Analysis of Soft Drink Market Essay
What is new is the pace and breadth of market expansion by the cola giants, the depth to which heavy insinuated their products into the mass consciousness, and their penetration into regions of the world where institutions of transparency and accountability are poorly developed at best. In India, for instance, the Coca-Cola Company is the largest single foreign investor, and Indian’s soft-drink market has quickly surpassed $1 billion annually (Yams 2004). The world’s leading FMC firms now produce literally across the world.
Moreover, in the same fashion as for the auto industry, but much less widely recognized, they literally take the ‘extended firm’ structure with them. Many pub-branches of global supplier companies develop within the developing countries. However, the often explosive growth of local production provides massive opportunities for local firms to enter the value chain. There are powerful positive effects upon local business that result from entering the value chain of a globally successful FMC firm.
The competition to enter the value chain is extremely fierce, but those firms that are successful in this endeavourer have unprecedented opportunities to grow within the ‘external firm’ of the leading global branded goods companies. This whole external firm success is substantiated by presence of
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Knowledge of the key attributes that drives the target customer will help these players to understand what makes the multinationals successful and how to design their product offerings so as to take compete with the established product of these multinationals. Research agency ORG-MARK has conducted The Economic Times Survey of Indian’s Most Trusted Brands. The survey covered 4,674 consumers across 12 centers – four metros, four Class I and four class II towns. Besides an overall ranking, the study also gives insights into how consumers in different regions and population strata rank brands.
Indians have become big guzzlers of carbonated drinks. Of the top 10 brands, 3 are soft drink brands. Ides Thumps Up is at No 4, while Coca Cola and Pepsi follow at No 8 and NON. South India is surely a unique market (While Thumps up is the preferred choice in the North (Rank 5) , West (Rank 4) and East (Rank 5), The south Indians prefer Pepsi (Ranked No 5 in South). The Top 20 Brands I Rank I Brand II 13 14 15 16 I Lug I Colgate I Thumbs Up I Deleted I Fair & lovely 18 19 110 Figure 1 I Coca cola I Pepsi I Hornlike The Indian soft drinks(carbonated) market is dominated by two major players namely 1 }Coca-Cola 2}Pepsi.
In this case analysis, we would like to understand the market share these two giants enjoy in the soft drinks market RSI 6,000-core (RSI 60 billion) industry ,thereby and understand the market structure . In order to understand the market power that these to companies enjoy, we will have to first study the market share of each company. MOTIVATION FACTORS : }Ever growing markets The soft drinks market is an ever growing market which is not going to stagnate in near future . The Aim here is to study the rate at which the market share of the big players has been growing. 2}Low degree of product differentiation.
Top Players like Pepsi and coco-cola, have little differences in the product type and composition, the differences if any are not noticeable, hence in order to study how do these companies differentiate their products we are analyzing this case 3}Official sponsors of major sports events How do major sport events which these companies sponsor affect their market share, s there an actual increase or decrease in the share or not, we need to look into this. 4}Fast food generation Various fast food combinations are coming in the market which have soft drinks as their sought-after and much liked option 5}Eye-catching advertisements.
The top players rope in big celebrities as their brand ambassadors, with some of the most memorable advertisements and have managed to create a place in the minds of the customers (Present and potential ). 6}Possibility of Tacit collusion. It is always wondered, whether the major players have formed a lobby. To analyses ND understand whether such a collusion has really been adopted by these giant players and if yes then how it affects other players in this field, further probe into the matter is required.
Economists need a quantitative measure of the extent of market power, now market power signifies the degree of control that a single firm or a small number of firms has over the price and production decisions in an industry. Measures of market power: The most common measure of market power is the concentration ratio of an industry. The four Firm concentration ratio is defined as the percent of total industry reduction that is accounted for by the largest four firms. To understand the concept of concentration Ratio we will study the Soft drinks industry.
COCA COLA Established in 1886, Coca-Cola is the world’s most ubiquitous brand. The company and its Subsidiaries are present in over 200 countries employing over 49,000 individuals and generating revenues to the tune of IIS$ 21 billion. The Coca-Cola Company markets four of the world’s top-five soft drink brands; its beverage products encompass nearly 400 brands, including incorporated beverages such as waters, juices, sports drinks, teas and coffees. The company’s net income registered a CARR f 7. 2 per cent over a 10-year period . Till date, Coca-Cola has invested over IIS$ 1 billion in India and employs over 5,000 people.
