth were the increasing availability of CSD, the introduction of diet and flavored varieties, and brand extensions. There is couple of reasons why the industry is so profitable such as market share, availability and diversity and brand name and world class marketing.
 Coke and Pepsi have created an oligopoly that controls more than three-fourths of the
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They realized that the relationship between concentrate makers and bottlers is the most important to make maximum profit. Therefore they charged concentrate prices based on the different channels and for different packages to maximize the profit margin of both companies.
3. How has competition between Coke and Pepsi affected the industry’s profits?
Industry profitability lives and dies by Coke and Pepsi because they own the majority of the market share and high innovation (New flavour, health concern, new product etc). Coke and Pepsi have pushed smaller concentrate makers into the battle by swallowing larger amounts of shelf space for their growing brands. This has reduced the number of players by capturing their volume and reducing their profitability. The cola wars also weakened small independent bottlers by applying force to upgrade plant and equipment in support of new products. As a result, in higher costs and lower margins forcing many small bottlers to fold or consolidate. In the other hand, Coke and Pepsi have acquiring a high growth and a market share with high profits.
4. Can Coke and Pepsi sustain their profits in the wake of flattening demand and the growing popularity of non-carbonated drinks?
In the wake of flattening demand and the growing popularity of non-carbonated drinks, Coke and Pepsi have many opportunities to sustain profits. Diversifying their portfolios and adding new product allows for larger margins and more

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