Soft drink industry analysis

Soft drink industry analysis

Introduction

The soft drinks industry is a highly competitive market and has a wide variety of products which are sold within this market. These include bottled water, carbonates,   still and juice drinks, fruit juice and smoothies and energy drinks. This industry has grown massively in value; it has risen by 0.7% to reach 14.6 billion liters(). Thus current size and value of the market to be on a constant rise, and will continue to rise with the increasing population and marketing of Soft Drinks companies. The market sector   can be seen as increasing. Drinks follow the same trend as rising from around 2006 where the records begin, followed by a slight dip during the recession during 2008 and then a constant increase again. This is expected as the recession affected most market sectors around the world and because soft drinks are not a necessity in the home as the UK has clean running water the market for soft drinks sank a little, but since then has been on the increase. Smoothies showed a drastic change during the recession unlike any other of the segments, managed to plummet from £225 million to £130 million over the space of two years. This is mainly due to the smoothie craze during 2006-2007 where they were marketed extremely effectively and promoted both taste and healthy living, they were however very expensive and therefore were not seen as a necessity during the recession so their sales dropped massively. (Gronholdt et al 2000)Sports and energy drinks are the final segment and are interesting to view as they increased steadily over time, the recession appears to have had no impact upon the sports and energy drinks market, and this could be because of the increasing amount of sport campaigns and getting people more active. This could have pushed the sales of soft drinks along with the Olympics being announced in the UK may have inspired more and more people to get involved with sport.

The Soft Drinks industry is an oligopoly, few major players do dominate the market shares. The competitors in   drinks industry are The Coca-Cola Company; PepsiCo and Cadburys Schweppes. Other brands make up only 8 percent of the market share. The fact that the soft drinks industry is a mature market means that it is very hard for new companies to compete in the market. The Coca-Cola Company has high power in the market, hence why it is the leading competitor in the market(Gronholdt et al 2000). Its strengths include its large distribution network; the coca-cola distribution network allows Coca-Cola to sell its product around the world in massive volumes with ease. The company also has a good worldwide reputation this leads to people thinking of them first when they need a drink. Another advantage of this reputation is that it encourages brand loyalty; people will buy Coca-Cola over and over as they believe it is the best drink offered in the market and their repeated purchases have always left them satisfied so why not buy it again.

Coca-Cola also has a variety of products to choose from to cater to all sorts of different tastes and lifestyles. These products range from carbonated soft drinks to bottled vitamin water and cover almost everything (Barney, 2005) .The market for soft drinks has been segmented to target different types of customers; each of the leading companies offers a large number of different products from the cheap carbonated soft drinks to more premium products like bottled water and fruit juices. Another way they have segmented the market sector is with the size of the containers they come in. Coca-Cola has a large number of different sizes to choose from ranging from their recently introduced pocket able bottles to their 2 litre bottles, allowing people to choose their products based on how much they need, on the go sales will benefit from the smaller sizes whereas the take home channels will be formed mostly of the large 2 litre bottles. Companies like A.G Barr have also introduced very low priced soft drinks for people on the go who do not want to spend a lot of money, causing yet more competition to challenge prices.

The competitors are involved in an oligopoly and therefore have a tendency to copy each other’s products but from their products there are five different categories that each segment differs from each other; these are, premium, price, health, sports and size. Premium essentially mean’s a higher quality product, this goes with it, these products would include fruit juice, there are cheaper version’s in supermarkets etc. but there are some brands which boast a brand name and improved taste over other products, this would include Tropicana fruit juice. Price is another way that the segments differ, this is because some soft drinks are more expensive than others, for example diluatables such as Robinsons are much cheaper than the same quantity of Tropicana fruit juice. This is because it is aimed at a different customer segment which will be explained later. The health segment would differ through the smoothies products, these products over fruit juices contain little sugar, are made with fruit and have zero additives; products such as Innocence Smoothies would fall into this category. The next way that the segments differ is through sports drinks, this is a differentiated market as they boast physical and mental stimulation by giving the consumer an energy boost and also rehydrate them and they heavily use celebrity endorsements such as athletes to promote them. They also feature squeeze bottles which emulate a sports water bottle. Size is the final way segments differ, this is due to the recent release of the 250ml bottle of Coca Cola which is significantly smaller than the regular Coca Cola bottle, this is due to more health conscious consumer who may wish to have a smaller serving of the drink or for those who may wish to keep it in their bag or pocket without it being in the way or to heavy.

