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Historical Profitability

1. Compare and contrast the historical profitability of "concentrate producers" and "bottlers". Given that concentrate producers are so much more profitable than bottlers, why would they want to vertically integrate into bottling? There is a significant difference between the profit margins being reported by concentrate manufacturers as compared to bottlers. For example, in the year 2000 concentrate producers recorded pre tax profits averaging 35 percent of sales. That same year, bottling franchises earned pre tax profit of only 9 percent of sales.

This begs the question of why a company making a 35 percent pre tax profit would be interested in acquiring bottling companies when the bottling companies' margins are significantly lower. The answer is complex. One reason is that large multi national companies such as Coke and Pepsi often want to control all aspects of the process of delivering goods or services to customers to ensure that end users receive the kind of care and support they deserve. Another reason that concentrate manufacturers are considering acquiring bottlers is that even though bottlers recorded a pre tax profit of 'only' 9 percent in 2000, a 9 percent pre tax margin would be considered excellent in other industries. Another reason that the bottlers are attractive acquisition targets for the concentrate manufacturers involves how rapidly the sales of bottled beverages are growing. Even if there is no saving resulting from economies of scale and the pre tax profit continues to average 9 percent, the fact that sales revenue continue to grow means that the actual amount of profits from bottling activities increases each year.

2. A five forces analysis suggests why concentrate producers are more profitable that bottlers and why one industry is inherently more attractive than the other. Consider the concentrate producers: Threats from new entrants is limited because they have patented the formula and have ...

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Historical Profitability. (1969, December 31). In LotsofEssays.com. Retrieved 04:59, March 28, 2024, from https://www.lotsofessays.com/viewpaper/1683356.html