Industry Analysis
SM 5, August 11, 2025
Dr. C. Shambu Prasad
Contents
• Reliance Jio case
• Term paper/ project guidelines
• Competitive advantage
• Cola Wars Continue.. case
1. SM Group Project
• Groups to choose a company or organisation and enter in googlesheet
by 17th August 11 pm.
• Avoid repetitions
• A mix of listed and unlisted companies and organisations too
• Proposal Submission by 24th August
• 1 page note on the industry, what you intend to look at, why is it interesting to study (try and pose a few
questions that occur to you) and how you intend to go about
• Interim Report – September 7th
•origin of the company, the industry in which the company is functioning, its competitors
•particular dimension of its working and seek to do industry structure
•financials of the industry selected as well as that of supplier and buyer
•10 slides excluding exhibits, tables, and figures. Sources are critical
• Final Report – October 10th
• 15-20 pages of A4 size (1.5 line spacing), Times New Roman 12 Font
Competitive advantage
• Exists when a company’s
profitability is greater than the
average profitability of all
companies in its industry.
• Sustained competitive advantage
- Exists when a company
maintains its competitive
advantage over a number of
years.
• Primary objective of strategy
Competitor Analysis
• Competitor analysis focuses on each company against which a firm
competes directly.
• In a competitor analysis, the firm seeks to understand the following:
• What drives the competitor, as shown by its future objectives.
• What the competitor is doing, as revealed by its current strategy.
• What the competitor believes about the industry, as shown by its
assumptions.
• What the competitor’s capabilities are, as shown by its strengths
and weaknesses.
• Knowledge about these four dimensions helps the firm prepare an
anticipated response profile for each competitor.
Competitor Analysis Components
Competitor Analysis
• Competitor intelligence set of data and information the firm gathers to better
understand and anticipate competitors’ objectives, strategies, assumptions, and
capabilities.
• When gathering competitive intelligence, a firm must pay attention to the
complementors.
• Complementors are companies/ networks of companies that sell
complementary goods or services compatible with the focal firm’s goods or
services.
• Complementors can be an important part of a business ecosystem—a
complex network of interconnected organizations whose competitive and
cooperative efforts are associated with the satisfaction of a particular value
proposition.
Cola Wars
"Twice as Much for a Nickel" (1939-
"Drink Coca-Cola" (1886) 1950)
"Thirst Knows No Season" "Any Weather is Pepsi Weather" (1950-
(1922) 1957)
"Things Go Better with "Come Alive, You're in the Pepsi
Coke" (1963) Generation" (1964-1967)
"Pepsi. The Choice of a New
"It's The Real Thing" (1969) Generation" (1984-1988, 1990-1991)
"Open Happiness" (2009) "Refresh Everything" (2009)
• Intense rivalry for over a century - Enrico quote
• What is the setting of the case?
Cola Wars case
1. Why, historically, has the soft drink industry been so profitable? (G1 and
G10)
2. Compare the economics of the concentrate business to that of the bottling
business: Why is the profitability so different? (G2 and G9)
3. How has the competition between Coke and Pepsi affected the industry’s
profits? (G3)
4. How can Coke and Pepsi sustain their profits in the wake of flattening
demand and the growing popularity of non-CSDs? (G4 and G6)
5. Analyze, with data from the case, how Coke and Pepsi’s market shares and
financial performance evolved over time. What do these data patterns reveal
about competitive rivalry and profitability? (G5 and G7)
6. Looking closely at the cost structure, pricing, and profitability dynamics of
Coke and Pepsi’s concentrate and bottling businesses what implications can
you draw for sustaining profitability in each part of the value chain? (G8)
Industry structure is dynamic
Period /
Decade Industry Structure & Competitive Landscape
Birth of concentrate producers (CPs) — Coke (1886), Pepsi (1893); syrup-based model;
Late 1800s early bottling franchising; low vertical integration; Coke expands internationally in
– 1930s WWII, Pepsi begins in 1930s
1940s – Coke dominant; Pepsi uses pricing (12oz/5¢) to grow share; emphasis on fountain &
1960s vending for Coke, supermarkets for Pepsi; stable duopoly emerges
The Pepsi Challenge shifts rivalry; Pepsi gains in supermarkets and younger gen; Coke
1970s global focus; concentrate pricing power solidified via contract changes
Goizueta era at Coke; diversification refocus on CSDs; launch of Diet Coke; “New
1980s Coke” flop; CPs begin acquiring bottlers; selective vertical integration
Both CPs restructure bottling — Coke moves to anchor bottler model, Pepsi follows
later; increased SKUs; bottler profitability declines; retailer consolidation increases
1990s buyer power
Flattening U.S. CSD demand; rise of non-CSDs (water, tea, energy drinks); health
concerns; complexity in bottler operations; CPs test flexible concentrate pricing; Pepsi
2000–2009 buys bottlers in 2009, Coke follows in 2010
Coke & Pepsi as “total beverage companies”; ongoing non-CSD diversification;
Post-2010 structural uncertainty in new beverage categories
1. Why, historically, has the soft drink
industry been so profitable?
