November 24, 2009
The Juice industry in Mexico have been increasing, there are several factors that make this possible and companies like Jugos del Valle and Jumex are making different strategies to capture that market. Next there is an analysis of the industry and then it follow an internal and external analysis of Jugos del Valle, which is now part of Coca-Cola FEMSA. There are some aspects that are favorable for the company and some that are disadvantages for them. The purpose of this essay is to show the advantages and disadvantages, and analyze more the disadvantages to see where Jugos del Valle can improve in order to become the number one producer and distributor of fruit and vegetable juices.
Industry Strategic Analysis
Threat of New Entrants:
In the fruit juices industry there are high entrance barriers because there are big companies that have economies of scale because of the great amount of products they sale, and this companies have machinery to make a lot of juices of different fruits and vegetables, making it easy for big companies to have economies of scale.
Many of these companies not only make fruit juice, but have products like water, sodas, alcoholic beverages, vegetable juices, and other beverages. These make the entrance difficult for new companies, especially small ones that can’t compete with the low prices.
The capital requirements for new entrants is high because companies already established are big companies, such as Jumex, Campbell’s, Herdez, Jugos del Valle, Gerber, Valle Redondo. These are big companies that have been in the industry for several years, and the brands are already known for consumers, this is what makes it difficult to compete against them.
Bargaining Power of Suppliers
Suppliers have the option of changing their clients, but it is difficult to reject the big amount of product that the big companies ask for. This is why suppliers don’t have bargaining power, it is the other way; the juice companies have bargaining power over their suppliers, because they demand tons of product and these allow them to pay lower prices and have volume discounts. Some of the suppliers of this industry are fruit suppliers, vegetable suppliers, carton suppliers, glass suppliers, plastic suppliers, and can suppliers, other products and machinery are need to be imported from other countries.
Another aspect of the low bargaining power of suppliers is that buyers don’t need quality products; for example, raw materials such as fruits or vegetables don’t have to be quality like if they will export the products. The fruit that the companies need don’t need the quality like if they are selling fruit for supermarkets, because the fruit is used for juice and the quality is not seen.
The Power of Buyers
The different products that the fruit juice industry sells have low prices; these products have similar prices such as water or soda. Due to these low prices, the consumers don’t have power over these products. Also, Mexican consumers don’t even ask for quality on products, these consumers prefer low prices against quality, because many of the people that buy fruit juices are middle or low class consumers.
Although consumers can’t negotiate for lower prices, they can always change from one company to another, or from one product to a substitute, because the costs of changing from one product to another is relatively low or there is no cost, because prices are similar from fruit juices to substitutes.
Talking about different buyers like liquor stores or convenience stores such as Oxxo, 7 eleven, or supermarkets like Soriana or Wallmart; these stores have power over the fruit juice companies, because they sell a lot of products and the demand is high. These is why this stores can negotiate and decide what price they want in order to sell it.
Threat of Substitutes
The number of substitutes for the fruit juice industry is big, because there are many products that can compete with...
Bibliography: CENAM, “La importancia de la industria de jugos y néctares en México” extracted on November 20, 2009 from the webpage: http://www.cofemermir.gob.mx/uploadtests/75126.96.36.199.Anexo%204.pdf
Datamonitor, “Juices in Mexico” extracted on November 23, 2009, from the webpage: http://0-search.ebscohost.com.millenium.itesm.mx/login.aspx?direct=true&db=buh&AN=14383745&site=bsi-live
FEMSA, “Estados Financieros de FEMSA” extracted on Noviembre 22, 2009 from the web page: ttp://files.shareholder.com/downloads/FEMSAS/780579993x0x326787/5C565B45-FE76-40CA-A741-E3145BF8C1B9/FEMSA_3Q09_Earnings_Release_-_Esp.pdf
Google Finance, “Coca-Cola FEMSA SAB. De C.V. financials” extracted on November 22, 2009 from the web page: http://www.google.com/finance?q=NYSE:KOF&fstype=ii
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