Withmarket saturation, waning demand, and a surge in the popularity of substitutesfor carbonated soft drinks (CSDs), Coke and Pepsi must make strategic decisionsto help them maintain profitability and growth. One decision they are facedwith is whether to expand their non-CSD businesses. Another is whether toacquire their bottlers in order to cut costs and increase efficiency.
Byanalyzing the external environment, several conclusions can be reached. First,the risk of new entrants to the CSD industry is very low. The industry has becomeincreasingly concentrated over the years, now with three companies accountingfor nearly 90% of the market share. Second, with the concentration of theretail industry, customers such as WalMart and wholesale clubs have been ableto exercise significant power over the price of CSDs in the take-home market.
Third, suppliers to CSD concentrate producers and bottlers do not havesignificant bargaining power. Cans, sweeteners, and caffeine, for example, areall commodities with many available suppliers. Fourth, there is growingcompetition from non-CSDs. Bottled water and sports drinks in particular have rapidlygained popularity over the last few decades and have taken a significant marketshare from CSDs. Lastly, the industry competition is strong, yet stable. CocaCola Company has consistently led overall CSD consumption, with PepsiCo and Dr.
Pepper Snapple Group taking second and third place, respectively. Usingthe information gathered from the external analysis, it is recommended that theleading CSD companies continue to expand their offerings of non-CSD products,both through acquisitions and through the development of existing brands. The continuedacquisition and refranchising of bottlers is also strongly suggested. Theincreased concentration of bottlers reduces costs, increases bargaining powerwith suppliers and retailers, and enables more efficient cooperation betweenconcentrate producers and bottlers.
Theprimary limitation of this recommendation, however, is the overall saturationof the beverage market. Since American consumers already rely on purchased beveragesfor the vast majority of their liquid consumption and since overall liquidconsumption per capita is somewhat fixed, growth of the beverage market as awhole is limited.