• High barriers to entry
• Long-established brands (since 19th C) with deep cultural identity; exclusive bottling franchises; large capital
requirements for bottling & distribution;
• Powerful brand equity & scale economies
• Massive cumulative ad spend; Coke & Pepsi get far better returns on ad spend per share point than smaller
rivals.
• Control of distribution
• Exclusive territories for bottlers; strong relationships with high-volume channels.
• Weak suppliers
• Inputs for concentrate are cheap and commoditized; CPs negotiate centrally for bottlers, enhancing buying
power.
• Fragmented final consumers
• Billions of customers, no switching costs but heavy influence of advertising, many loyal heavy users.
• Managed rivalry
• Two dominant players (≈72% share) compete on brand, shelf space, and downstream promotions,
• Attractive concentrate economics
• Asset-light model with gross margins ~78% and operating margins ~32% vs bottlers’ ~8%; bottlers bear capital
intensity and lower profitability.
2. Why is the profitability so different for CPs
and bottlers?
Concentrate Business (CPs) Bottling Business
• Asset-light model – Small-scale • Capital-intensive – Plants, trucks,
plants, low capital needs. warehouses; large ongoing investment.
• High margins – ~78% gross, ~32% • Low margins – ~8% operating.
operating.
• High operating costs – Selling &
• Core value drivers – Brand equity, delivery (~20% of costs), labour,
marketing scale, product innovation. inventory.
• Low input costs – Cheap, secret • Price-takers – Limited ability to raise
formulas; CPs negotiate packaging & prices; retailer pressure intense.
sweetener contracts.
• Dependent role – Execute CPs’
• Pricing power – Raise concentrate marketing and distribution strategies
prices with minimal volume loss due to under exclusive franchise contracts.
strong brands and locked-in bottlers.
Why CPs Are More Profitable
Capture value through brand, marketing, and control over concentrate pricing.
Push capital costs, operational complexity, and lower-margin activities downstream to bottlers.
3. How has competition between Coke and
Pepsi affected the industry’s profits?
• Dominant duopoly – Together control ~72% of the U.S. CSD market; two-
player structure keeps rivalry predictable and “within bounds.”
• Competition focused on non-price factors – Brand image, advertising,
packaging, distribution reach, shelf space — not concentrate price cuts.
• Rapid imitation – New products (Diet, flavoured colas, bottled water) and
marketing moves quickly matched, limiting long-term advantage.
• Shelf space battles – Pushes smaller brands out, consolidating share and
protecting margins.
• Co-creation of industry structure – Both invest heavily on advertising,
raising barriers to entry for others.
• Sustained high profitability for CPs and healthy (though lower) returns for
bottlers, despite decades of rivalry.
4. How can Coke and Pepsi sustain profits with flattening
demand and the growing popularity of non-CSDs?
• Diversify into non-CSD categories – Expand portfolios in water, tea, coffee,
sports & energy drinks to capture shifting consumer preferences.
• Leverage brand & distribution strengths – Apply marketing scale, shelf
space control, and DSD reach to build new category leaders.
• Value chain control – Re-acquisition of major bottlers to improve
coordination, manage complexity of non-CSD distribution.
• SKU & packaging innovation – Premium, functional, and single-serve
formats to drive higher margins and impulse sales.
