Coca Cola Five Forces Analysis
Coca Cola is the leading brand in the soda beverages industry. The company has a large product portfolio with more than 200 beverages brands. In fiscal 2022, it sold more than 32.7 billion unit cases of Coca Cola and generated total $43 billion in net revenue.
Coca Cola is a global brand that enjoys strong brand recognition in most corners of the world. The company has maintained a strong focus on product quality and safety. It is also investing in digitalizing the Coca Cola system since a shift towards the digital has happened in the retail industry.
Coca Cola is a highly competitive brand whose products enjoy solid demand throughout the globe. However, the sales of its beverages are also seasonal or the demand rises and falls in different seasons and according to the weather conditions.
Coca Cola despite being a global and well established brand maintains a strong focus on marketing and promotions to maintain its market share and competitive strength. It spent $4 billion in 2021 and 2022 on advertising and promotions. The company is in a strong financial position and enjoys a strong market share. However, it also faces several challenges related to supply chain and distribution.
In this five forces analysis, we will analyse the competitive position of Coca Cola and how well the company is positioned for growth in a highly competitive retail landscape. The five forces analysis is an analytical framework used for analyzing the competitive position of a brand in its industry sector and was named after its creator Michael E Porter.
Bargaining Power of Suppliers:
In the soda beverages industry, the bargaining power of suppliers is low to moderate. The suppliers of Coca Cola include agricultural producers as well as other suppliers that provide water, sugar and other raw materials and its bottling partners. due to the growing scarcity of raw material, the bargaining power of suppliers has increased. Most of the agricultural materials required for production like sugarcane, corn, sugar beets, coffee and tea have grown scarce in various corners of the world. the prices of these raw materials have also increased a lot over the past several years. These factors have caused the bargaining power of suppliers to increase.
However, there are also various factors that have helped Coca Cola keep the bargaining power of the suppliers under control. For example, the threat of forward integration from the suppliers is barely minimum for Coca Cola. This factors reduces the suppliers’ bargaining power. Apart from that, Coca Cola is a global brand with strong financials. The suppliers also depend on large buyers like Coca Cola for profitability. Switching costs for Coca Cola may some times be high for Coca Cola, which gives the suppliers some bargaining power. The costs of packaging and transportation have also increased over time and the company depends on its bottling partners in this regard. Overall, the bargaining power of Coca Cola suppliers is moderate.
Bargaining Power of Buyers:
The bargaining power of buyers is moderate in the case of Coca Cola. Its buyers mainly include the distributors, wholesalers and retailers. the company utilizes a global distribution and retail chain for the sales and marketing of its products worldwide. It depends on its distribution chain to make its products available worldwide. Even if the individual customers do not hold much bargaining power, the large buyers including distributors, wholesalers and retailers hold moderate bargaining power because of their role in the distribution chain as well as their size of purchase.
However, there are several factors that also mitigate the bargaining power of the buyers for Coca Cola. It is a global company that enjoys strong brand equity. In most corners of the world, it enjoys strong brand recognition and the demand for its products in most corners of the world is quite high. This is profitable for its distribution partners which utilize Coca Cola’s brand and promotional materials to drive sales. The company also provides financial aid to its bottling partners for the promotion of its products. Its financial clout, enormous size of the firm as well as its brand image and brand recognition serve to moderate the bargaining power of Coca Cola buyers. Overall, the bargaining power of Coca Cola buyers is moderate.
Threat of substitute products:
The threat of substitute products mainly arises from the products made by rival brands. In the case of Coca Cola, the threat of substitute products is high. It is because its large product portfolio is not so unique, or simply put rivals make and sell similar products in the global market. The biggest rival of Coca Cola is Pepsico which makes, markets and sells several matching products and flavors. Pepsico has also continued to expand its product portfolio and several of the products by the two brands are in tough competition against one another in the global market. However, it is not only Pepsico but energy drimnks and health drink brands also pose a threat to Coca Cola. For example, Red Bull and Monster beverages also make and sell products that rival Coca Cola products.
While the threat of substitute products is very high in the global market for Coca Cola, there are numerous factors that help moderate the threat to some extent. For example, Coca Cola is a globally recognized brand that enjoys strong demand and sales in most corners of the world. The company also invests a huge sum in marketing and promotion of its products every year. In 2022, Coca Cola spent $4 billion on advertising and promotions. However, its leading rival Pepsico also invests billions in marketing and promotions of its products each year.
The threat of substitute products comes from several sources for Coca Cola. It is not just Pepsico or Red Bull and Monster Energy drinks but with its acquisition of Costa Coffee, the company also has rivals in the coffee industry like Starbucks that offers similar products.. So, overall, while the threat of substitute products for Coca Cola is moderated to some extent due to factors like brand image, marketing and high demand of its products, the company still faces moderately high threat of substitute products.
Threat of new entrants:
The threat of new entrants in the soda beverages industry is moderately low, which is because of the high investments involved in operations and marketing as well as difficulties related to supply chain, distribution management and sourcing. There are more barriers also that prevent the entry of new players in the soda beverages industry at a large scale. At least, turning into a global brand will require a major investment into marketing and production as well as supply chain management. It is not possible for the smaller players who can enter at a local level but remain limited to local markets only.
Such smaller players do not pose any significant threat to Coca Cola or another leading player Pepsico. Any new entrant would also have to deal with regulatory barriers including licensing related issues and permits. Moreover, Coca Cola has achieved a strong market leadership position globally which cannot be challenged easily. the only major challenger before Coca Cola is Pepsico. Overall, the financial barriers, and other hurdles related chiefly to marketing and operations prevent the entry of new players in the soda industry. Growing into an established brand in the soda beverages industry which is currently marked by an intense level of competition is not easy if not impossible for new players. So, the threat from new entrants for market leaders like Coca Cola remains absolutely minimal.
Intensity of competitive rivalry:
The environment in the soda beverages industry is marked by intense competition and strong rivalry between the two leading players Coca Cola and Pepsico. In the past, the aggressive battle between these two players for market share was termed as Cola wars. The rivalry is very high and each of the two leading players spends billions on marketing and promotion of their products despite their established position in the market and low level of threat from the other players.
Some of the leading energy drinks brands like Monster and Red Bull also pose strong competitive threat to Coca Cola. However, the toughest competitor before Coca Cola is Pepsico which has continued to expand its market into snacks and edible products. Coca Cola has still kept its product portfolio limited to beverages. Both the two leading brands enjoy strong brand recognition and are highly aggressive in terms of marketing and maintaining their market share. They use celebrities for marketing and sponsorships and invest in product quality and safety to maintain their demand and strong brand image.
Overall, the level of competitive threat faced by Coca Cola is high. It is not just the global or international brands like Pepsico and Red Bull, but there are also several local brands in various markets that pose a competitive threat to Coca Cola.