The companies in the soft drinks industry have attempted to profile their customers in terms of their age and lifestyles. For each different drink there is a clear classification of each profile. Carbonates are aimed at those between 15-19 year olds and overwhelms the over 35’s which the number of consumers in that age bracket, this is mainly because carbonates such as Coca Cola are sweet drinks and as younger generations prefer to drink sweet drinks, they buy them frequently. They are aimed more at lower income bands such as working and upper working class families, as they are fairly cheap and the children in the family will most likely like the taste of them. Bottled mineral water is the next segment, here women purchase more than men as it is perceived as a healthier option than carbonates for example, women are more likely to be more conscious about their health than men are, it is also a strongly up market product because of the prices that are charged on bottled water, as in the UK there is free running water yet many still prefer to buy bottled water( Porter, 1999). It is proven that households with children drink less smoothies as they are more expensive than drinks like fruit juice and dilatable. Sports drinks are aimed at the more athletic members of the public who are active with sport along with teenagers and young adults who may drink it for the short’s value or could be due to the celebrity endorsement making them want to buy the product as some consumers may wish to.

The soft drinks industry is an oligopoly and   is highly competitive and usually lead to the competitors copying each other’s products. They don’t only compete with the variety of drinks they offer, they price their products very similarly to target the same market segments as the others with each and every drink. Knowledge of consumer behavior is very important to companies, it allows them to see why customers choose their products over their competition and also why they may avoid buying the products a company has for sale, using the model of consumer behavior from The Understanding and Managing Customers book there are points at which customers may break off to buy a competitor’s product( Porter, 1999). This highlights where strategies could be improved or all together changed to compete with their competitors.

If many customers are breaking off from a product at the point of alternative product evaluation of which product to choose it may be because of issues such as price in which case a new pricing strategy to make your own prices similar to that of the competition may help to improve sales. This could however also break of due to individual factors, such as trying to be healthy or their attitude to your company as a whole, This requires a lot more work to be put right, but if a lot of consumers are going elsewhere it may be a worthy tactic (Wright, 2007).. If breaking off further down the chain, such as where customers decide to go to purchase the product it may indicate promotions by the competition or even a lack of distribution on the companies behalf. These strategies lead to a lot of competition in the soft drinks industry which ultimately help the consumer to buy things at better prices and more easily than they may have been available before.

In Conclusion the soft drinks market is currently growing and a thriving, highly competitive environment for the companies it already contains, but due to being a mature market it is difficult for new companies to join the market and take advantage of all it has to offer (Dhar ,2005). The market segments its customers very well and is marketed towards the customers perfectly with a wide variety of different products with different tastes, available in different volumes and fluctuates in price according to the price band they are targeted at.

Reference

Barney, J. B. (2005). Looking inside for competitive advantage. The Academy of Management Executive, 9(4), 49-61.

Dhar, T., Chavas, J. P., Cotterill, R. W., & Gould, B. W. (2005). An Econometric Analysis of Brand‐Level Strategic Pricing Between Coca‐Cola Company and PepsiCo. Journal of Economics & Management Strategy,14(4), 905-931.

Gronholdt, L., Martensen, A., & Kristensen, K. (2000). The relationship between customer satisfaction and loyalty: cross-industry differences. Total quality management, 11(4-6), 509-514.

Muris, T. J., Scheffman, D. T., & Spiller, P. T. (2003). Strategy, structure, and antitrust in the carbonated soft-drink industry. Quorum Books.

Porter, M. E. (1999). How competitive forces shape strategy.

Wright, P. (2007). A refinement of Porter’s strategies. Strategic Management Journal, 8(1), 93-101.