This essay Case analysis of the Soft Drink Industry has a total of 4445 words and 26 pages.
Case analysis of the Soft Drink Industry
Table of Contents
Relevant Governmental or Environmental Factors, etc. 4
Economic Indicators Relevant for this Industry 4
Threat of New Entrants 5
Economies of Scale 5
Capital Requirements 6
Proprietary Product Differences 7
Absolute Cost Advantage 8
Learning Curve 8
Access to Inputs 8
Proprietary Low Cost Production 8
Brand Identity 9
Access to Distribution 9
Expected Retaliation 9
Supplier concentration 10
Presence of Substitute Inputs 11
Differentiation of Inputs 12
Importance of Volume to Supplier 13
Impact of Input on Cost or Differentiation 13
Threat of Backward or Forward Integration 13
Access to Capital 14
Access to Labor 14
Summary of Suppliers 14
Buyer Concentration versus Industry Concentration 15
Buyer Volume 15
Buyer Switching Cost 15
Buyer Information 16
Threat of Backward Integration 16
Pull Through 16
Brand Identity of Buyers 17
Price Sensitivity 17
Impact on Quality and Performance 17
Substitute Products 18
Relative price/performance relationship of Substitutes 18
Buyer Propensity to Substitute 18
Industry Growth Rate 20
Fixed Costs 21
Product Differentiation 21
Brand Identity 21
Informational Complexity 22
Corporate Stakes 22
Critical Success Factors 23
Key Industry Ratios 27
The soft drink industry is concentrated with the three major players, Coca-Cola Co., PepsiCo Inc., and Cadbury Schweppes Plc., making up 90 percent of the $52 billion dollar a year domestic soft drink market (Santa, 1996). The soft drink market is a relatively mature market with annual growth of 4-5% causing intense rivalry among brands for market share and growth (Crouch, Steve). This paper will explore Porter\'s Five Forces to determine whether or not this is an attractive industry and what barriers to entry (if any) exist. In addition, we will discuss several critical success factors and the future of the industry.
The soft drink industry has two major segments, the flavor segment and the distribution segment. The flavor segment is divided into 6 categories and is listed in table 1 by market share. The distribution segment is divided in to 7 segments: Supermarkets 31.9%, fountain operators 26.8%, vending machines 11.5%, convenience stores 11.4%, delis and drug stores 7.9%, club stores 7.3%, and restaurants 3.2%.
The only limitations on access to information were:
1. Financial information has not yet been made available for 1996.
2. The majority of the information targets the end consumer and not the sales volume from the major soft drink producers to local distributors.
3. There was no data available to determine over capacity.
Relevant Governmental or Environmental Factors, etc.
The Federal Government regulates the soft drink industry, like any industry where the public ingests the products. The regulations vary from ensuring clean, safe products to regulating what those products can contain. For example, the government has only approved four sweeteners that can be used in the making of a soft drink (Crouch, Steve).
The soft drink industry currently has had very little impact on the environment. One environmental issue of concern is that the use of plastics adversely affects the environment due to the unusually long time it takes for it to degrade. To combat this, the major competitors have lead in the recycling effort which starting with aluminum and now plastics. The only other adverse environmental impact is the plastic straps that hold the cans together in 6-packs. These straps have been blamed for the deaths of fish and mammals in both fresh and salt water.
Economic Indicators Relevant for this Industry
The general growth of the economy has had a slight positive influence on the growth of the industry. The general growth in volume for the industry, 4-5 percent, has been barely keeping up with inflation and growths on margins have been even less, only 2-3 percent (Crouch, Steve).
Threat of New Entrants
Economies of Scale
Size is a crucial factor in reducing operating expenses and being able to make strategic capital outlays. By consolidating the fragmented bottling side of the industry, operating expenses may be spread over a larger sales base, which reduces the per case cost of production. In addition, larger corporate coffers allow for capital investment in automated high speed bottling lines that increase efficiency (Industry Surveys, 1995). This trend is supported by the decline in the number of production workers employed by the industry at higher wages and fewer hours. This in conjunction with the increased value of shipments over the period shows the increase in efficiency and the economies gained by consolidation (See table 2).
Year Companies Workers Hours Wages Value of Shipments
Further evidence of economies is supported by the increased return on assets from 1992-1995, as shown in table 3. Coke and Pepsi clearly show increased return on assets as the asset base increases. However, Cadbury/Schweppes does not show conclusive evidence from 95 to 96.
The requirements within this industry are very high.
Topics Related to Case analysis of the Soft Drink Industry
Patent medicines, Soft drinks, Convenience foods, Coca-Cola, Kosher food, The Coca-Cola Company, Dr Pepper, Pepsi, Diet drink, New Coke, Cola, Porters five forces analysis
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