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 good credit score rating.
Appendix 1 provides a list of product lines and their performance for each of the three firms, and Appendix 2 provides selected financial data for the three companies. Table 3 U. S. Soft Drink Market Shares, 1996 1996 5 Year Gallons Market Volume Volume CompanyRankMillionsShareGrowthGrowth Coca-Cola Co. 16,223. 9 43. 8%5. 5%23. 5% PepsiCo Inc. 24,370. 2 30. 8%4. 0%15. 6% Cadbury32,060. 4 14. 5%0. 3%14. 8% Cott4357. 0 2. 5%6. 0%NA National Beverage5270. 0 1. 9%5. 9%30. 8% Royal Crown6254. 6 1. 8%4. 1%13. 6% Monarch7138. 5 1. 0%6. 1%29. 8%.
Double Cola852. 2 0. 4%0. 8%7. 6% Big Red932. 0 0. 2%4. 2%NA Soft drink sales volume in the U. S. has grown at an average annual rate of 3. 28% over the last five years, reaching 14,199. 5 million gallons in 1996. Soft drink sales outside North America represented 54% of the world sales volume in 1995 and have grown at an average annual rate of 6. 52% between 1990 and 1995. Table 5 shows worldwide soft drink sales volume by continent, and Table 6 shows worldwide per capita soft drink consumption by continent. New Entry Into the Industry.
The production technologies required for manufacturing soft drinks is widely available for potential entrants. Competing on a national or global scale, however, requires the ability to manufacture and distribute a well-recognized brand. Soft drinks are among the most advertised products, and soft drink commercials are a regular feature in most high-profile advertising events. In 1996, for example, Coca-Cola Co. had an unprecedented one hundred commercial spots during the Summer Olympics, and PepsiCo had a number of commercials during the super-bowl.
Coca-Cola Co., PepsiCo, and Cadbury Schweppes spent a total of $469. 1 million on media advertising in the U. S. market between January and September 1996, up from the $370. 7 million spent during the corresponding period in 1995 (Beverage Industry, 3/97: 40-41). Channels of Distribution As mentioned earlier, there are two main channel categories in this industry--packaged product channels and fountain channels. The packaged product channels include supermarkets, mass merchandisers, drug stores, and vending machines. Fountain channels include fast-food restaurants, sports arenas, convenience stores, and gas stations.
While supermarkets are, at present, the largest channel in the U. S. , the fountain channel has been growing fast. According to Bill Perely, Senior Vice President/General Manager of fountain/foodservice for Dr. Pepper/7UP, fountain sales in the U. S. grew at an average annual rate of about 5% in the last five years, while overall soft drink sales in the U. S. grew at an average annual rate of about 3% during the same period (Sfiligoj, 97:54). Bill Perely attributes the growth in fountain sales to the increased popularity of fast foods--in particular the carry-out segment of fast foods.
Soft drink companies have stepped up their efforts to capture a larger share of the fountain business by introducing more of their brands at the fountain, by aggressively competing for service contracts with high-profile customers, and by working with fountain outlets on joint promotion and dispensing technologies. Jeff Dunn, Vice President of field sales and marketing at Coca-Cola Co. , notes that fountain customers are becoming increasingly brand conscious. He says, "For years, consumers have basically asked for a generic kind of soft drink from the fountain dispenser at the restaurant they were in, but that's changing.
Now consumers actually ask for a soft drink by its name--like Sprite instead of 7UP, for instance--and won't substitute one for the other" (Sfiligoj, 97:60). To fountain outlets like fast-food restaurants or convenience stores, increased brand consciousness means that they can attract more customers by carrying many soft drink brands instead of just a few. Signs of fountain outlets seeking to diversify the brands that they carry emerged in early 1996 when Circle K corporation took Coca-Cola Co.
to court seeking to terminate its fountain contract which precluded Circle K from selling other company brands at its fountains (Sfiligoj, 97:56). Circle K prevailed in its efforts, and its stores now have a range of non-Coke brands along with Coke's products. It remains to be seen if Circle K's court battle signals a new era in the fountain business, one where fast-food restaurants and other fountain outlets no longer carry the brands of just one soft drink company. In international markets, soft drink companies face a number of distribution challenges.
