Page 1 of 3

Industry Analysis of the Softdrink Industry using Porter's 5-Forc...

Continues for 2 more pages »
Read full document

Industry Analysis of the Softdrink Industry using Porter's 5-Forces Model

Page 1 of 3
Industry Analysis

Barriers to Entry. Processes involved in the manufacture of soft drinks are standard in the industry; thus, knowledge needed to begin production is not complex and can easily be acquired. In addition, inputs used in the manufacture are commodity items (e.g. sugar, syrup, and fruit juices). Though the latter factors increase the susceptibility of companies to face new entrants, still, threats of entry by potential competitors are at a low degree. This is due to the fact that capital requirement to engage in such business is high. Funds required in production and distribution systems are extensive and necessary to be able to compete successfully. In addition, with these companies having stayed in the business for quite some time now, they have been able to successfully ride down the experience curve and have been able to achieve a certain degree of economies of scale, which contributed to their attainment of efficiency and productivity.

With brand loyalty now considered as the HOLY GRAIL to consumer product companies, potential entrants will have a difficult time in toppling existing industry players. These companies have already acquired goodwill with its customers and have well-recognized brands which fostered customer loyalty and created real opportunity for real market share, growth, price flexibility, and above average profitability. Moreover, potential entrants must provide new and distinct tastes away from close guarding patent laws which should capture the market.

Bargaining Powers of Suppliers. Inputs utilized (sugar, carbonated water, various chemicals such as artificial sweeteners, aluminum cans, and plastic and glass bottles) in the production of soft drinks are widely available. With sugar as a commodity, companies may be able to source out from open market. Given the volatility of sugar process, corn syrups may be used in lieu of high priced sugar just like what these companies did in the early 1980s. The companies'...