Oligopoly War in Beverage Industry

Question: Discuss about theOligopoly War in Beverage Industry. Answer: Introduction Coca-Cola and Pepsi showed their dominance over the beverage industry like no other company over a century but now both the companies are seeing significant drops in sales due to changes in external environment. Government norms combined with the push in healthy diets in order to fight the obesity have raised an alarm in the CSD sales. In order to stay ahead in the market, both the companies need a proper plan and need to execute them properly as the trend is gradually shifting to non-carbonated drinks so to maintain their sales in their CSD lines, they need to get the market in the non-CSD industry (Baah Bohaker, 2015) . The following report emphasis on both the companies as their external environmental changes and how they are managing these changes as they compete for the market share with the help of Portes five forces model. Barriers to Entry Promotion and Marketing Promotion plays a huge role in the success of any industry and Coke and Pepsi knew this. In the year 2000, they spent approximately $2.6 billion. Expenditure per point of market share was about $8.3 million which makes it very difficult for the new companies to make their presence in this highly populated market. Brand Image Both the companies have invested a lot of money for their brand promotion which in return got them a huge brand equity and also got them loyal customers from all parts therefore it is becomes quite difficult for any new comer to match that level. Retail Distribution As both the companies invest a lot on promotion which gives them a high brand image and loyal customers due to which many retailers want to sell their products and also the retailers get their margins which are enough for them. This bracket of margins makes it difficult for the new companies to persuade the retailers to sell their products (Rothaermel, 2015). Fear of Retaliation It is very difficult for the new companies to sell their new products where there are already big players dominating the market so the new players will not get any chance to enter the market easily which would result in price wars and new product lines to make their presence (E. Dobbs, 2014). Bottling Network Many manufactures have tie ups with their respective bottlers such as Pepsi and Coke that have an advantage in their geographic area. These contracts restrict the bottlers from taking on any new brands with similar products. It makes very difficult for the new companies to make any sort of tie ups with the bottlers in order to sell their products due to the agreement between the bottler and the franchise. With this, the new companies are left with the single alternative and that is to build their own plants, which will require huge capital (Magretta, 2013). Intensity of the Rivalry Composition Except for the Coke and Pepsi, all the competitors in the local market are in disproportionate size. Both the companies are holding the majority of the market compared to the rest of the players (Magretta, 2013). Growth Rate There will be no growth in the near future as all the sectors are seeing a decline of 1.1 percent now only. Degree of Diversification Coke and Pepsi both are well renowned companies in their respective grounds. They both compete mainly on advertising rather than the pricing. Coca-Cola is having more brand value for which they have earned a loyalty among the customers world-wide (Rothaermel, 2015). Fame As both the companies fight for the market share, they often try to overcome the later in order to gather more fame so that the customer base for the company increases and they earn more profit ("The Five Competitive Forces That Shape Strategy", 2017). Bargaining Power of the Buyers The major source of these companies is the retail stores in order to grab the market. This clearly shows the buyer power and how buyers pay for the different products based on their power of negotiation. As the buyers purchase in bulk, the bargaining power of the buyers are high. Due to high bargaining power, there can be very little profit if they buy from different buyers. Another way is the use of Vending machines which delivers the product straight to the customers with exactly no power given to the buyer (Heimeshoff Klein, 2014). Customers always look for the price and even can switch to other brands if the pricing does not suite the customers as soft drinks are not an important commodity (E. Dobbs, 2014). Bargaining Power of Suppliers The materials require to manufacture soft drinks are basic commodities like the flavor, color, sugar and many more. The suppliers who sell these products have nothing to bargain for so the suppliers cannot bargain in return. The raw materials which are required to make the soft drinks are easily available to producers and cost less also. As the raw materials are easily accessible to manufactures, so they can easily switch to different suppliers. Duplicity of soft drinks is not possible as standard raw materials are used. Manufactures need robust distribution network which the suppliers cannot afford (Haucap et al., 2013). The manufactures need to keep good contact with the suppliers as there are no substitutes to the product required to make the soft drinks (E. Dobbs, 2014). Threat of Substitute Substituting main commodities will hamper with the quality of the product. Customers will not go for any substitutes because brand name is very important for any company (Sheu Gao, 2014). Soft drink companies spend a lot of money on advertisement to promote their company and to distinguish their product from the others so in order to stand up to the expectation they need to provide the end customers with the original product (E. Dobbs, 2014). Recommendation The success behind Coke industry is because of their non-alcoholic beverages and related products. They need to keep good contact with the suppliers in order to maintain their reputation and it is also important for the company to maintain their brand image in front of their customers. They need to make some products other than their usual line up in order to stay ahead of the market so that they can rule out their customers. Conclusion The two giants of the beverage industry are Pepsi and Coca-Cola which are now recognized all over the world. Both companies made a blunder by engaging themselves in fighting resulting in declining of sales. Both the companies struggle in dominating the market as both are in CSD lines and do not have any non-CSD lines operations. Consumer taste are changing constantly so both the companies to need to come up with some new ideas in order to grab the market. The best way is to come up with the new non-CSD lines and acquire non-CSD brands that are having efficient operations and productions. References Baah, S., Bohaker, L. (2015). The Coca-Cola Company.Culture,16, 17. Dobbs, M. (2014). Guidelines for applying Porter's five forces framework: a set of industry analysis templates.Competitiveness Review,24(1), 32-45. Haucap, J., Heimeshoff, U., Klein, G. J., Rickert, D., Wey, C. (2013).Bargaining power in manufacturer-retailer relationships(No. 107). DICE Discussion Paper. Heimeshoff, U., Klein, G. (2014). Bargaining Power and Local Heroes. Magretta, J. (2013).Understanding Michael Porter: The essential guide to competition and strategy. Harvard business press. Rothaermel, F. T. (2015).Strategic management. New York, NY: McGraw-Hill. Sheu, J. B., Gao, X. Q. (2014). Alliance or no allianceBargaining power in competing reverse supply chains.European Journal of Operational Research,233(2), 313-325. The Five Competitive Forces That Shape Strategy. (2017). Harvard Business Review. Retrieved 20 February 2017, from https://hbr.org/2008/01/the-five-competitive-forces-that-shape-strategy)