• Global growth focus – Expand aggressively in emerging markets with rising
per capita consumption.
• System economics – Use tools like “incidence pricing” to align bottler
incentives and preserve profitability in more complex product mixes.
5. Analyse how Coke and Pepsi’s market shares
and financial performance evolved over time.
Market Share Trends – Exhibit 2 Coca-Cola
• 1970: Coke 35%, Pepsi 20% • ROE consistently high (~30% in many
years), driven by asset-light concentrate
• 1980: Coke 36%, Pepsi 28% – Pepsi gains operations.
share through supermarket push & Pepsi
Challenge. • Operating margins above 25%, indicating
• 1990: Coke 41%, Pepsi 31% – Coke regains strong pricing power and brand equity.
lead via Diet Coke, brand focus, and bottler
restructuring. PepsiCo
• 2000: Coke 44%, Pepsi 31%, Dr Pepper
Snapple 15% – Duopoly consolidates • Lower margins vs. Coke due to more
power. diversified portfolio (snacks, non-CSDs)
and greater bottling exposure historically.
• 2009: Coke 42%, Pepsi 30%, Dr Pepper • Still high ROE (~25%), showing strong
Snapple 16% profitability despite lower pure beverage
margins.
•rivalry doesn’t erode profitability. Relatively stable market share and profits, High entry barriers and
shared structural advantages allow both to “win” without sacrificing profitability.
6. From cost structure, pricing, and profitability dynamics of what
implications can you draw for sustaining profitability in each part of the
value chain?
Concentrate Business (CPs) Bottling Business
Cost Structure Cost Structure
• Very low COGS; major cost is marketing & advertising • High COGS (~60% of net sales), major costs in selling &
delivery (~20%), packaging, and raw materials.
• Minimal capital intensity; high gross (~78%) and operating
(~32%) margins. • High fixed capital costs (plants, trucks, warehouses).
Pricing Channel Profitability
CPs maintain stable concentrate pricing over decades, with • Vending and convenience stores yield highest margins
selective adjustments. (high prices, small drops).
Advertising Efficiency • Supermarkets are high-volume but low-margin; fountain
least profitable.
Coke & Pepsi spend ~$15–$16M per share point, far less than
smaller brands (Dr Pepper $19M, Cadbury $38M). Advertising
Implication: Bottlers benefit indirectly from CP brand spend; little own-
brand leverage.
Sustaining profitability depends on brand investment, pricing
discipline, and maintaining scale advantages in marketing. Implication:
Sustaining profitability requires channel mix optimization
(shift to higher-margin outlets), operational efficiency, and
tight coordination with CPs to control costs and complexity.
Porter’s Five Forces – Cola Wars
Threat of New Entrants – Low Bargaining Power of Buyers
• Strong brand equity built over decades • Bottlers: low power due to contracts &
• Scale economies in advertising switching costs
• Limited shelf/vending/fountain access • Retailers: vary (supermarkets stronger)
• Exclusive bottling franchises; high capital
needs • Consumers: fragmented, brand-loyal
but price-aware
Threat of Substitutes – Moderate
• Alternatives: water, coffee, juice (some free) • Rivalry Among Existing
• Less convenient; impulse buying favours Competitors – High but Controlled
CSDs • Coke & Pepsi hold ~72% share
• Lifestyle/identity marketing reduces switching (duopoly)
Bargaining Power of Suppliers – Low • Compete on marketing, variety,
• Inputs are commodities (flavouring, distribution
sweeteners, packaging) • Avoid price wars on concentrate
• Coke/Pepsi negotiate centrally for bottlers • Rapid imitation keeps rivalry ‘within
bounds’
Cola Wars – Final Case Summary
• How firms can create and exercise market power..
• To understand opportunities for strategy, look at the underlying
economics of the firm and the industry, and its related (upstream and
downstream) parts.
• Without understanding the economics of the CP and bottler, we cannot
understand the motivations and the likely success of moves like vertical
integration.
• Coke and Pepsi not just inherited business; they created it.
• Their ability to structure not only their businesses, but the industry as a whole.
• When big rivals go to war they kill the bystanders (the smaller CSD
brands)—not themselves.