Using Porter's five forces to compare Coca-Cola and Pepsi-Cola companies in their fight to become the market major players.
Coca Cola and Pepsi vied for "throat share" of the world's beverage market for over a century. The biggest battles of the cola wars were fought over the $60 billion industry in the U.S, where the average American consumed 53 gallons of carbonated soft drinks per years. In a carefully waged competitive struggle, from 1975 to 2000 both Coke and Pepsi achieved annual growth of around 10% as both U.S and worldwide carbonated soft drink consumption consistently rose. This cozy relationship was threatened in the late 1990's , however , when U.S carbonated soft drink consumption dropped for two consecutive years and worldwide shipments slowed for both Coke and Pepsi. In response both firms began to modify their bottling, pricing and brand strategies. They also looked to emerging international markets to fuel growth and broadened their brand portfolios to include non-carbonated beverages like tea, juice , sports drinks and bottled water.
In the carbonated soft drinks industry concentrate producers like Coke and Pepsi require a few inputs. The concentrate for most regular colas consisted of caramel coloring, phosphoric acid and/or citric acid, natural flavors and caffeine. Bottlers purchase two major inputs which are packaging and high fructose corn syrup. Suppliers of nutritive sweeteners did not have much bargaining power against Coke, Pepsi, or their bottlers. The concentrate producers' strategy towards can manufacturers was typical of their supplier relationships. Coke and Pepsi negotiated on behalf of their bottling networks and were among the metal can industry's largest customers. Since the can constituted about 40%of the total cost of a packaged beverage , bottlers and concentrate producers often maintained relationships with more then one supplier. In the 1960 and 1970's Coke and Pepsi backward integrated to make some of their own cans, but largely exited the business by 1990. In 1994, Coke and Pepsi instead sought to establish long-term relationships with their suppliers. Major can producers included American National Can, Crown Cork & Seal and Reynolds Metals. Metal cans were viewed as commodities and there was chronic excess supply in the industry. Often one or three can manufacturers competed for a single contract. With an abundant supply of inexpensive aluminum in the early 1990s and several can companies competing for contracts with bottlers, can suppliers had very little supplier power.
Soft drinks have become intrinsically tied to the "American way of life," and the leading soft drink, Coca-Cola, is a virtual icon of American culture. ...
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