The Coca-Cola system in India comprises 25 wholly owned bottling operations and another 35 franchisee-owned bottling operations. A network of 27 contract-packers also manufacture a range of products for the company. MARKET SHARE Coca cola is a leading player in the Indian beverage market with a 61 per cent share in the carbonated soft drinks segment. In 2004 coca cola sold 7 billion packs of its brands to more than 230 million consumers across 4700 towns and 175000 villages he company has doubles its volumes and trebled its profits between 2001 and 2004.
Based on an ORG-Mark survey for the period January to June 2001 , Coca-Cola India claims a market share gain of 2. 8 per cent, up from 54. 3 per cent to 57. 1 per cent in the overall soft drinks market. Says Mr. Shrimps Nadir, vice-president, Coca-Cola India: Of the 2. 8 per cent gain, two per cent gain has come from the cola segment alone and the rest has come from other segments. ” According to this, in terms of volume growth, Coca-Cola India gain of nearly three per cent translates into a venue of RSI 180 core for the company, while for Pepsi the decline of nearly two per cent is a loss of RSI 120 core to the company.
Coca-Cola India on Friday said that its carbonated soft drinks business cornered an all-time high share of 60. 5 per cent of the all-India carbonated soft drinks (SD) market at the end of May 2004. PEPSICO India Pepsi is one of the most well known brands in the world today available in over 160 countries. The company has an extremely positive outlook for India. “Outside North America two of our largest and fastest growing businesses are in India and China, which include more than a third of the world’s population. ” (PepsiCo annual report, 1999) This reflects that India holds a central position in Pepsin’s corporate strategy.
India is a key market for PepsiCo, and at the same time the company has added value to Indian agriculture and industry. PepsiCo entered India in 1989 and is concentrating in three focus areas – Soft drink concentrate, snack foods and vegetable and food processing. Faced with the existing policy framework at the time, the company entered the Indian market through a Joint venture with Volt’s and Punjab Agro Industries. With the introduction of the liberalizing policies since 1991, Pepsi took complete control of its operations. The government has approved more already flown in.
One of PepsiCo key strategies was to develop a completely local management team. Pepsi has 19 company owned factories while their Indian bottling partners own 21 . The company has set up 8 Greenfield sites in backward regions of different states. PepsiCo intends to expand its operations and is planning an investment of approximately IIS$ 150 million in the next two three years. As per the statistics Pepsi has a market share of around 36-37%. (Gag 2005,Times news outwork). According too survey conducted by RASA ORG in 2004 Pepsi-co Indian’s share was 36%.
OBJECTIVE ANALYSIS:- OBJECTIVE -l Analysis of market power in the soft drinks industry and its effect on the other allied industries namely ( Advertising and Logistics) and its subsequent effect on the National Income. From the above discussion is now an easy task to identify the major players that dominate the Indian soft drinks market. However to understand the market power that these two companies hold, we shall use the economic tool of “Concentration Ratio. “, that will help us to understand which company or group of impasses reign in a particular industry.
APPLICATION OF CONCENTRATION RATIO Market power signifies the degree of control that a single firm or a small number of firms has over the price and production decisions in an industry. Measures of market power: The most common measure of market power is the Concentration Ratio of an industry. The four Firm concentration ratio is defined as the percent of total industry production that is accounted for by the largest four firms Definition of the Concentration Ratio: The concentration ratio IA a way of measuring the concentration f market share held by particular suppliers in a market. It is the percentage of total market sales accounted for by a given number of leading firms. ” Thus a four-firm concentration ratio is the total market share of the four firms with the largest market shares. (Sometimes this particular statistic is called the CRY. ) The following table provides of the market share of the soft drink companies in the Indian soft Drinks Market. I Company I I Coca Cola up,Lima,Faint,Diet coke I Percentage | 60. 9% I Brands I Coke, Sprite, Thumps I I PepsiCo I Pepsi, Mountain Dew, Seven up, Slice, Miranda, diet Pepsi 36. % I I Others | 3. 1% Table 2 I Calamari,Bonito,Top gun Application of Concentration Ratio: As indicated in the table, Coca-cola and Pepsi have almost Dominated the Indian soft drinks market, with a 96. 9% market share, It is clear that these companies enjoy an almost monopolistic power in the industry. COCA COLA:- Diverse product portfolio:- In keeping with its goal of emerging as the single largest entity in the beverage market coca cola has its presence in various segments.
