Coca-Cola, established in 1892 has been a leading player in the beverage industry since many years. The following section discusses the industry dynamics of the beverage industry and the forces that affect the firm’s strategic direction and financial performance.
Threat of New Entrants
The potential of an industry determines the new businesses entering in the market. Apart from the growth prospects, the barriers to entry and exit are key factors that affect the market entry decisions of firms. In case of the beverage industry, the barriers to entry are low owing to the low cost of setting up a production unit and marketing expenses to make the product available to the target market. There are small scale companies entering in the beverage industry which suggests the ease of market entry for new firms (Wahlen, Baginski and Bradshaw, 2014). Since Coca-Cola is a globally recognized brand that is consumed in more than 200 countries, the presence of small scale players and new entrants has no significant impact on the operations of Coca-Cola. Companies such as Coca-Cola can benefit from the market dynamics by using its strong market presence to expand its portfolio and further penetrate into new markets (Trefis Team, 2016).
Threat of Substitute
Consumers can select a beverage from the wide range of options available in the market. There are different companies supplying soft drinks, juices and bottled water which increases the threat of substitute products. However, consumers that prefer the taste of soft drinks produced by Coca-Cola are not likely to switch to other beverages. Nevertheless, the availability of other brands besides Coca-Cola affects the industry dynamics as the consumers have the option to select other beverages (Wahlen et al., 2014). It can be concluded that the threat of substitute products in the beverage industry is moderate, thus the switching decisions of the consumers have the potential to have some effect on the financial performance of Coca-Cola.
Bargaining Power of Buyers
The beverage industry comprises corporate buyers as well as individual buyers. Coca-Cola has established its market presence through forming favorable ties with its leading corporate buyers such as fast food chains. In addition, the company has taken advantage of the other distribution options such as vending machines and convenience stores to expand the reach to the target market (Thompson and Martin, 2010). Based on this background, it can be seen that the buyer power is higher when it comes to the retail stores and fast food outlets which purchase the beverages in bulk quantity. On the other hand, individual consumers seem to have limited bargaining power. Therefore it can be stated that the bargaining power of buyers is moderate.
Bargaining Power of Suppliers
The suppliers of the beverage industry include firms that supply basic commodity items such as sugar, caffeine, flavors and other ingredients required to manufacture beverages. The suppliers providing these items have limited control over the price shift and can’t exert a significant influence on the price structure. Since supplier view their contract with large scale beverage companies such as Coca-Cola as an important part of their distribution network, they are not likely to exert much influence or use bargaining power in setting up price of the ingredients. In addition, the suppliers have to abide by the guiding principles such as Agriculture Guiding Principles (Journey Staff, 2017), suggesting that they have low bargaining power and the company has greater influence on supplier contracts and pricing.
Competitive Rivalry
The intensity of competitive rivalry in the beverage industry is moderate. The main competitor of Coca-Cola is Pepsi while the other producers of soft drinks, bottled water and juices have a comparatively lower market share (Lamb, Hair and McDaniel, 2011). Moreover, the small scale companies do not have the potential to affect the market share of Coca-Cola to a significant degree, thus indicating that the main competition is among Pepsi and Coca-Cola, which has led to the term Cola Wars to define the rivalry between the two firms. Since Coca-Cola has a well-established brand identify and a loyal set of consumers, it is not likely to be affected by competitors. This competitive landscape suggests that there is moderate threat of competitive rivalry, with the main competition originating from Pepsi Co.
References
Journey Staff. 2017. Supplier Requirements. The Coca-Cola Company. [online]. Available at: < http://www.coca-colacompany.com/our-company/suppliers/supplier-requirements> [Accessed 31 May 2017].
Lamb, C.W., Hair, J.F. and McDaniel, C., 2011. Essentials of marketing. USA: South-Western Cengage Learning
Thompson, J.L. and Martin, F., 2010. Strategic management: awareness & change. USA: South-Western Cengage Learning.
Trefis Team., 2016. How Coca Cola Is Continuing Its Portfolio Diversification Strategy. Forbes. [online]. Available at: < https://www.forbes.com/sites/greatspeculations/2016/02/25/how-coca-cola-is-continuing-its-portfolio-diversification-strategy/#2ca6d2252adf> [Accessed 30 May 2017].
Wahlen, J., Baginski, S. and Bradshaw, M., 2014. Financial reporting, financial statement analysis and valuation. USA: South-Western Cengage Learning.
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