Soft Drink Industry Case Study

Soft Drink Industry Case Study


Table of Contents


        Introduction    3

        Description     3

        Segments        3

        Caveats 4

        Socio-Economic  4

        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

        Conclusion      10

        Suppliers       10

        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

        Buyers  15

        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

        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 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. Segments

     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%.


Table 1:  Market Share

          1990     1991     1992     1993     1994 Cola          69.9

69.7     68.3     67     65.9 Lemon-Lime          11.7     11.8     12

12.1     12.3 Pepper          5.6     6.2     6.9     7.3     7.6 Root

     2.7     2.8     2.3     2.7     2.7 Orange          2.3     2.3

2.6     2.3     2.3 Other          7.8     7.2     7.9     8.6     9.2

Source:  Industry Surveys, 1995


Caveats


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.


Socio-Economic


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 onl
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