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Beverages – Soft Drinks Industry Module 1: The Business and Business Environment Megan Morava
Background • World’s largest beverage company • License and market 500 nonalcoholic beverage brands • Primarily sparkling beverages • Coca-Cola, Diet Coke, Fanta, Sprite • Strong brand loyalty and diversified geographical operations offer competitive advantage • Revenues 2012: $48 billion, 3.17% increase
Primary Activities • Inbound logistics • Ingredients, packaging, machinery • Water, nutritive and non-nutritive (low calorie) sweeteners • Supplier Guiding Principles • Operations • Concentrate business • Finished products business • Outbound Logistics • World’s largest distribution system • Over 300 bottling partners
Primary Activities • Marketing & Sales • Marketing strategy centered around creating brand loyalty • Constantly reinventing product • Promotional funds and services offered to bottlers • Provide marketing services, dispensing equipment, and repair services to retailers • Servicing • Customer support, repair services, installation and training
Support Activities • Company infrastructure • Finance and accounting, legal services, quality management and IT services • Human resource management • Recruiting, payroll, education & training, benefits administration, compensation • Technology/product development • Product development, process development, market research • Procurement • Billing systems, supplier vendor relationship, raw materials info systems
SWOT Analysis • Strengths • Global presence • Customer loyalty • Operational efficiency • Bargaining power over suppliers • Weaknesses • Product recalls • Future demand for carbonated drinks • Opportunities • Growth initiatives – bottled water and noncarbonated drinks • Strategic acquisitions • Positive beverages market outlook • Threats • Highly competitive market • Volatile raw material costs • Government regulations – product labels and ingredients
Industry Overview • High brand recognition • Coca-cola and Pepsi are industry leaders • Industry has remained stagnant in recent years • Increased demand for energy drinks
Industry Competition • Three main firms make up 90% of the industry • Duopoly: Pepsi and Coca-Cola • Compete of differentiation and advertising, not pricing • Growth rate is small but steady • Brand names offer a significant competitive advantage
Buyer & Supplier Bargaining Power • Buyer • Main buyers: food stores, fast food restaurants, vending, convenience stores • Customers highly sensitive to prices • Supplier • Commodity ingredients - supplying undifferentiated products • Do not hold much competitive pressure, low bargaining power • Low barriers of entry for suppliers in the industry
Threat of Substitution • No costs incurred by customers from switching to substitutes • Substitutes include water, tea, juice, sports drinks • Advertising and brand recognition counter threat • Companies offer substitutes themselves to help eliminate substitution
Threat of Entry • High barriers to entry • Brand loyalty • Advertising and marketing budgets • Main competitors have extensive bottling networks and exclusive agreements with bottlers • Retailer shelf space • Large companies offer high margins
Industry Outlook • Non-carbonated beverage market increasing, while carbonated soft drinks decreased slightly • Steady volume trends • Improving product margins • More innovation with natural and low-calorie sweeteners
Sources • Coca-Cola Company Form 10-K 2012 • Business Insights: Essentials • http://bi.galegroup.com.proxy.library.nd.edu/essentials/article/GALE%7CI2501600016/acba463cc318645b688ad84cb5198d57?u=nd_ref • Global Data • http://callisto.ggsrv.com.proxy.library.nd.edu/imgsrv/FastFetch/UBER1/301815_GDCPG28399FSA • S&P Capital IQ • http://www.netadvantage.standardandpoors.com.proxy.library.nd.edu/NASApp/NetAdvantage/cp/companyIndustrySurvey.do?task=showIndustrySurveyByTicker