Historically, the soft drink industry has been profitable for a variety of reasons. The traditionally large share of market for Coca-Cola and Pepsi establishes a large barrier of entry for others to enter the market. This results in an ability to charge higher retails, and thus preserve margin. In addition, both the Coca-Cola Company and Pepsi have franchisee agreements or own their bottlers. This controls access of the distribution network to other beverage companies. Due to the size of these two market leaders in the soda pop business, their established source and distribution channels are extremely fine-tuned. Historically, the companies were able to dictate prices to their bottlers based upon bottling agreements. They were also able to prevent their bottlers from carrying competing brands, which could have possibly driven down the profitability of the major brand.
In addition, the two main entrants benefit from economies of scale in negotiating best rates for the majority of their needs. Most of the raw materials needed to produce soda pop are basic commodities like color, flavor, caffeine, additives, sugar and packaging. This allows the companies more power to produce cheaply. From here, both companies control the concentrate, and "regularly raised concentrate prices, often by more than the increase in inflation" (Yoffie, Kim, 2011), further adding profitability to the category.
Soda pop companies have maximized profits in another manner: through the manipulation of various sizes in different channels of trade. Twelve packs of soda pop may be advertised on sale for a great price, driving consumers into buying their favorite soda item. However, many consumers, out of habit or preference, buy another, higher priced soda package, unaware that all Pepsi products are not on sale at the time. Another margin making practice is when soda companies offer better