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Force Analysis for Cps and Bottlers for Cola Wars

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Analysis of forces affecting Cola Industry

Concentrate Producers

Bargaining power of suppliers was very low for concentrate producers while the threat of substitute products is very high.

The main inputs for Coke and Pepsi products were sugar (sweetener) and packaging. Both had very low bargaining power due to the large number of suppliers in the industry.

Concentrate producers (CPs) negotiated directly with sweetener and packaging suppliers. This was done to ensure that prices were low, delivery was faster and the supply was reliable.

There were many different suppliers of sugar in the open market. This meant that Coke and Pepsi could purchase sugar from suppliers who were offering sugar at lower prices. When sugar prices were high, however, like it was in the 1980s, the companies easily switched to corn syrup. Because the companies could choose between purchasing sugar and corn syrup, suppliers of nutritive sweeteners did not have much bargaining power. The fact that more suppliers were entering also made it difficult for suppliers to gain bargaining power. One example was Holland Sweetener, which became a supplier after NutraSweet came off patent in 1992. This reduced Searle’s bargaining power and lowered the price of aspartame.

Coke and Pepsi are one of the largest customers of the metal can industry. Suppliers did not have bargaining power for two reasons: first, Coke and Pepsi had good relationships with a number of suppliers. This meant that they could purchase metal cans from more than one supplier – and could decide to purchase from a supplier that offered a lower price.

Second, the suppliers’ powers were low due to the large availability of cheap aluminum in the early 1990s. Because Coke and Pepsi negotiated contracts on behalf of their bottlers, there were effectively just two major contracts. This resulted in many companies…...

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