In many of the emerging country markets such as India, China, and Indonesia, for example, poor road conditions and other infrastructure problems render efficient distribution by trucks very difficult. Physical distribution in these markets often involves using an army of people on tricycles and bicycles to haul the products through narrow and winding streets. At the retail end, problems include lack of refrigerators in retail outlets and even lack of power lines in some places. Overcoming these distribution problems has required and may continue to require sizable investments in infrastructure development and giving away or loaning coolers.
Supplies Supplies for soft drinks include various ingredients used in the production of soft drinks and packaging materials used for the finished product. Soft drink production involves mixing a number of ingredients including water, preservatives, sugar/sweeteners, flavors, coloring agents, and carbon dioxide. Appendix 3 provides an example of a soft drink production batch sheet. Table 7 shows the worldwide soft drink ingredients consumption for 1996 and consumption estimates for 2001. Bulk sweetener refers to sugar manufactured from agricultural produce such as cane and beat.
According to the economic research unit of the U. S. department of agriculture, the world spot price for sugar has been trending down and averaged 12. 10 cents a pound in the last quarter of 1995. Looking ahead, the economic research unit forecasts the world sugar production for 1996/97 (October 1996 to September 1997) at 125. 1 million metric tons and the global consumption of sugar for the same period at 123. 0 million metric tons (Beverage Industry, 5/97:43). High-intensity sweeteners, in contrast to sugar, are compounds that result from extensive research and development by food product companies.
These sweeteners are subject to very close scrutiny by the U. S. Food and Drug Administration before being approved for use in soft drinks and other food products. Currently used primarily in low-calorie and sugar-free beverages, the consumption of these high-intensity sweeteners remains low. A beverage industry report points out that the consumption of high intensity sweeteners in soft drinks is expected to rise as more companies producing these products gain FDA approval. In the 1960s, aluminum cans began to make inroads into the beverage container business.
Working diligently to capture a larger share of the container market, aluminum can companies had reduced the cost of using their products by minimizing the aluminum content in cans and by helping their customers develop equipment to produce cans at machine-gun speed and fill them at very high rates (2,000 cans per minute). These innovations enabled aluminum can makers to capture just over a quarter of the soft drink container market by 1985. In the last few years, however, aluminum can companies have faced intense competition from plastic bottle makers.
As soft drink companies began to realize that customers valued the way a product looked and felt, and were willing to pay more to get these attributes, they increased their utilization of the more profitable single serve plastic bottles. Brian W. Sturgell, Executive Vice President of the aluminum can maker Alcan, observes that the soft drink companies "sell 20 ounces [in plastic bottles] for a buck, while you can buy a 12-pack of cans for $2. 39 . . . It's an amazing profitability gap" (Baker & Harris, 97:108).
In wake of these developments, aluminum can makers are attempting to stay competitive and grow their market shares by rethinking their plain looking cans. They are experimenting with new shapes, new feel, and reclosable lids for their cans. Redesigning the cans along these lines will not be easy, however, because the can makers have to invest in research and development to overcome the technical challenges involved, even as competition forces them to hold or lower their prices. See Table 8 for soft drink container marketshares.
While supermarkets are, at present, the largest channel in the U. S. , the fountain channel has been growing fast. According to Bill Perely, Senior Vice President/General Manager of fountain/foodservice for Dr. Pepper/7UP, fountain sales in the U. S. grew at an average annual rate of about 5% in the last five years, while overall soft drink sales in the U. S. grew at an average annual rate of about 3% during the same period (Sfiligoj, 97:54). Bill Perely attributes the growth in fountain sales to the increased popularity of fast foods--in particular the carry-out segment of fast foods.
Soft drink companies have stepped up their efforts to capture a larger share of the fountain business by introducing more of their brands at the fountain, by aggressively competing for service contracts with high-profile customers, and by working with fountain outlets on joint promotion and dispensing technologies. Jeff Dunn, Vice President of field sales and marketing at Coca-Cola Co. , notes that fountain customers are becoming increasingly brand conscious. He says, "For years, consumers have basically asked for a generic kind of soft drink from the fountain dispenser at the restaurant they were in, but that's changing.
