Soft Drinks

Topics: Soft drink, Coca-Cola, Caffeine Pages: 13 (3147 words) Published: March 21, 2004
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The Soft Drink Industry in 1996: A Case Study for External Environment Analysis

Raman Muralidharan

Indiana University-South Bend

he average U.S. consumer drinks more soft drinks per capita (2.3 eight ounce servings a day) than any other beverage, including milk. Table 1 shows the per capita consumption of various beverages in the U.S. for 1991-1995. In terms of 1995 retail sales, soft drinks in the U.S. are a $52 billion dollar industry (Standard & Poor's Corp., 96:11). The U.S. market growth for soft drinks, however, has slowed to single digits since the end of 1980s (Sawinski, 95:550). Fifty-four percent of the world's soft drink volume is sold outside North America, and in 1995, the per capita consumption of soft drinks in continental markets outside North America ranged from a low of 2.02 gallons in Africa to a high of 13.86 gallons in South America.

INDUSTRY PRODUCTS AND VALUE CHAIN

The industry, once synonymous with the Cola, has now grown into one with a wide range of products. Additional flavors such as orange, cherry, lime, lemon, pepper, and ginger ales have appeared in the market, and caffeine-free and diet versions of almost all of the industry's products have been introduced. In 1996, Cola brands occupied the top two marketshare positions in the U.S., while non-cola brands such as Mountain Dew, Sprite, and 7UP were also among the top ten best-selling soft drinks. Also, in 1996, sales volume for the top two Colas, Coca-Cola Classic and Pepsi-Cola, grew 3.2% and 3% respectively, while sales volume for Mountain Dew and Sprite grew 5.7% and 17.6% respectively. Table 2 shows the list of 10 best selling soft drinks in the U.S. market.

Table 1 Per Capital Beverage Consumption in the U.S. 1991-1995

(Gallons Per Person)

Beverage19911992199319941995

Soft drinks47.148.048.849.651.2

Coffee26.626.628.429.529.9

Milk25.525.225.125.024.8

Beer23.222.922.822.722.4

Bottled water8.89.09.510.311.0

Tea7.17.06.96.96.6

Juices6.46.56.56.56.4

Powdered drinks5.65.35.25.25.2

Wine1.91.91.71.71.8

Distilled spirits1.41.41.31.31.2

Source: Beverage Industry, 3/97, p. 52.

Table 2 Top 10 Soft Drinks in the U.S. Market 1996

Gallons Market 1996

BrandRank(mills)ShareGrowth

Coca-Cola Classic12,840.3 20.0%3.2%

Pepsi-Cola22,175.1 15.3%3.0%

Diet Coke31,338.2 9.4%2.3%

Mountain Dew4811.4 5.7%5.0%

Dr. Pepper5805.4 5.7%4.3%

Sprite6792.0 5.6%17.6%

Diet Pepsi7759.6 5.3%1.6%

7UP8329.3 2.3%0.2%

Caffeine free diet Coke9259.3 1.8%1.6%

Caffeine free diet Pepsi10153.6 1.1%0.4%

Source: c.f. Beverage World 3/15/97, p. 37.

Soft drinks are made by mixing syrup (which is made from raw materials such as sugar, sweeteners, and flavoring additives) with carbonated water. While some of the soft drinks are sold at fountains, others are packaged in bottles or cans.

A large portion of the soft drink industry's sales is in the packaged form (Sawinski, 95:549 estimates that 75% of all soft drinks sold in the U.S. were in the packaged form). Coca-Cola Co. and PepsiCo have historically maintained control over bottling and distribution through part or full ownership of some of their bottling plants. Cadbury Schweppes, on the other hand, has chosen to outsource its bottling function in the U.S. market. Cadbury Schweppes relies on independent bottlers and the bottling operations owned by Coca-Cola Co. and PepsiCo to bottle its products. Recently, Coca-Cola Co. and PepsiCo decided to drop some of Cadbury's brands from their bottling operations to make room for their own brands. As a result, Cadbury estimates that it has lost about 20 million cases in sales (Theodore, 97a:40). In another recent event, PepsiCo lost a significant part of its Latin American business when its Venezuelan bottler defected to Coca-Cola Co. (Sellers, 96:74-78).

Bottling operations and syrup production differ in their capital intensity and profitability. For example, in 1995, Coca-Cola...
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