Industry Analysis: External and Recommendations

Industry Analysis
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Industry Analysis
The soft drink business is shaped by different forces (Yoffie, 2009). Within the industry, both concentrate producers (CP) and bottlers, and retailers make profits. These three parts of the industry are highly interconnected, sharing costs in procurement, production, marketing and the distribution of the soft drinks. Most part of their functions overlap; for example, CPs does a part of the bottling, bottlers conduct various promotional activities while the retailers are involved in merchandizing the soft drinks. At the present, the entire industry is vertically integrated to some level. On top of this, each of these three components of the soft drinks value chain deal with the same suppliers and buyers. Entering into the soft drink industry would entail developing operations in any of the three disciplines. Any beverage substitute would be a threat to the CPs, their associated bottlers and retailers (Holt, 2004). Due to the overlap in operations, it is hard to exclude any of these value chain components in an analysis of the soft drinks industry.
Substitutes: All through the 1960s, soft drinks were associated with ‘colas’ in the minds of most consumers. This trend however changed as substitute beverages such as bottled water to tea became popular among many people. To counter this challenge, Coke and Pepsi started forming alliances such as Coke and Nestea, acquisitions, as well as engaging in internal price innovations that incorporated the substitutes within their internal structures. The increase in the number of brands presented a real threat to the profitability of bottlers as they looked for the right management skills to deal with the intricate production operations and supply. The bottlers and retailers were able to rise above these challenges through consolidation to attain economies of scale. Generally, due to the efforts of the major components of the value chain in diversification, however, the threat of substitutes was neutralized (Keller, 2009).
Power of Suppliers: The contribution for Coke and Pepsi’s products were mainly sugar and packaging. Sugar was easily available from the open market and the companies still had the option of using corn syrup in the event that sugar became highly priced. For this reason, the suppliers of nutritive sweeteners did not have much power against the two companies or their bottlers. The availability of cheap aluminum, as well as the availability of numerous companies competing for contracts with the bottlers, the suppliers did not also have much power (Woodside, Sood, & Miller, 2008).
Power of Buyers: while buyers can affect the pricing of certain goods, the case was not true for the Coke and Pepsi. The soft drink industry marketed to customers through food stores, convenience and gas stores, source, vending, and group merchandisers. The problem with most of these channels is that they were highly fragmented and did not, therefore, have much power to affect the market for the soft drinks. Instead, the channels neede...