Porter 's Five Industry Forces, Map The Soft Drink Industry

The existing concentrate business is largely controlled by Coca-Cola Company (Coca-Cola) and PepsiCo (Pepsi), together claiming a combined 72% of the U.S. carbonated soft drink (CSD) market sales volume in 2009. Refer to Exhibit 1 for an illustration of the CSD industry value chain. For more than a century, Coca-Cola and Pepsi have maintained growth and large market shares through mastering five competitive forces, shown in Exhibit 2, that drive profitability and shape the industry structure.

Customers have bargain power in the market since soft drink is an elastic product which is not necessary for daily life.

The market share of soft drink industry actually has to maintain by spending and investing huge amount of money on advertisement and marketing. The advertising cost of Coca-Cola was $3.3 billion in 2012. Such a high cost makes it very hard for a new competitor to survive in the market and expand visibility. Moreover, due to the highly recognized brand name of Coca-Cola, the strong loyal customers’ base would not easy to switch to a new product. Therefore, it is nearly impossible for a new comer to compete in the soft drink industry.

The soft drink industry in the United States is a highly profitably, but competitive market. In 2000, carbonated soft drink retail sales were estimated $60.3 billion, however, soft drink consumption growth has slowed in recent years. There are three major companies that hold the majority of sales in the carbonated soft drink industry in the U.S. They are the Coca Cola Company with 44.1% market share, The Pepsi-Cola Company with 31.4% market share, and Dr. Pepper/ Seven Up, Inc. with 14.7% market share. These three companies market the top ten brands account for 73% of soft drink sales in the U.S. Dr. Pepper/ Seven Up, Inc. owns two of the top ten brands: Dr.

The industry is predominantly led by three companies; Coca Cola, Pepsi, and Dr. Pepper Snapple Group (also commonly referred to as RC or 7 UP by consumers). Each of these companies has strong players in multiple beverage categories. Furthermore, there is numerous other store, local, and regional owned brands depending on where you are. This creates a high number of substitute products throughout the beverage industry in all its categories. For example, in a typical carbonated soft drink aisle at Walmart you might find up to nine different brands of each beverage flavor. Interestingly, at Walmart each brand will tend to have a different price point. However, if you go to Target you may only find three brands per flavor and typically they are priced in line with one another. The high number of available substitutes often leads to a pricing war. When companies compete on price, often the consumer wins. The result of interpreting that competition is a learned behavior by consumers to be sensitive to temporary promotional pricing. Ultimately, the high number of available substitutes makes the beverage industry elastic in short bursts throughout the

There are many competitors in the food and beverage industry in such that it can be classified as a fragmented industry. The Coca-Cola Company is one of PepsiCo’s largest competitors on the beverage side. The companies compete for the highest profits and market share. The constant battle between these two companies often benefits the consumers with sales and promotions, new products and better quality. There are numerous generic brand sodas that are offered to compete with the brand names that PepsiCo offers. The rivalry intensifies due to number of substitute products that are offered. The pressure in the industry is fierce due to the large number of competitors.

The market for carbonated soft drinks is saturated with many brands. The top five are, Coca-Cola, Diet Coke, Pepsi-Cola, Mountain Dew, and Dr. Pepper (Hartlaub, n.d.). Over 90% of the market is dominated by three companies, Coca-Cola, Pepsi, and Dr. Pepper/Snapple (Statista, 2015) Because the soft drink industry manufactures its products in mass amounts, they can produce economies of scale and create a competitive advantage over smaller or new companies trying to

During the growth stage of the product life cycle, the Company has a plan to diversify to the additional major markets in other geographic locations as well as to introduce additional products in the markets. Hence, the company will face additional competition from the major brands such as Coca-Cola, Pepsi Foods, Dr. Peppers etc. to gain the market share. While Coca-Cola and PepsiCo are the market leaders, however due to the increased concern over high calorie and carbonated soda based drinks, the market share of the existing leaders are in

The aim of this report is to analyse the main forces driving the market for any specific product of our choice. In details, we will research about the product’s background information, the special characteristics and the market it belongs to. We will also explain the market structure, the supply conditions and barriers of entry, giving an insight of competition and government policies, too. Furthermore, we are going to point out the price elasticities, determinants of demand and sizes of income. Lastly, we will be assessing how this market will develop and the future opportunities for both existing and new firms. For the purpose of this report, we have decided to use Coca-Cola from the Coca-Cola Company, the world leading beverage company. We have discovered that although Coca-Cola is not performing very well in terms of income, it is still the market leader in the soft drink industry. Thus, new rivals’ entrants may be discouraged to compete because of the uncertainty and the competition present in the market.

First, to set our boundaries of the industry, I will set the boundaries of the carbonated soft drink industry. The carbonated soft drink industries are companies that are in the production of soda products, sports drinks, and energy drinks. The production and distribution of carbonated soda drinks can be broken down into four separate sections: concentrate producers, bottlers, retail channels, and suppliers. The first section is the producers of concentrate syrups. These are companies like Coca-Cola, Pepsi, and Dr. Pepper who specialize in creating the concentrates. The second groups are the bottlers of soda products. The bottlers, buy concentrate from companies like Coca-Cola, then add carbonated water and other sweeteners, and then bottle the product for delivery to retailers. The third sections are retail channels. Retail channels are supermarkets, fountain outlets, gas stations and other stores where soda is sold to end consumers. The suppliers to the industry make up the last of the major players in the carbonated soft drink industry. The suppliers in the industry supply both the concentrate producers and also the bottling. The soda production industry has a fairly concentrated market with two major companies accounting for 70% of the market share. The Coca-Cola Company is by far the leading company in the industry with over 40% share of the market. Its closest competitor is the PepsiCo

Market segmentation for Cool & Cool soft drinks is based on certain features. Some group of people may react to certain way for a particular product. Some people need soft drinks to be at a certain price range. Some may think that if the price is low it has low quality. Some customers may be very interested in the concept of VFM (Value for Money). Customers nowadays want the maximum benefit for the minimum amount they are paying.

The supplier power is how much pressure suppliers can place on the business. The fresh food industry requires raw materials and suppliers. Suppliers, if powerful, can exert an influence on the industry, such as selling raw materials at a higher price to capture some of the industry's profit. In our industry, bigger the firms are, more they can negotiate prices with their suppliers. So, it depends on the firm' size but also on its experience and the brand reputation. Moreover, suppliers are not very concentrated. Firms need many different raw materials like vegetables, fruits, cheeses and meats. They do not have just one supplier. In this sense, suppliers are not powerful but it tends to reduce volumes.

In an industry dominated by two heavyweight contenders, Coke and Pepsi, in fact, between 1996 and 2004 per capita consumption of carbonated soft drinks (CSD) remained between 52 to 54 gallons per year. Consumption grew by an average of 3% per year over the next three decades. Fueling this growth were the increasing availability of CSD, the introduction of diet and flavored varieties, and brand extensions. There is couple of reasons why the industry is so profitable such as market share, availability and diversity and brand name and world class marketing.

The soft drinks industry consists of the production and distribution of non-alcoholic, carbonated and sweetened water-based drinks that are canned or bottled. It does not include other non-alcoholic beverages. With Porter’s Diamond Model theory, competitive advantages and disadvantages of Pakistan’s soft drinks industry will be analyzed.

The industry of Carbonated Soft Drinks (CSD) is highly concentrated. The three major companies, Coca Cola, PepsiCo, and Cadbury Schweppes accounted in 1998 for more than 90% of market share by case volume –Exhibit 1-.