Q6) What are the major cost drivers for the bottle
This essay Q6) What are the major cost drivers for the bottle has a total of 2646 words and 13 pages.
Q6) What are the major cost drivers for the bottlers?
The cost drivers for the bottlers were as follows:
Bottlers had a "direct store door" arrangement, which increased the cost of transportation and labour because their own personnel did the driving, unloading and stacking.
Retail stores were paid by bottlers for promotional activities and discount levels.
The bottling process in itself was highly capital intensive requiring high speed production lines etc.
The other main costs were the concentrate and syrup. This cost was dependent on CSD suppliers and market price for sugar/ corn syrup.
The bottlers heavily invested in trucks and distribution networks apart from routine expenses like packaging, labour and other overheads.
Q4) How have Coke and Pepsi managed the rivalry in the CSD industry in terms of concentrate suppliers?
Coke and Pepsi managed the rivalry in the CSD industry by following some of the below mentioned tactics over a couple of decades:
Pepsi started focusing more on take-home sales to target family consumption. For th i s they introduced the 26-oz bottles.
Pepsi started with an aggressive marketing campaign called "Pepsi Generation" to promote and increase sales among the youth.
Pepsi also worked to modernize plants and improve store delivery.
Pepsi's bottlers were concentrated and were larger than Coke's. This gave them an advantage over Coke.
Pepsi used to sell concentrate at 20% lower than Coke, promising to spend the extra income on promotion after equaling Coke's prices.
Both Coke and Pepsi experimented with cola and non cola flavours and new packaging options. Non returnable glass bottles were introduced along with metal cans.
In the 1970s Pepsi came up blind taste tests called "Pepsi Challenge" and Coke countered it with rebates and retail price cuts.
During this period, Coke renegotiated with its bottlers to bring in more flexibility in pricing of syrup and concentrates.
Coke also switched to lower priced high-fructose corn syrup later on. Pepsi followed suit.
Coke started with "Diet Coke" and in a couple of years Pepsi came out with a similar product.
Q5) How should Coke and Pepsi face this challenge? Recommend.
Coca Cola and Pepsi should focus on growth related strategies rather than devising tactics to outdo each other for shorter periods of time. The long term focus would not only be profitable in the future but also be highly sustainable. Some of the ways this can be done is as follows:
Continue expansion into emerging markets. As the buying power of consumer increases, so would the sales of these brands.
Both of them should start using healthy sweeteners in order to counter the claim of aerated drinks leading to obesity and other health problems. This would not take much investment and as the trend for healthy living grows consumers will be relatively insensitive towards price.
Have a green strategy (like environmentally friendly factories, recycle of the bottles, water cleaning systems ). This will have a positive effect on customer loyalty and will help in the brand building process.
Continue to churn out newer products and bring about innovation in these products. Innovation to be based on geography, occasion, target demographic group and ingredients.
For retailing strategies, increase shelf space, install more and better equipments in the market and also expand availability into new outlets and channels.
Q2) Analyze the industry attractiveness of concentrate suppliers and independent bottlers. Comment on vertical integration of CSD, bottlers and suppliers. Give a strategic rationale.
Industry attractiveness for the concentrate suppliers is as follows:
Bargaining power of suppliers: The powers of suppliers are low for the CSD as the suppliers are fragmented. Materials like colouring , citric acid and caffeine have no differentiation. Also the switching costs to these are really low and these commodities are easily available in the market. Also there is minimalistic threat of forward integration.
Bargaining power of Buyers: Bottlers have very low bargaining power as both Coke and Pepsi determine the terms of the contract for pricing and other conditions. Also they have retained exclusive deals with food outlets. As a matter of fact, most voluminous bottling accounts were owned by these companies which gave them large negotiating powers.
Threat of substitutes: Threat of substitution is very high as there are numerous alternates
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