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Soft drink beverages case study
Soft drink beverages case study
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Soft Drink Industry Five Forces Analysis:
Soft drink industry is very profitable, more so for the concentrate producers than the bottler’s. This is surprising considering the fact that product sold is a commodity which can even be produced easily. There are several reasons for this, using the five forces analysis we can clearly demonstrate how each force contributes the profitability of the industry.
Barriers to Entry:
The several factors that make it very difficult for the competition to enter the soft drink market include:
Bottling Network: Both Coke and PepsiCo have franchisee agreements with their existing bottler’s who have rights in a certain geographic area in perpetuity. These agreements prohibit bottler’s from taking on new competing brands for similar products. Also with the recent consolidation among the bottler’s and the backward integration with both Coke and Pepsi buying significant percent of bottling companies, it is very difficult for a firm entering to find bottler’s willing to distribute their product.
The other approach to try and build their bottling plants would be very capital-intensive effort with new efficient plant capital requirements in 1998 being $75 million.
Advertising Spend: The advertising and marketing spend (Case Exhibit 5 & 6) in the industry is in 2000 was around $ 2.6 billion (0.40 per case * 6.6 billion cases) mainly by Coke, Pepsi and their bottler’s. The average advertisement spending per point of market share in 2000 was 8.3 million (Exhibit 2). This makes it extremely difficult for an entrant to compete with the incumbents and gain any visibility.
Brand Image / Loyalty: Coke and Pepsi have a long history of heavy advertising and this has earned them huge amount of...
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... already setup. The will lack the clout that have with the bottler’s in the US.
Suppliers: Since the raw material’s are commodities there should be no problems on this front this is not any different
Customers: Internationally retailers and fountain sales are going to be weaker as they are not consolidated, like in the US Market. This will provide Coke and Pepsi more clout and pricing power with the buyers
Substitutes: Since many of the markets are culturally very different and vast numbers of substitutes are available, added to the fact that carbonated products are not the first choices to quench thirst in these cultures present additional significant challenges.
The consumption is very low in the emerging markets is miniscule compared to the US market. A lot more money would have to be spent on advertising to get people used the carbonated drinks.
Pepsi needed a strong regional partner. Pepsi had been falling behind to Coke in Mexican market. However, changes in the regulatory environment had cut Coke’...
Significant market growth for quality branded products seemed possible in Diageo’s core markets, given the size of the informal market and the fact that formal beer and spirits consumption was substantially lower than in developed markets. For example, formal beer consumption per capita was 4 liters per year in Ethiopia, compared to 78 liters in the U.S. and 72 liters in the U.K. Ethiopian spirits consumption per capita was 0.4 liters per annum, compared to 7.4 liters in the U.S. and 5.4 liters in the U.K.
...is has the constraints of requiring huge amount of funds and abiding by the regulations of host countries. This makes it risky as there is always a potential of unexpected change of market condition and regulation regarding soft drinks in developing economies.
However, Britons are moving towards consuming different kind of drinks, such as squashes, diet colas, energy drinks, tea and so forth. There is also a new breed of health conscious male consumers in the UK. This was due to the increased focus on obesity by the government and media. Therefore, Britons have decreased the frequency of consuming cola drinks. Our company sees this as an opportunity to revive the cola market by producing fusion drinks which combines the traditional cola with the new preferred drinks of Britons.
The soft drink industry in the United States is a highly profitably, but competitive market. In 2000 alone, consumers on average drank 53 gallons of soft drinks per person a year. There are three major companies that hold the majority of sales in the carbonated soft drink industry in the United States. They are the Coca Cola Company with 44.1% market share, followed by The Pepsi-Cola Company with 31.4% market share, and Dr. Pepper/Seven Up, Inc. with 14.7% market share. Each company respectively has numerous brands that it sales. These top brands account for almost 73% of soft drink sales in the United States. Dr. Pepper/Seven Up, Inc. owns two of the top ten brands sold. Colas are the dominant flavor in the U.S carbonated soft drink industry; however, popularity for flavored soft drinks has grown in recent years. The changing demographics of the U.S population have been an important factor in the growing popularity of these flavored soft drinks. The possible impact of this factor will be addressed later in the case.
Control of market share is the key issue in this case study. The situation is both Coke and Pepsi are trying to gain market share in this beverage market, which is valued at over $30 billion a year. Just how is this done in such a competitive market is the underlying issue. The facts are that each company is coming up with new products and ideas in order to increase their market share.