In the carbonated drinks,fruit Juice based drinks,powered soft drinks, bottled water and bottled soda. Affordable entry-price point and strong brand pull The company undertook and Affordable strategy by selling its beverages in 200,300,500,1. 51 LTR bottles,tetra packets as well as through vendors. (Fountain Intensive brand buildings machines) The company focused on understanding the Indian consumers and using these local insights to build powerful connect for its brand.
Given the widespread popularity of cricket and movie stars in India ,the company roped in a host of cricket stars and movie stars to endorse its products ,for example:-Emir Khan,Cassowary Aria,Mood. Guarding etc Creating an ultra Low cost model: lowering cost of goods sold and fixed cost. The company went about bringing a cost focus culture in the company. This included the pro-cement efficiencies through focus on key inputs material ,trade discipline and control and proactive tax management through tax incentives ,excise duty reduction and creating marketing companies.
These measures have reduced the cost of operations and increased profits margin Outsourcing distribution and manufacturing. Coca-Cola India minimized it capital needs by meeting new manufacturing capacity needs through external co-packers ,outsourcing its distribution and eating its in-market-refrigeration and cooling needs by giving incentives to the retailers to self-fund the same through its “Own Your fridge scheme” Today coca cola has an extensive rural and urban distribution network . T adopts a hub and spoke a spoke format distribution network ensuring that large loads travel longer distance short loads travel short distances. Coca-cola has increased its village penetration from 9 % in 2000 to 28 per cent in 2004 and covers approximately today . Rural India now accounts for 30 per cent of coca- cola’s sales volume. Brand Values Created Through Intensive Advertising Strategies Coca-Cola is the world’s most famous and powerful brand, selling more than one billion drinks every day.
Its red and white logo can be seen everywhere from remote hillside shacks in Afghanistan to vast neon hoardings in central Tokyo. With a marketing budget four times greater than the Nun’s annual spending on combating child poverty, it has spent millions on buying up the world’s biggest sporting events – David Beckman and Earth Franklin PEPSI PepsiCo success in India centers around a strong focus on satisfying and delighting Indian consumers.
This was achieved by forging strong relationships with local ranches partners, distributors and suppliers and building a talented local workforce. Building strong brands A strong portfolio of brands has helped establish PepsiCo as a leader in Indian’s beverages market, offering a variety of high-quality products providing refreshment and nutrition. It has regularly released popular advertisement campaigns to coincide with popular Indian festivals. Additionally, the company through association and advertisement, has created a distinct identity for each of its brands.
Partnerships PepsiCo entered Indian’s hot beverages category in 2003 through a tie-up with Hindustan Lever Ltd. , a leader in hot beverages and owner of the Lipton brand. To produce its beverages, PepsiCo has 37 bottling plants in India, including 17 company- owned plants and 20 owned by franchisee partners. The flavor concentrates used to make soft drinks are produced at a separate state-of-the-art plant at Chanson in the Diverse product Sangria district of Punjab and supplied all across South Asia. Oratorio PepsiCo portfolio of beverage brands in India includes the flagship cola brand Pepsi; Diet Pepsi; two flavors of Miranda – Orange and Lemon; JP; Mountain Dew; cadged drinking water – Aquifer; variants of the fruit drink brand Slice; the 100 per cent fruit Juice brand Tropical in several variants and the world’s leading sports drink Storage. It also includes the local brands Lear Verves Soda, Dukes Lemonade and Angola.
Through its tie-up with Hindustan Lever Limited, the company also markets and distributes ready-to-drink beverages such as iced tea, Local manufacturing green teas and herbal teas. PepsiCo has invested heavily in building local production facilities and transferring agro technology to the country. PepsiCo and Punjab Agro set up a 9,600 sq Ft roundhouse at the Agro Research and Development Centre at Galloway, Punjab, to commercialism citrus cultivation in the state. Additionally, the company also undertakes contract farming cross the country to source raw materials for its Leveraging the India Advantage products.
Using local talent to run operations in India Since its entry into India, PepsiCo has provided direct employment to more than 3,000 people in India. Indirect employment, including services, suppliers and distributors, Sourcing and manufacturing base for is estimated at more than 60,000 people. Exports Today PepsiCo is amongst the major multinational exporters. Cumulative exports over the last 10 years have crossed IIS$ 504 million. Pepsin’s export business today high quality, competitive supplier to the worldwide PepsiCo system.
Contribution of Pepsi and Coca Cola in the National Income (GAP) From the above discussion we can see that both Pepsi and Coca Cola hold a major market share,about 97%,this has increases ones curiosity as to what will these 2 companies contribute to the National Income that is the GAP. To understand this we have created a small model,which will help us understand the contribution of both the impasses to the GAP.