Principles of Strategy

Abstract

UK’s soft drink market is expanding over time to incorporate various products that meet the consumer market’s needs and interests.  Today, the majority of firms located in the country are offering healthier alternatives. The PESTEL and Porter’s Five Force analysis of the market reveals distinct strengths and weaknesses that these establishments enjoy in the UK market. Companies can turn weaknesses into opportunities by developing proactive mechanisms that help them to deal with challenges when they occur. Notably, corporate social responsibility informs these businesses about the expectations that users and other stakeholders have and the dire need to meet them. The survival of the soft drink business aligns with safeguarding the clients, suppliers, the government, and other stakeholders interests. In the future, it is expected to grow and advance progressively.

Table of Contents

Introduction

UK’s soft drink industry has a massive potential due to the shift towards healthier alternatives. Products such as bottled water, functional drinks and fruit juices are healthier alternatives that the UK’s population is considering in recent times. Juice is one of the leading categories in the market with an estimated market share of 25% in 2017 (Wunsch, 2020). Private label companies have the largest share in the market with statistics showing that private businesses account for 19.7% of the soft drink product sales (Wunsch, 2020). One of the trends that has been witnessed in the market is the demand for bottled water. It has replaced the demand for cola carbonate products since most people are keen about their health and well-being. Overall, the industry is experiencing growth with new entrants offering healthier products posing a significant threat for the already existing businesses.

PESTEL Analysis on the UK’s Soft Drink Industry

Political

UK’s political stability is on an average level. In recent times, it has developed poor relations with some authoritarian regimes. Statistics show that in the year 2018, the political stability value was at a minimum value of 0.05 points and a maximum of 1.04 in 2000 (United Kingdom Political Stability, 2020). This shows that the latest political stability value is at 0.05 away from the expected strong value of 2.5 points. Thus, despite being on a positive value, United Kingdom has major strides to make in improving its political stability. Soft drink businesses located in the region are likely to encounter various fluctuations due to the varying status of the political environment.

Source: (United Kingdom Political stability, 2020).

Economic

The economic status of the United Kingdom has continued to lower progressively. The inflation level was reported at 1.7% in the year 2019 indicating that the nation is experiencing financial tribulations (BBC, 2019). Some of the factors that continue exposing the nation into lower economic growth includes limited investments, more imports compared to exports, and a lower governmental revenue-raising capacity being lower that the spending obligations. According to Jacobs, Colebrook and Stirling (2016, p.6) these challenges deepens UK’s economic problems and affects its status in the global business environment. The country’s economic productivity has been lower compared to other developed economies. This is expected to affect businesses operating in the country. For example, a soft drink business might make limited sales due to the importation practice of brands from outside nations.

Social

UK enjoys a huge consumer market that provides opportunities for any business intending to deliver distinct goods and services to locals. As at the year 2019, UK had a population of 66.65 million persons. This translates to a high population capable of purchasing goods and services offered in the market by various entities. Notably, the nation has a multicultural population that stands to purchase a variety of products. For instance, the distinct racial, ethnic, and religious groups residing in the nation might opt for different products. Thus, businesses have numerous opportunities to explore. However, the cost of living is high and this generates financial limitations. A soft drink business has an opportunity to tap in the UK’s market.

Technological

United Kingdom is one of the technologically advanced nations across the world. Technology is a key contributor in the nation and continues to offer vital support for many businesses. Statistics show that UK attracted £28bn in 2011 (McGoogan, 2017). This shows the massive potential that the nation has in supporting businesses operating in the country. They are better positioned to acquire new technologies that support efficient and effective business operations. Any soft drink company intending to operate in the United Kingdom has an advantage of developing its brand due to the presence of advanced technological tools and devices for running its operations. Thus, the technological status of the UK community offers an excellent foundation for the soft drink industry.

Environmental

UK has made quality strides and milestones in taking care of the environment. A collaborative effort between various stakeholders such as the government, local authorities, and charitable organizations has established various initiatives targeting environmental awareness. The tourism sector has played a crucial role as well in safeguarding the ecosystem and reducing negative environmental impact. The presence of clearly set rules and regulations exposes potential business on the environmental expectations. For instance, soft drink businesses have a chance to familiarize themselves with waste disposal procedures and other requirements aligned to environmental protection. Thus, the quality state of the UK’s environment attracts the commencement of operations dealing with production of soft drinks.

Legal

Laws and other forms of directives related to business conduct determines businesses’ welfare in the market. For instance, in the year 2016, the government announced the introduction of the US Soft Drinks Industry Levy (SDIL). The law was effected in 2018 with expectations of harming profits being of the challenging aspects that soft drink businesses postulated (Law et al. 2020). Such a law might affect profits and revenue base for soft drink businesses. Also, elements such as leaves, sick pay, and minimum wage are crucial rights observed by the Employment Act 1996. UK fully practices this directive with all businesses expected to adhere to workers’ rights. Thus, the legal landscape is clear and accommodates workforce well-being.

