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This section is to analysis the external threats to the Coca-Cola by using Porter Five

Forces Model.

Porter suggests five forces that determine industry profitability: competitive rival sellers

within the industry new entrants to the industry substitute products suppliers and

buyers.

The set of factors directly influences

a firm and its competitive actions and

competitive responses

.

The wea!er the forces the greater the opportunity for superior

performance by firms within the industry.

"

.#

$ow

Threat of

%

ew

&

ntrants

Threat of

new entrants is low in t

he soft

drin! industry.

To enter the industry i

t

re'uires high fixed costs for production warehouses truc!s labour

and mar!eting

activities

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.

(s there are limited bottlers new entrants may need to build

their bottling

plants

. )t re'uires large amount o

f capital.

)n #**+

new efficient plant capital

re'uired

,

/0 million.

The advertising and mar!eting

expenditure

in the industry in 1222 was

around

,

1.3

billion mainly by Co

ca

-

Cola

Pepsi and their bottlers.

The average

advertisement spending per point o

f mar!et share in 1222 was

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,

+.4millio

n.

This

ma!es it extremely difficult for an entrant to compete with the incumbents and gain any

visibility.

#+

5oth Co

ca

-

Cola

and PepsiCo have agreements with their existing bottlers who

have rights in a certain geograph

ic area in perpetuity. These agreements prohibit bottlers

from ta!ing on new competing brands for similar products. (lso

both Co

ca

-

Cola

and

Pepsi

Co have

bac!ward integration

---

buying significant percent of bottling companies

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it is very difficult for

ne

w entrants

to find bottlers to distribute their product

s

.

)n general r

etailers en6oy significant margins of #0

-

127 on soft drin!s for the

shelf space they offer.

)t is difficult

for the new entrants to convince retailers to substitute

their new products

for C

oca

-

Cola

and Pepsi

at a lower margin. &ven new entrants are

willing to pay the same percentage of margins the price of their products may not be as

competitive as Coca

-

Cola

8

s and Pepsi

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ubstitutes for Coca

-

Cola products

. They

are bottled

water

sports drin!s

coffee

and tea.

(s

consumers

concern more

about health

b

ottled

water and spo

rt

drin!s are increasingly popular

.

This trend is epitomi9ed in the beverage

consumption pattern of the ageing baby boomers.

)n

the mar!ets t

here

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is

a

n increas

e of

number

s

and varieties of water and sports

drin!s that appeal to different consumers8 tastes. Those are advertised as healthie

r

drin!s

.

)n addition coffee and tea are competitive substitutes because they provide caffeine.

oft

drin!s can be substituted with coffee

.

5

lend coffees are also becoming more popular with

the increasing number of

coffee

stores

e.g.

tarbuc!s

which

off

er many different flavors

to appeal to

different

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consumer mar!ets. $ow switching costs for the consumer ma!es the

threat of substitute products very strong ;atamonitor 1220

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(s the producers of these p

roducts are generally providing the

same products they

have

lower

power over the pricing hence the suppliers in this

12

industry are wea!.

=owever with an increasing sugar and pac!aging material prices it

directly affect

s

the profitability of the Coca

-

Cola

8

s products.

Coca

-

Cola does not do any bottling itself. )t is done by independent bottlers. >ne

of the bottlers is

Coca

-

Cola &nterpr

i

ses

.

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This is the largest bottler in the world.

)t was

once independent from Coca

-

Cola which Coca

-

Cola held ma6ority shares

without

controlling power. =owever

Coca

-

Cola

integrat

ed

Coca

-

Cola &nterprises

earlier in 12#2.

)

t c

an have a

better control distribution and be 'uic!er to mar!et with products

-

both !ey

as the company !eeps up with people?s changing tastes.

5esides it

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expects to save at least

402 million per year phased in over the next four years.

(s a result the bargaining

power of suppliers is

wea!ened.

"

."

Moderate

5argaining

P

ower of

5

uyers

The buyers of Coca

-

Cola and other soft drin!s are mainly large groc

ers

convenience

stores supermar!ets

and restaurants. The soft

drin! companies dist

ri

bute

the beverages to th

em

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for resale to the consumer. The barga

i

n

i

ng power of the buyers

i

s

strong

. $arge grocers

convenience

stores

supermar!ets

and fast food

restau

rants

buy

large volumes of the soft d

ri

n!s

which

allow them to

bargain

a lower p

ric

e

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.

5esides with

the decreased demand

for

un

healthy

soft

drin!s of consumers buyers can have a

larger

bargaining power

on the price of soft

drin!.

1#

"

.0

trong

Competitive

@

ivalry

The competitive pressure from rival sellers

i

s the greatest

challenging faced by

Coca

-

Cola

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.

PepsiCo is the main competitor for Coca

-

Cola and these two brands have

been in a power struggle for more than a century.

(lt

hough Coca

-

Cola owns four of t

he top five soft drin! brands Coca

-

Cola ;

i

et

Co!e

Fanta and prite

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Cola only had about

,

/billion

=owever Coca

-

Cola has higher sales in

the global mar!et than PepsiCo.

5rand

name loyalty is another competitive pressure.

The 5rand Aeys Customer

$oyalty $eaders urvey

12#2

shows the brands with the greatest customer loyalty in all

industries

;iet Pepsi ran!ed

10+

th

the highest

ran!ing

of diet soft drin!