Five Forces Analysis of the Soft Drink Industry: The soft drink industry is very profitable, more so for concentrate producers than for bottlers. This is surprising considering that the product being sold is a commodity that can even be easily produced. There are several reasons for this, using the five forces analysis we can clearly demonstrate how each force contributes to industry profitability. Barriers to Entry: The many factors that make it very difficult for competition to enter the soft drink market include: Network: Both Coke and PepsiCo have franchise agreements with their existing bottlers who hold rights in a certain geographical area in perpetuity. These agreements prohibit bottlers from acquiring new competing brands for similar products. Additionally, with recent bottler consolidation and backward integration with Coke and Pepsi purchasing a large percentage of the bottling companies, it is very difficult for an incoming company to find bottlers willing to distribute their product. The other approach to trying to expand their bottling plants would require a very capital intensive effort, with the capital requirements for the new efficient plants in 1998 amounting to $75 million. Advertising Spending: Advertising and marketing spending (Case Exhibits 5 and 6) in the industry in 2000 was approximately $2.6 billion (0.40 per case). * 6.6 billion cases) mainly by Coca-Cola, Pepsi and their bottlers. Average advertising spending per point of market share in 2000 was 8.3 million (Table 2). It is therefore extremely difficult for a participant to compete with incumbent operators and gain any visibility. Branding/Loyalty: Coke and Pepsi have a long history of heavy advertising and this has earned them a huge amount of...... middle of paper ...... already set up. They won't have the influence of bottlers in the United States. Suppliers: Since raw materials are raw materials, there should be no issues on this front, this is no different. Customers: Internationally, retailers and fountain sales are going to be lower because they are not. consolidated, as in the American market. This will give Coke and Pepsi more influence and pricing power with buyers. Substitutes: Since many markets are culturally very different and a large number of substitutes are available, coupled with the fact that carbonated products are not the first choice for quenching thirst in these cultures. present significant additional challenges. Consumption is very low in emerging markets and tiny compared to the US market. Much more money would have to be spent on advertising to encourage people to use soft drinks...