... objects and customer regions. Do making a clear differentiation image between its soft drinks and bottled water. Because the consumers may believe that bottled water of Nestle sounds healthier than Coca-Cola brand since Nestle tend to emphasize their image on healthy food products. Then do market test for new taste, new packaging, or new innovation according to each regions, and especially for Europe, the company should launch the new one to replace Dasani image in order to seize their market shares. They may renew all nutrients and packaging. Finally Coca-Cola should continue its joint ventures with the regional companies in order to protect their products from barriers to entry both international trade restrictions and distribution channels. Furthermore, joint venture with local brand is a long term contract guarantee to make it easier for HOD to a specific region.
Profitability in the soft drink industry is a major benefit for both parties that partake in the making of soft drinks, the bottlers and the concentrate producers. They share responsibility for costs in multiple functions of the process including production, procurement, distribution and marketing. The two entities, concentrate producerss and bottlers, interact interdependently sharing some promotional and bottling activities also. The soda business is already vertically integrated in some aspects. Additionally the two, concentrate producers and bottlers, deal with similar suppliers and buyers. Entry into the industry would include establishing operations in either or both elements and a lot of capital in order to do so strategically. The soft
Soft drinks are popular worldwide taking up 25% of the beverage market. Nearly two hundred countries enjoy these drinks. These drinks consist of carbonated water, flavoring, and lots of sugar.
The beverage industry is highly competitive and presents many alternative products to satisfy a need from within. The principal areas of competition are in pricing, packaging, product innovation, the development of new products and flavours as well as promotional and marketing strategies. Companies can be grouped into two categories: global operations such as PepsiCo, Coca-Cola Company, Monster Beverage Corp. and Red Bull and regional operations such as Ro...
Our next step is to analyze industry environment by applying Porter’s five forces model. In my opinion, bargaining power of the suppliers is fairly weak. The Coca-Cola Co has a pretty good system in place, where it manufactures its own signature concentrate and then sells it to the bottling franchises, which are contracted for 10 year periods. Bargaining power of the buyers is somewhat escalated, since we are still in recession and its natural for consumers to go after the better deal. Potential Entrants create additional production capacity and may eventually generate overcapacity, which results in a forceful price lowering. The variety of the substitute products is one of the strongest forces, it affects brand loyalty and makes it a lot more difficult for the Coke to compete. Last but not least, is the rivalry among existing firms. The main peril for the Coca-Cola
Precisely, this study assesses the impact of the Coca-Cola system on the soft-drink network, globally. Part of the job of designing a plan is deciding specifically what is intended to accomplish. The most striking trend in business today is the growing globalization of markets worldwide for goods and services. In sharp contrast to such market integration is the uncertainty and turmoil of market fragmentation. These changes pose great threat to the marketing strategist, as years of central control have hampered development of the necessary market mechanisms and infrastructure to support the implementation of marketing strategies. Coca-Cola has emerged as a leading brand in the whole world, when we talk of the beverage industry. In case of a tangible product like Coca-Cola, marketers need to focus on several other important issues like establishing a strong distribution network, ensuring the availability of their product at the right place, at the right time and at the right price. In addition to this, Coca-Cola can forecast the future demands for its products and can preplan its production schedules. It can also keep control over the quality of its products through improvements in production processes and strict controls over the quality of inputs. While considering the case of Coca-Cola it can be said that the company is in a position to charge a premium over its original price because of its strong brand recognition globally. However, practically speaking tough competition from rivals, especially from Pepsi has forced the company to reduce its prices to the minimum possible level. In the late 1980s, competition with Pepsi led to a discount war in which the margins of bottlers were abruptly torn away. As a result, many of the ...
This is a great model for the company because they can keep their logistic costs down by helping other companies expand their distribution networks. Experimentation with the new market for carbonated beverages on the decline, Coke has done experiments in new flavors and healthier alternatives to try to stay competitive. As well as investing in “Keurig Green Mountain is a K-Cup maker but has a new Keurig Cold that can deliver Coca-Cola through the new system.” (Cooper, 2014) Learning from experience, Coca-Cola has had some fierce competition over the years but nothing in the form of an entire health market shift like now.
The soft drinks industry has evolved over the last 50 years. At the end of the fifties households were consuming more wine than any other beverages. By the beginning of the seventies households were diminishing their wine consumption for appellation wine, not to mention that strong alcohols saw a significant increase during this period with mineral water. Other soft drinks such as fruit drinks, sodas and colas became popular by the end of the eighties. Soft drinks sells became steeper during the nineties probably correlated with the fact that this period is situated during the raise of generation Y. This generation was highly influenced by television and Internet, thus commercials. Generation Y has been a golden pool for marketers at that time and allowed companies to progress a lot concerning their marketing research techniques.
...e and Pepsi’s already established image as producers of premium product is key to discouraging other companies from entering the soft drink industry. However, as the market in the U.S has leveled off, they should continue to invest globally in marketing and advertising for further profit growth, which will in turn positively influence their well established brands to further increase soft drink sales and profits.