The main reasons that the profitability is so different are because their main costs components are totally different. concentrate business spends most on advertising, promotion and market research and bottling business spend most on concentrate, syrup, packaging and such. In the case, the COGS for concentrate producer is at 0.22 per can while COGS for bottler is at $2.67 per can. This indicates the huge cost difference between concentrate business and bottling business. Other than COGS, all the other expenses are also different too: the total of the expense of direct marketing, selling and delivery, general and admin for concentrate business is $0.45 per can while for bottler is 1.61 per can. The total cost for Bottler is about 6 times larger than concentrate Producer. Overall, concentrate business is more stable over time as they invested more in their trademarks. Without changing too much of their concentration, there is less incentive to spend money on R&D and advertising over time. On the other hand, bottling business is more versatile because the process not only needs a large amount of financial investment but also need to meet different demands given by diverse companies.
For concentrate business, the market is monopolistic competition market from my point of view. Even though there are only some main companies in the competition, when we consider each concentration as an individual competitor, the competition is fierce. On the other hand, the market for bottler business is more lend to oligopoly. The market indicates that there are only a few key players in the market and there is a capital barrier to enter the market.
Here, I also use five force analysis to analyze concentrate business and bottling business. First, we compare the threat of Rivalry, I believe for concentrate business, the threat of Rivalry is weak rivalry since the operating income is at 32% from net sales and for bottler is a normal rivalry as the operating income is at 8%. Then, in term of entrants, for concentrate business, the barriers to entry are high since the new companies would need to build up their reputation, use an excess amount of resources and gain access to distribution channels. The barriers to entry are also high for bottlers since there is less incentive to enter the market. Not only there is a limited amount of profit, the number of bottlers is decreasing over time. When we discuss the threat of suppliers. The threat of suppliers is low for concentrate producer, they have already established a long-term relationship with their suppliers and they have one or more suppliers. This is also the same for bottlers as they have a low threat of suppliers. The threat for buyers is low for concentrate producer as their main buyer is bottler and the number of bottlers had fallen over time. On the other hand, the threat of buyer is high for bottlers since the price elasticity of demand is high. Last, the Threat of substitutes for both market is low. For concentrate producers, there are only two main players: Coke and Pepsi and for bottlers, there is hardly a substitute for the bottles.