The Beverage industry is a high profitable industry providing with $60 billion in United States. Approximately 48% of the people drink more than two glasses of beverages per day. Because of this fact, an enormous amount of the customers are targeted by the firms and companies. The industry contains many companies that are well established in this field and posing a great competition to the other companies that are working under the same umbrella. When we talk about the beverage industry, the most well-known brands that comes in one’s mind is Coca-Cola and Pepsi Co. They are among the strongest competitors and successful brands in the industry. It can be understood by numbers as Coca-Cola had a total sale of $2.1 billion and possess 37% of the market share in 2012 (Nhuta, 2012). Moreover in the same manner Pepsi Cola also had a huge sale of $1.9 billion and possess 30% in the market share. If we analyze the figures, we come to know that the earning through sales by both of them are tremendously close. But Coca-Cola comes on the top of the list in the industry as it has 7% of increase market share when compared with Pepsi-Co and other firms in Beverage industry (Esther Njambi, 2016).
Porter five forces Analysis of Beverage Industry
The porter’s five forces analysis is established by Michael Porter with the purpose of understanding and evaluating the factors that influence the success of the industry in terms of five forces. Moreover it explains the strategy that is adopted by the companies to increase the productivity by taking in to consideration the five powers. The porter’s five forces analysis on the beverage industry is given below.
Bargaining Power of Buyers
Talking about the beverage industry, there exists three companies in US which contribute to 89% sale of the beverages. So looking at the scenario, there is enough room to start a business in beverage industry but on the other side to gain market share in it is very difficult task to accomplish. Almost 56 gallon of soda is consumed every year (Puravankara, 2007). Due to these factors, swapping among the suppliers are quite easy and the rates they put are slightly different from each other. The only difference that exists among the suppliers is the geographical locations and how much the travelling cost will be added to the delivery. The buyers does not requires the additional information as a list containing all the nutrients are present at the back of bottles.
When it comes to the price of beverages, the customers change brands depending upon how expensive it is. As it is not a basic necessity so having high prices in beverages will cause loss of customers. So in order to retain the customers, the companies provide enticements to the customers. The provision of these incentives are done through contests including win tickets and many more.
Bargaining Power of Suppliers
In the race of creating the best product in the beverage industry, companies are trying to acquire best products from the suppliers. Every company has their own trade secret. Suppliers are not facing a competitive pressure. These usually includes bottling manufactures and packaging suppliers. As it is easy to switch among the suppliers so the bargaining power of the suppliers are not very effective in this case. The beverage industry possess a portion of their own supply companies. Any customer can easily enter in the industry as supplying beverages is not a tough task at all. It all depends on the factors such as price and how efficiently they deliver a product.
Threats of New Entrants
Existing companies already acquired massive expenditures and possess economies of scale as they have a setup of direct supply. In order to enter in the industry of beverages, an ample amount of money is required for the sake of manufacturing, bottling, distribution and storage but it can proves out to be useful in the long terms.
The major difficulties when starting a beverage business is of distribution channels as the important well-known brands are retaining many of the main distribution channels including supermarkets, restaurants and gas stations etc. New comers can learn from the pioneers of the beverages. The top brands in the industry have ways which are required to drive out the new entrants.
Threats of Substitutes
There exists no performance limitations or high prices limitations over the use of the products in beverage industry as more costly beverages will adversely affect the sale of them among the customers. The reason when a customer switch from one drink to the other drink is mainly because of the price factor and the same quality which is provided by two of the brands at the same time (atrick Lucas, 2012).
The substitutes usually for the carbonated beverages are water, tea, sports drinks and may more. But most of the customers does not switch among the companies easily because of the brand name and the reputation the companies earned in the industry over time.
Rivalry Among Existing Players
The overall rate of growth in the industry of beverages is not very high. Due to this factor, the chance of new comers to enter in the industry are low. The current brands in the industry are posing a challenging environment for the new entrants because of the high reputation and promotion of the brand among customers. There is a high proportion of the fixed costs in the total cost for a company in beverage industry so these acts a barrier for a firm to enter in the industry. The cost also includes the expenditure that is spent on the warehouses, trucks and labor etc. Brand names are significantly important for competitors as there are well-known brands identities residing in beverage industry. There exists a high competition among all the players. They are creating new ways for the promotion of the drinks and in order to capture a larger magnitude of the customers so that the market share in the industry can be increased. The distribution of the market share is not equal among most of the brands in the industry because of the diverse taste and quality.
So looking at the analysis, we concluded that entering in the world of beverages is a challenging task to accomplish as there exist a tough competition and the brands are striving to maintain their name through various incentives, advertisements, promotions and many more.
References
patrick Lucas, P. H. J. D. C. S., 2012. Soft Drink Industry SAR Analysis. [Online]
Available at: https://sites.google.com/site/softdrinkindustrysaranalysis/home
Esther Njambi, P. L. P. K., 2016. Relationship between Threat of Substitutes and Competitive Advantage of Large Multinationals in Kenyan Beverage Industry , s.l.: IJBM.
Nhuta, D. S., 2012. AN ANALYSIS OF THE F0RCES THAT DETERMINE THE COMPETITIVE INTENSTY IN BEVERAGE INDUSTRY , s.l.: IJPSS.
Puravankara, D., 2007. Strategic analysis of the Coca-Cola Company, Canada: Simon FraSer University.