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
.
(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
,-.
+.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
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
8
s.
Co!e and Pepsi have a long history of heavy advertising
. This
ma!es them
dominate with their strong brand name and loyal customers all over the world. This
ma!es it virtually impossible for a new entrant to match this scale
of share
in this mar!et.
Therefore the threat of
new
entrants is relatively
low
to Coca
-
C
ola.
#*
"
.1
-trong
Threat of
-
ubs
titutes
There are many !inds of s
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
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
consumer mar!ets. $ow switching costs for the consumer ma!es the
threat of substitute products very strong :;atamonitor 1220<.
"
.4
$ow
Threat of
-
uppliers
Ma6or suppliers to Coca
-
Cola are commodity ingr
edients suppliers and bottl
ers
.
The bargaining
power of commodity ingredients suppliers is
low.
Most of the raw
materials needed to produce concentr
ate are basic commodities li!e
c
olor flavor caffeine
or additives
sugar
etc
.
(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
.
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
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
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
.
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
.
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<

PepsiCo dominated %orth
(merica with sales of
,-
.11bil
lion
wh
ile
Coca
-
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!<
and
Pepsi Co!e
:the hi
ghest
ran!ing
of regular co!e<
ran!ed
41"
th
while
;iet Co!e the highest ran!ing
of Coca
-
Cola
8
s products is far behind Pepsi
8
s soft drin!s at the position 443
th
.
From this
Pepsi has a more solid loyal customer base which can ma!e itself more competitive
than
Coca
-
Col