Essay About Market Size Of This Industry And Soft Drink Industry

Industry Analysis – Soft Drink
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Industry Analysis:
Soft Drinks
Meghan Deichert, Meghan Ellenbecker, Emily Klehr,
Leslie Pesarchick, & Kelly Ziegler
Strategic Management in a Global Context
February 22, 2006 1
Industry Analysis: Soft Drinks
Barbara Murray (2006c) explained the soft drink industry by stating, “For years the story
in the nonalcoholic sector centered on the power struggle betweenCoke and Pepsi. But as the
pop fight has topped out, the industrys giants have begun relying on new product flavors…and
looking to noncarbonated beverages for growth.” In order to fully understand the soft drink
industry, the following should be considered: the dominant economic factors, five competitive
sources, industry trends, and the industrys key factors. Based on the analyses of the industry,
specific recommendations for competitors can then be created.
Dominant Economic Factors
Market size, growth rate and overall profitability are three economic indicators that can
be used to evaluate the soft drink industry. The market size of this industry has been changing.
Soft drink consumption has a market share of 46.8% within the non-alcoholic drink industry,
illustrated in Table 1. Datamonitor (2005) also found that the total market value of soft drinks
reached $307.2 billion in 2004 with a market value forecast of $367.1 billion in 2009. Further,
the 2004 soft drink volume was 325,367.2 million liters (see Table 2). Clearly, the soft drink
industry is lucrative with a potential for high profits, but there are several obstacles to overcome
in order to capture the market share.
The growth rate has been recently criticized due to the U.S. market saturation of soft
drinks. Datamonitor (2005) stated, “Looking ahead, despite solid growth in consumption, the
global soft drinks market is expected to slightly decelerate, reflecting stagnation of market
prices.” The change is attributed to the other growing sectors of the non-alcoholic industry
including tea and coffee (11.8%) and bottled water (9.3%). Sports drinks and energy drinks are
also expected to increase in growth as competitors start adopting new product lines. 2
Profitability in the soft drink industry will remain rather solid, but market saturation
especially in the U.S. has caused analysts to suspect a slight deceleration of growth in the
industry (2005). Because of this, soft drink leaders are establishing themselves in alternative
markets such as the snack, confections, bottled water, and sports drinks industries (Barbara
Murray, 2006c). In order for soft drink companies to continue to grow and increase profits they
will need to diversify their product offerings.
The geographic scope of the competitive rivalry explains some of the economic features
found in the soft drink industry. According to Barbara Murray (2006c), “The sector is
dominated by three major players…Coca-Cola is king of the soft drink-empire and boasts a
global market share of around 50%, followed by PepsiCo at about 21%, and Cadbury Schweppes
at 7%.” Aside from these major players, smaller companies such as Cott Corporation and
National Beverage Company make up the remaining market share. All five of these companies
make a portion of their profits outside of the United States. Table 3 shows that the US does not
hold the highest percentage of the global market share, therefore companies need to be able to
compete globally in order to be successful.
Table 4 indicates that Coca-Cola has a similar distribution of sales in Europe, North
America, and Asia. On the other hand, the majority of PepsiCos profits come from the United
States (see Table 5). Compared to PepsiCo, Cadbury Schweppes has a stronger global presence
with their global mix (see Table 7). Smaller companies are also trying to establish a global
presence. Cott Corporation is a good example as indicated in Table 8. The saturation of the US
markets has increased the global expansion by soft drink leaders to increase their profits.
The ease of entry and exit does not cause competitive pressure on the major soft drink
companies. It would be very difficult for a new company to enter this industry because they 3
would not be able to compete with the established brand names, distribution channels, and high
capital investment. Likewise, leaving this industry would be difficult with the significant loss of
money from the fixed costs, binding contracts with distribution channels, and advertisements
used to create the strong brand images. This industry is well established already, and it would be
difficult for any company to enter or exit successfully.
Three leading companies have prominent presence in the soft drink industry. The leaders
include the Coca-Cola Company, PepsiCo, and Cadbury Schweppes. According to the CocaCola annual report (2004),