Soft Drink Industry Case Study

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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
19901991199219931994 Cola69.9
69.768.36765.9 Lemon-Lime11.711.812
12.112.3 Pepper5.66.26.97.37.6 Root
2.72.82.32.72.7 Orange2.32.3
2.62.32.3 Other7.87.27.98.69.2
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...
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