Cola Wars

1. Why is the soft drink industry so profitable?
The soft drink industry is worth $60 billion in the US and its major players Coca-Cola and PepsiCo both achieved an average annual growth of 10% between 1975 and 1995. While per capita consumption of soft drinks seems to have reached its limit in the US and Canada (only 2% annual growth between 1992 and 1999), emerging countries, such as Brazil (12% annual per capita consumption growth) and Philippines (9% annual per capita consumption growth), along with the overall growth of the world population, show that the global market is far from saturation. Such an attractive industry should attract many new investors, which in the long-run would limit the industry's profitability. However, a closer look at the market structure reveals the reasons why the soft drink industry is highly profitable for the established firms, while it is mainly inaccessible for new entrant firms.
The profitability of an industry is mainly determined by three factors : the value of the product to the customers, the intensity of competition and the bargaining power of the producers relative to their suppliers. …