Picking a stock means trying to choose the best out of a group of competitors. Porter's Five Forces model can help by focusing attention on five direct and pertinent questions about the co🍎mpany's ability to compete within an industry.

Named after Michael Porter, the Harvard professor who developed it, this model is a 澳洲幸运5开奖号码历史查询:qualitative analysis tool designed to help investors identify and analyze the competitive forces that drive an industry. It can be just as helpful for analyzing the strengths and weaknesses of a single company within an industry.

In this article, we use the Five Forces model to see how Coca-Cola (KO) stacks up as a potential investment,

1. Who Are Its Main Rivals?

When you think of Coca-Cola and its competitors, Pepsi (PEP) is probably the first name that comes to mind—and rightfully so. The two companies have competed with one another since the late 19th century.

Their marquee products are very similar in ingredients and taste, though many consumers swear 澳洲幸运5开奖号码历史查询:loyalty to one brand or the oth🐠er. Both issue their product in a dizzying array of flavors and variations.

There is one notable difference. Pepsi owns Doritos, Lay's, Cheetos, Tostitos, and Fritos, among other food brands. If everybody swore off🌺 sof🃏t drinks tomorrow, Pepsi could still thrive selling salty snacks.

Coca-Cola, on the other hand, stuck to beverages. But, it owns some beverage brands that might surprise customers, such as Minute Maid, Powerade, Gold Peak Tea, Dasani, and Vitaminwater. Coke bets that if people s🐓wear off soft drinks, they've still got to drink something. And it's worth noting that their focus is on healthy alternatives.

Other Competitors

Coca-Cola also competes directly with Keurig Dr Pepper (KDP), which owns a surprising range of beverages, including Dr Pepper, Canada Dry, Schweppes, 7 Up, RC Cola, A&W Root Beer, and Snapple.

The upshot on the question of its rivals: As consumer tastes and trends shift, Coca-Cola could be left vulnerable, but the🔯 brand has a loyal following and the company has hedged its bets by moving with the beverage trends. The risk in this area is moderate.

2. How Likely Is a New Entrant to the Industry?

There are new entrants to the 澳洲幸运5开奖号码历史查询:beverage industry all the time, but can they gain a foothold to equal Coke or Pepsi? The two companies between them have locked down licensing deals with every fast-food chain. They've gained significant shelf space in every supermarket and min🧜i-market.

A new name would require a very positive and viral image or would have to spend a fortune to create the type of 澳洲幸运5开奖号码历史查询:brand recognition Coca-Cola enjoys.

It seems more likely that either Coke or Pepsi would buy the newcomer and add it to the mix. But anyone investing in Coca-Cola should at least keep 𒈔an eye on the latest trends in non-alcoholic beverages.

3. What Could Buyers Purchase Instead?

Coca-Cola als🍌o has to contend with what buyers could purchase instead of its products.

If the rise of Starbucks (SBUX) has shown anything, it is that people love a cup of coffee in the right environment. This may be why Coca-Cola purchased a stake in Green Mountain Coffee Roasters, then the maker of Keurig, in 2014.

Buyers can also choose beverages like freshly made smoothies or fresh-pressed juices instead of Coca-Cola's bottled beverages. As more people become health-conscious, the threat that buyers will substitute a different drink for Coca-Cola looms as a real possibility.

4. What Bargaining Power Do Buyers Have?

When it comes to the bottled beverages market, buyers have a fair amount of bargaining p🌌ower, and this affects Coca-Cola's bottom line directly.

Coca-Cola does not sell directly to its end users. It mostly deals with distribution companies that directly service fast-food chains, vending machine companies, college campuses, and supermarkets.

Demand leads the purchases, but Coca-Cola also has to keep an eye on that end price. Ultimately, that means it has to sell its products to distribution networks at prices low enough that it can sell to the end user at a competitive price.

Coca-Cola's pricing has to stay somewhat consistent with each outlet. McDonald's (MCD) does not sell a Coke for 99 cents one day and $1.03 the next. As Coca-Cola's 澳洲幸运5开奖号码历史查询:cost of goods sold (COGS) fluctuates due to materials, transportation, or manpower, either the beverage company or its distributors have to absorb the loss. This is a real risk, but it is ꦐone that every other entrant in the beverage mass market wou𒈔ld face.

5. What Bargaining Power Do Suppliers Have?

This is the final competitive force to consider: Coca-Cola’s 澳洲幸运5开奖号码历史查询:suppliers. As big 🦂as the company is, and as many long-term contracts as it must have with suppliers, the cost of its ingredients is not entirely within th꧅e company's power.

Sugar is a 澳洲幸运5开奖号码历史查询:commodity and its price varies over time. One season's poor harvest could affect sugar prices and increase Coca-Cola's 澳洲幸运5开奖号码历史查询:raw materials costs.

Thanks to contracts, the company likely🌸 has in place, the effect would be minimal unless those poor harvest conditions l𓃲asted for several years.

The Bottom Line

No analytic tool can tell you whether to buy a stock or not. But, understanding the competitive environment in which the company operates can go a long way towards helping you make the decision. If you're still unsure about whether a company makes sense for your portfolio, make sure you speak to a financial professional so you don't end up with major losses.