Table of Contents

This essay Table of Contents has a total of 4439 words and 26 pages.


Table of Contents
Introduction 3
Description 3
Segments 3
Caveats 4
Socio-Economic 4
Relevant Governmental or Environmental Factors, etc. 4
Economic Indicators Relevant for this Industry 4
Threat of New Entrants 5
Economies of Scale 5
Capital Requirements 6
Proprietary Product Differences 7
Absolute Cost Advantage 8
Learning Curve 8
Access to Inputs 8
Proprietary Low Cost Production 8
Brand Identity 9
Access to Distribution 9
Expected Retaliation 9
Conclusion 10
Suppliers 10
Supplier concentration 10
Presence of Substitute Inputs 11
Differentiation of Inputs 12
Importance of Volume to Supplier 13
Impact of Input on Cost or Differentiation 13
Threat of Backward or Forward Integration 13
Access to Capital 14
Access to Labor 14
Summary of Suppliers 14
Buyers 15
Buyer Concentration versus Industry Concentration 15
Buyer Volume 15
Buyer Switching Cost 15
Buyer Information 16
Threat of Backward Integration 16
Pull Through 16
Brand Identity of Buyers 17
Price Sensitivity 17
Impact on Quality and Performance 17
Substitute Products 18
Relative price/performance relationship of Substitutes 18
Buyer Propensity to Substitute 18
Rivalry 18
Industry Growth Rate 20
Fixed Costs 21
Product Differentiation 21
Brand Identity 21
Informational Complexity 22
Corporate Stakes 22
Conclusion 23
Critical Success Factors 23
Prognosis 24
Bibliography 26
Appendix 27
Key Industry Ratios 27
Introduction
Description
The soft drink industry is concentrated with the three major players, Coca-Cola Co., PepsiCo Inc., and Cadbury Schweppes Plc., making up 90 percent of the $52 billion dollar a year domestic soft drink market (Santa, 1996). The soft drink market is a relatively mature market with annual growth of 4-5% causing intense rivalry among brands for market share and growth (Crouch, Steve). This paper will explore Porter\'s Five Forces to determine whether or not this is an attractive industry and what barriers to entry (if any) exist. In addition, we will discuss several critical success factors and the future of the industry.
Segments
The soft drink industry has two major segments, the flavor segment and the distribution segment. The flavor segment is divided into 6 categories and is listed in table 1 by market share. The distribution segment is divided in to 7 segments: Supermarkets 31.9%, fountain operators 26.8%, vending machines 11.5%, convenience stores 11.4%, delis and drug stores 7.9%, club stores 7.3%, and restaurants 3.2%.

Table 1: Market Share
1990 1991 1992 1993 1994
Cola 69.9 69.7 68.3 67 65.9
Lemon-Lime 11.7 11.8 12 12.1 12.3
Pepper 5.6 6.2 6.9 7.3 7.6
Root 2.7 2.8 2.3 2.7 2.7
Orange 2.3 2.3 2.6 2.3 2.3
Other 7.8 7.2 7.9 8.6 9.2
Source: Industry Surveys, 1995

Caveats
The only limitations on access to information were:
1. Financial information has not yet been made available for 1996.
2. The majority of the information targets the end consumer and not the sales volume from the major soft drink producers to local distributors.
3. There was no data available to determine over capacity.
Socio-Economic
Relevant Governmental or Environmental Factors, etc.
The Federal Government regulates the soft drink industry, like any industry where the public ingests the products. The regulations vary from ensuring clean, safe products to regulating what those products can contain. For example, the government has only approved four sweeteners that can be used in the making of a soft drink (Crouch, Steve).
The soft drink industry currently has had very little impact on the environment. One environmental issue of concern is that the use of plastics adversely affects the environment due to the unusually long time it takes for it to degrade. To combat this, the major competitors have lead in the recycling effort which starting with aluminum and now plastics. The only other adverse environmental impact is the plastic straps that hold the cans together in 6-packs. These straps have been blamed for the deaths of fish and mammals in both fresh and salt water.
Economic Indicators Relevant for this Industry
The general growth of the economy has had a slight positive influence on the growth of the industry. The general growth in volume for the industry, 4-5 percent, has been barely keeping up with inflation and growths on margins have been even less, only 2-3 percent (Crouch, Steve).

Threat of New Entrants

Economies of Scale
Size is a crucial factor in reducing operating expenses and being able to make strategic capital outlays. By consolidating the fragmented bottling side of the industry, operating expenses may be spread over a larger sales base, which reduces the per case cost of production. In addition, larger corporate coffers allow for capital investment in automated high speed bottling lines that increase efficiency (Industry Surveys, 1995). This trend is supported by the decline in the number of production workers employed by the industry at higher wages and fewer hours. This in conjunction with the increased value of shipments over the period shows the increase in efficiency and the economies gained by consolidation (See table 2).
Table 2
General Statistics:
Year Companies Workers Hours Wages Value of Shipments

1982 1626 42.4 85.2 7.84 16807.5
1983 41.5 85.1 8.24 17320.8
1984 39.8 81.7 8.51 18052
1985 1414 37.2 77.8 9.1 19358.2
1986 1335 35.5 73.5 9.77 20686.8
1987 1190 35.4 71.5 10.45 22006
1988 1135 35.2 71.8 10.78 23310.3
1989 1027 33.4 67.7 10.98 23002.1
1990 941 32 65.7 11.48 23847.5
1991 31.9 66.8 11.85 25191.1
1992 29.8 61.6 12.46 26260.4
1993 28.6 59.3 12.93 27224.4
1994 27.4 56.9 13.39 28188.5
1995 26.2 54.5 13.86 29152.5
1996 25 52.1 14.32 30116.5
Source: Manufacturing USA, 4th Ed.

Further evidence of economies is supported by the increased return on assets from 1992-1995, as shown in table 3. Coke and Pepsi clearly show increased return on assets as the asset base increases. However, Cadbury/Schweppes does not show conclusive evidence from 95 to 96.

Table 3
CADBURY/SCHWEPPES 93 94 95 96
ASSETS 2963100 3266900 3501500 4595000
SALES 3372400 3724800 4029600 4776000
NET INCOME 195600 236800 261900 300000
Sales/Income 5.80% 6.36% 6.50% 6.28%
Income/Assets 6.60% 7.25% 7.48% 6.53%
COKE
ASSETS 11051934 12021000 13873000 15041000
SALES 13073860 13963000 16181000 18018000
NET INCOME 1664382 2176000 2554000 2986000
Sales/Income 12.73% 15.58% 15.78% 16.57%
Income/Assets 15.06% 18.10% 18.41% 19.85%
PEPSI
ASSETS 20951200 23705800 24792000 25432000
SALES 21970000 25021000 28472400 30421000
NET INCOME 374300 1588000 1752000 1606000
Sales/Income 1.70% 6.35% 6.15% 5.28%
Income/Assets 1.79% 6.70% 7.07% 6.31%
Source: Compact Disclosure

Capital Requirements
The requirements within this industry are very high. Production and distribution systems are extensive and

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