Case analysis of the Soft Drink Industry Essay
Rivalry 18 Industry Growth Rate 20 Fixed Costs 21 Product Differentiation 21 Brand Identity 21 Informational Complexity 22 Corporate Stakes 22 Conclusion 23 Critical Success Factors 23 Prognosis 24 Bibliography 26 Appendix 27 Key Industry Ratios 27 Introduction Description The soft drink industry is concentrated with the three major players, Coca-Cola Co. , PepsiCo Inc. , and Catbird Speeches Pl. , making up 90 percent of the $52 billion dollar a year domestic soft drink market (Santa, 1996).
This is a high barrier to Conclusion To be successful on a large scale, the high capital requirements for manufacturing, distribution, and marketing are high barriers to entry. Therefore the threat of new entrants is low making this an attractive industry. Suppliers Supplier concentration Supplier concentration is low due to the fact that the main ingredients are sugar (cane and beet), water, various chemicals, and aluminum cans, plastic and glass bottles. There are many places to get sugar and ingredients for soft drinks because they are commodity items.
The containers (aluminum cans, bottles etc. ) make up 36 percent of all the inputs that the industry uses. Other supplies like sugars, syrups and extracts account for 23 percent of the inputs (Manufacturing USA). There
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All this makes the concentration for glass and plastic suppliers moderate. The aluminum can industry is even older and more established than the plastic industry. Reynolds Metal Products, American National Can Company and Metal Container Corp.. Are the main suppliers of aluminum cans. 50. 6% of total soft drink sales are packaged in aluminum cans (Prince, 1996). Since the aluminum industry is older and more established, these are likely to be the only manufacturers for a while. Even though the concentration of aluminum producers are low there are only three major players in the industry, Coke, Pepsi, and Catbird.
These three account for nearly 90% of domestic soft drink sales (Dawson, 1996). This makes the balance of power slightly favor the suppliers of aluminum cans, even though the number of producers and buyers are equal (3). Syrups and extracts account for 16. 7% of input costs to the soft drink industry (Manufacturing USA, Fourth De. ). Even though these are a small percentage of inputs, al the major soft drink companies own companies that produce flavoring extracts and syrups (Industry Surveys, 1995). This is probably due to the fact that they all have ‘secret formulas’ and this is how they protect the secret.
Coke, Pepsi, and Dry. Pepper all have ‘secret formulas’. This makes the concentration of suppliers for extracts very low but they are owned by the soft drink industry. This backward integration by the major players makes the power question moot. Suppliers do have limited power over the soft drink industry. The concentration of suppliers remains relatively low, which would seem to give the supplier power. The shear mass and volume that the industry buys negates that effect and balances, if not tips it back toward the soft drink industry.
Presence of Substitute Inputs There is not a lot of variety in inputs. The biggest substitute input was when the industry switched from aluminum cans to plastic bottles. This made the glass industry almost shake out completely. The next big substitute input was for sugar. Since people were demanding more and more ways to lose weight and consume fewer calories, the diet soft drink exploded in sales. This demand made the soft drink industry find an alternative to sugar to sweeten their product. This substitute turned out to be Intrastate non-sugar sweetener.
This was found to reduce the calories and retain the taste of their respective products. Other sweeteners, like molasses, do not work because they change the flavor of the product. Most of these substitute inputs had already taken place so they become less relevant to the industry as time marched on. Substitute inputs usually do not become important until the customer or market changes dramatically. This happens when new studies come out from the government about how harmful something is. This was the case when scientists