TQ1, Samantha Maddox

The beverage industry has always been economically successful, especially Coke and Pepsi. Coke started as a “potion for mental and physical disorders,” sold by a pharmacist named John Pemberton. The Coke business evolved quickly and reached franchises by 1910. The concentrate business and the bottling business, though closely related have very different economic dynamics. The profitability of concentrate producers was much more successful than bottler’s. Even though the profitability of concentrate producers is higher than bottler’s they are still inter-reliant; they share cost in things such as marketing and production. There are many reasons why concentrate was financially successful; using Porter’s five forces we can noticeably see how each force plays an intrical role in profitability. Bottlers and concentrate businesses deal with the same buyers and suppliers. There were many suppliers that could provide raw material to concentrate business owners; therefore suppliers could not ask a premium and their power was low. Bottling businesses, much like suppliers were dependent on concentrate businesses. In reference to the five forces model, concentrate producers supplied bottlers with raw material necessary to make soft drinks. Concentrate businesses took management roles in product development and even negotiated with bottlers. Therefore, it is evident that concentrate business had control in the industry. In addition, there was a high volume of suppliers so that made negotiations impossible. Both Coke and Pepsi made strategic decisions that greatly impacted the bottlers business. Bargaining power of buyers in the concentrate industry is not huge because they have continual buying by the bottlers. The bargaining power of bottlers depends on the distribution channel during that time. There were several factors that made it hard for competitors to enter the soft drink market. One barrier to entry for competitors was the bottling network because both Coke and Pepsi had franchise agreements with existing bottlers. The bottling agreements banned the bottlers from taking on any new competition of competing brands. Pepsi and Coke bottlers spent well over 2 billion dollars in advertising and marketing. The amount of capital spent on advertising by bottling networks made it impossible for potential competitors to contend with them. Retail distribution also caused a barrier of entry since retailers only had a small margin for soft drinks on the shelf and that space got occupied Pepsi and Coke products. Therefore, persuading a retailer to put a new brand of soda on the shelf would be very difficult. In sum, barriers to entry for concentrate and bottler producers were both very high. A threat to the concentrate producers is the switching costs and advertisement. While switching costs and investments are threats to bottling producers. There is a high threat of substitutes for concentrate producers because