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Coke Pepsi Case Study

3415 words - 14 pages

This essay introduces the carbonated soft drinks in the world beverage market, and Coca-Cola and Pepsi Co, the two companies that have been competing and fighting to control profits and market share in this segment. First, this essay explains the reasons that the carbonated soft drink industry is so profitable and lucrative. Second, this essay compares the economics of the concentrate business to the bottling business, and explains the reasons that the profitability metrics are different. Third, this essay explains how the competition between Coke and Pepsi have affected the world beverage markets profits with carbonated soft drinks. Fourth, this essay forecasts the feasibility of Coke and ...view middle of the document...

In the carbonated soft drink industry, there are a few major players that produce majority of the carbonated beverages, namely Coca-Cola, and Pepsi Co. The reasons for the soft drink industry being so profitable is that they are: 1) cheap to produce concentrate for bottling and fountain sales; 2) companies have direct distributors; 3)companies often bottle, package, and produce concentrate through their own subsidiaries; 4) companies have pouring rights with certain restaurants, and gas station chains through contracts guaranteeing exclusive rights to provide only their carbonated beverages, which guarantees profit; 5) the soft drink industry is also profitable due to their strategic brand partnerships, and through partnerships to promote mixed consumer participation in the consumption of a beverage and for example to use the can to buy a ticket to an amusement park at a discount. Sixth, the soft drink industry is profitable because consumers demand and consume millions of gallons of soft drinks each year, therefore there is a dependence among consumers for carbonated soft drinks from the big three producers aforementioned above.

First, the soft drink industry is profitable because carbonated beverages are cheap to produce for bottling and fountain sales, with high profit margins. Second, the soft drink industry is profitable because companies distribute directly to gas stations, restaurants and supermarkets. Third, the soft drink industry is profitable because companies keep bottling and packaging in house reducing their break even, and increasing their profit margins. Fourth, the soft drink industry is profitable because Coca-Cola and Pepsi Co have pouring rights contracts with specific restaurants, supermarkets, and gas stations enabling them to eliminate competition in this setting and maximize profit margins by guaranteeing that of the carbonated beverages purchased by consumers one of their products will be the only one purchased. Profit margins are protected and enhanced in this scenario providing a consistent stream of constant renewed business. The first four reasons that the soft drink industry is profitable will be examined using an example of how Coca-Cola, Pepsi and a gas station receive profit from their partnership and consumption of carbonated beverages by means of fountain drinks.

The profitability of the soft drink industry will be examined in the following example using a $50 five gallon bag of Coca-Cola (or Pepsi) in a gas station partnership in a fountain drink environment. Coca-Cola and Pepsi offer incentives for fountain sales when purchasing five gallon bags of their concentrate continually; and argue that as a result of implementing their concentrate in fountain sales that their “gross margin will increase by $34,766 in one year and will see an ROI in 7 months with CSA's pricing on fountain syrup.”[1] In order for firms to qualify they have to own their own fountain machine and generate...

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