Cola Wars in the Middle East

1

Cola Wars in the Middle East Saudi Arabia is the largest consumer of soft drinks in the Middle East. Beverages are said to be very suitable for the hot climate of the region. Considering the intensity of heat in the region, most of the social activities take place indoors. The consumer in Saudi ate band loyal, and they are increasingly interested in the new and innovative products, thus making the industry experienced strong growth in the country. The soft drinks segment's revenue is expected to reach USD 4904M, while the market is also expected to grow annually by about 5.4%.

Buy this excellently written paper or order a fresh one from acemyhomework.com

2

The major players in the industry include Pepsi, Coca-cola, Dr. Pepper, among others.

Coca-cola and Pepsi have been the major competitors in the market for many years, and they do have various similarities starting from the fact that they started almost at the same time, i.e., 1886 and 1893, respectively (Yoffie, 2011). The Porter five forces analysis gives some insight into the industry outlook.

Reasons why the soft drinks industry has been so profitable Soft drinks are consumed by a lot of people across the world, including those that take alcohol. It is profitable because of various reasons; first, there is the aspect of material cost and capital investment. These include materials, overheads, labor, and machinery. These factors of production are readily available, and the manufacturers have been able to add the concentrate flavors to improve the taste of the drinks. This has been well aligned with the customers' tastes and preferences, hence compelling them to buy more and more of the soft drinks and incorporate such drinks into their lifestyles. The concentrate flavors are also not expensive. The marketing channels that are embraced by the companies are also very efficient and visible, hence making it possible for soft drinks to be available in most restaurants, supermarkets, fast-food chains, machines, among other consumer outlets (Yoffie, 2011).

Porter five forces for concentrate business and bottling business in Saudi Arabia Bargaining power of the suppliers The existing suppliers in the market are many. This makes it possible for the companies to have a variety to choose from, with minimal switching costs. The fact that the suppliers are many reduces their bargaining power. The industry giants exhibit more control over suppliers.

Bargaining power of buyers

3

The bargaining power of the buyers is moderate because the industry has both individual and corporate buyers. The top companies have been able to reinforce their presence by creating s good relationship with the corporate buyers, whose bargaining power is major in food outlets and retail stores because they buy on a large scale.

Competitive Rivalry The force of competitive rivalry can also be moderate because the competition is most conspicuous among the top companies, namely Coca-cola and Pepsi. The big companies have earned customer loyalty, and therefore the small companies do not have much impact on the market.

Threats of substitutes There are many substitutes for the soft drinks, and the switching costs for the soft drinks are relatively low. The top brands counter this by always ensuring that they deliver high-quality drinks and reinforce their marketing initiatives.

Threat of new entrants The new entrants are not likely to significantly impact the market because the existing giants have already established a strong brand image and have been able to grow exponentially.

Why is the profitability of concentrate business different from a bottling business?

Compare the economies of both businesses.

One of the reasons here is the barriers to entry, which gives the company some quantity advantages. Given that the company operates in an industry that looks like a duopoly because of the two main exposures, it garners some financial leverage from the same. The difference also comes from capital investments in the sense that concentrate business requires less capital than bottling. The concentrate producers mostly invest in product upgrades, workforce, and

4

machinery. More money is also spent on research and development. This is contrary to the bottling business, whereby mote capital is spent on projects such as ongoing product development to ensure that the designs are always upgraded and attractive, which can be very costly for companies. Moreso, there is very high competition among the bottlers because the number of organizations that provide these services is high. As such, they are obliged to lower their prices. The returns for bottlers are also lower because they do not frequently engage in high-risk ventures, unlike concentrate producers that venture into high-risk activities, hence high returns. Considering that bottlers depend on concentrate businesses for raw material supply, it gives the concentrate businesses an upper hand when it comes to profitability.

How has coke and Pepsi's competition affected profits?

The two companies have engaged in cutthroat competition, which is a good thing because it has greatly enhanced the quality of their products as they strive to become the best in the market. There is no room for relaxation, as every company is working hard to garner a sustainable competitive advantage. However, Coca-cola has been more successful as compared to Pepsi. It suffices to say that Coca-cola would not have been more successful if Pepsi was not there. That notwithstanding, both companies have made significant profits because of the level of competition they have engaged in. The competition has also formed a basis for the expansion that is evidenced in the manner in which the company has been expanding in the U.S. Coca cola’s marketing initiatives have also been aggressive, hence driving Coca cola’s sales, thus high profits.

What is the way forward for both companies?

The two companies have engaged in ethical competition over time and have been able to realize significant success. However, the companies have also faced share challenges, hence the

5

need to unveil some of the ways that the companies can use to forge ahead. Both companies can strive to diversify their products. Coca-cola can introduce healthier drinks, while Pepsi can create new products. While Coca-cola appears to have a more efficient supply chain, there is a need for Pepsi to improve on its distribution to the markets. The companies should invest in research and development to ensure that the products that are unveiled on the markets meet the health thresholds that have been laid out as there have been concerns about some of the products, e.g., the sugar levels in some of the products. The companies ought to reinforce corporate social responsibility mechanisms through initiatives of environmentally friendly packaging.

6

Reference Yoffie, D. B. (2011). Cola Wars Continue: Coke and Pepsi in 2010 (TN).