The existing concentrate business is largely controlled by Coca-Cola Company (Coca-Cola) and PepsiCo (Pepsi), together claiming a combined 72% of the U.S. carbonated soft drink (CSD) market sales volume in 2009. Refer to Exhibit 1 for an illustration of the CSD industry value chain. For more than a century, Coca-Cola and Pepsi have maintained growth and large market shares through mastering five competitive forces, shown in Exhibit 2, that drive profitability and shape the industry structure.
Entry Barriers: Both Coca-Cola and Pepsi have strong entry barriers for new competitors, especially in high-end markets like the US. Because of the two companies’ sizes, market maturity, and good market position, many barriers exist for new entrants. Such barriers include brand power, high capital investments, access to available suppliers, contracts with large restaurant chains, and restricted access to store shelf space. Although these high barriers exist in all markets, Coca-Cola and Pepsi have recently experienced strong competition in key developing countries. For example, AJE, the Peruvian producer of Big Cola with global sales of $2 billion, has captured important market share in Latin American countries forcing the two incumbents to cut prices in those countries. AJE has focused on serving the bottom of the pyramid (see Exhibit 3), offering lower prices (20-50% below competitors), while reducing costs through minimal advertising and use of a local distribution network. This distribution network allows AJE to penetrate remote locations that remain underserved by larger brands. Also, as consumers become more health conscious, CSD growth in developed markets has slowed while AJE has increased growth by focusing on lower-income countries where consumers are less concerned about health. These examples prove that even in markets with high entry barriers, new players can