Now consumers actually ask for a soft drink by its name--like Sprite instead of 7UP, for instance--and won't substitute one for the other" (Sfiligoj, 97:60). To fountain outlets like fast-food restaurants or convenience stores, increased brand consciousness means that they can attract more customers by carrying many soft drink brands instead of just a few. Signs of fountain outlets seeking to diversify the brands that they carry emerged in early 1996 when Circle K corporation took Coca-Cola Co.
to court seeking to terminate its fountain contract which precluded Circle K from selling other company brands at its fountains (Sfiligoj, 97:56). Circle K prevailed in its efforts, and its stores now have a range of non-Coke brands along with Coke's products. It remains to be seen if Circle K's court battle signals a new era in the fountain business, one where fast-food restaurants and other fountain outlets no longer carry the brands of just one soft drink company. In international markets, soft drink companies face a number of distribution challenges.
In many of the emerging country markets such as India, China, and Indonesia, for example, poor road conditions and other infrastructure problems render efficient distribution by trucks very difficult. Physical distribution in these markets often involves using an army of people on tricycles and bicycles to haul the products through narrow and winding streets. At the retail end, problems include lack of refrigerators in retail outlets and even lack of power lines in some places. Overcoming these distribution problems has required and may continue to require sizable investments in infrastructure development and giving away or loaning coolers.
Supplies Supplies for soft drinks include various ingredients used in the production of soft drinks and packaging materials used for the finished product. Soft drink production involves mixing a number of ingredients including water, preservatives, sugar/sweeteners, flavors, coloring agents, and carbon dioxide. Appendix 3 provides an example of a soft drink production batch sheet. Table 7 shows the worldwide soft drink ingredients consumption for 1996 and consumption estimates for 2001. Bulk sweetener refers to sugar manufactured from agricultural produce such as cane and beat.
According to the economic research unit of the U. S. department of agriculture, the world spot price for sugar has been trending down and averaged 12. 10 cents a pound in the last quarter of 1995. Looking ahead, the economic research unit forecasts the world sugar production for 1996/97 (October 1996 to September 1997) at 125. 1 million metric tons and the global consumption of sugar for the same period at 123. 0 million metric tons (Beverage Industry, 5/97:43). High-intensity sweeteners, in contrast to sugar, are compounds that result from extensive research and development by food product companies.
These sweeteners are subject to very close scrutiny by the U. S. Food and Drug Administration before being approved for use in soft drinks and other food products. Currently used primarily in low-calorie and sugar-free beverages, the consumption of these high-intensity sweeteners remains low. A beverage industry report points out that the consumption of high intensity sweeteners in soft drinks is expected to rise as more companies producing these products gain FDA approval. In the 1960s, aluminum cans began to make inroads into the beverage container business.
Working diligently to capture a larger share of the container market, aluminum can companies had reduced the cost of using their products by minimizing the aluminum content in cans and by helping their customers develop equipment to produce cans at machine-gun speed and fill them at very high rates (2,000 cans per minute). These innovations enabled aluminum can makers to capture just over a quarter of the soft drink container market by 1985. In the last few years, however, aluminum can companies have faced intense competition from plastic bottle makers.
As soft drink companies began to realize that customers valued the way a product looked and felt, and were willing to pay more to get these attributes, they increased their utilization of the more profitable single serve plastic bottles. Brian W. Sturgell, Executive Vice President of the aluminum can maker Alcan, observes that the soft drink companies "sell 20 ounces [in plastic bottles] for a buck, while you can buy a 12-pack of cans for $2. 39 . . . It's an amazing profitability gap" (Baker & Harris, 97:108).
In wake of these developments, aluminum can makers are attempting to stay competitive and grow their market shares by rethinking their plain looking cans. They are experimenting with new shapes, new feel, and reclosable lids for their cans. Redesigning the cans along these lines will not be easy, however, because the can makers have to invest in research and development to overcome the technical challenges involved, even as competition forces them to hold or lower their prices. See Table 8 for soft drink container marketshares.
No comments:
Post a Comment