Porter’s Five Forces on the UK’s Soft Drink Industry

Threat of New Entrants

UK’s soft drink industry is highly diverse. New businesses entering the market to offer various products to the consumers pose a significant challenge for the existing entities. For example, a firm manufacturing fresh juice might alter the operations of a business that produces carbonated drinks since most of the consumers are inclined into the use of healthier options. An influx of new entrants however makes the market more competitive. Thus, new entrants can make the UK market more competitive or force some of the businesses to alter their operations due to the loss of potential clientele depending on the shift of consumer taste and preference.

Threat of Substitutes

UK’s soft drink market has for the longest time been under the control of carbonated product manufactures. Majority of these carbonated drinks fails to satisfy consumers desire to quench their thirst. For example, a product such as Coca Cola does not provide the much-desired satisfaction due to its carbonated status. Upon consumption, it makes one thirsty and looks forward to drinking more. However, products such as fresh juice and bottled water provide a higher satisfaction compared to carbonated drinks. In addition, they have enormous health benefits. Thus, the presence of such drinks is a threat to the already existing products in the market. Businesses entering the UK market to offer these soft drinks might affect the stability of the already existing businesses. The Threat of New Entrants

The Bargaining Power of Suppliers

Suppliers play a vital role in altering market stability by lowering or raising the prices of goods. For example, they might alter the price or quality of the raw materials that they provide to businesses. In the United Kingdom, majority of the suppliers are Limited Companies that tend to enjoy monopolistic power. A firm such as Britvic is the largest supplier in the UK (Ahmad, 2018. p.5). Its brand portfolio allows it to reach to wider markets. Any change that such a supplier develops as part of its strategic actions affects market operations in one way or the other. Thus, the bargaining power of suppliers play a crucial function in market adjustments.

The Bargaining Power of Buyers

The UK soft drink market is sensitive to changes in consumer trends, tastes, and preferences. Research by Ahmad (2018, p.5) showed that 49% of carbonated drinks sold in 2017 were low calorie and 75% of dilute drinks sold were low calories. This indicates a 05% decline in the consumer tastes. The soft drink market is highly prone to changes because users are likely to change their preference over time. For instance, the demand for healthy products such as bottled water and fresh juice is the rise compared to that of carbonated drinks. Businesses offering these items are likely to woo more consumers into purchasing their products.

The Competitive Rivalry

Intense competition in the UK soft drink business is a key challenge that businesses encounter in their quest to tap the market. The industry life cycle framework correlate with the competitive rivalry. It enables businesses to explore the decreasing demand for their goods and services to develop strategic actions (Sabol, Sander & Fuckan, 2013, p.639). This enhances sustainability in the market setting. The market has grown progressively over time with potential individuals and businesses establishing operations to produce and sell various soft drinks. For example, PepsiCo, Coca Cola, and Lucozade are some of the notable brands in the market. New businesses offering fresh juice, bottled water, and other healthier alternatives generate stiff competition to these establishments. The market stands to experience issues such as price and advertising wars as each of these businesses target to capture consumer attention.

Corporate Social Responsibility (CSR)

CSR is a growing trend across the global business environment. It goes in handy with the ethics approach. In recent times, there is an increasing call for businesses to align their organizational processes and actions with ethical, environmental, and social dimensions (Kolk, 2016, p.23). Ethics, rights, and responsibilities are the imperative aspects that every firm should consider. Businesses are expected to adhere to moral principles and standards that guide their behavior and actions in the global business setting. Firms develop and implement suitable policies and practices that cater for the welfare of all stakeholders. CSR revolves around the contribution that companies make in the society. Philanthropy, activism, and charitable engagements are key CSR elements that businesses are expected to undertake. Global businesses have a responsibility to safeguard the interest and welfare of the employees, consumers, shareholders, suppliers, and other key stakeholders. This approach helps them to build and cultivate an admirable brand.

The UK soft drink industry employs elaborate and multinational corporate social responsibility campaigns and programs. The central aim is to educate and inform consumers about the status of the products that they produce. Most of these companies deal with carbonated products that are deemed as having various health complications. This concern has promoted these firms to engage various CSR campaigns to address a crucial issue such as obesity that is often attributed to the consumption of these drinks. One of these firms is PepsiCo which has launched the Pepsi Refresh social media campaign aimed at eliciting support for community-based projects (Dorfman et al. 2012, p.2). The project is one of the CSR approaches it has adopted as a way of engaging with local communities. Also, Coca Cola offers users with healthy lifestyle advice a perspective that has gone a long way in boosting its philanthropic and sustainability efforts. Overall, soft drink companies located in the UK integrate different initiatives that help them to connect with the consumers and the community as a whole. These campaigns fulfil the needs, desires, and concerns raised by stakeholders.

Societal expectations have increased with stakeholders demanding companies to fulfil their corporate social responsibilities. Commitment to the stakeholders is paramount compared to the profit-making objective. The Triple bottom line theory provides a crucial analysis of the duty of businesses in committing to social and environmental concerns as they do to profits (Munoz-Pascual, Curado & Galende, 2019, p.3). Striking a balance between these elements provide a business with an advanced brand name and image. In the soft drink business, consumers have raised an alarm regarding issues such as obesity, diabetes, and dental erosion. The sugary beverages that they are producing have become a pain in the lives of the users. Thus, there is a dire need for these establishments to guarantee consumers good health even as they continue consuming their products. Other stakeholders such as the government and non-governmental organizations are concerned about the state of the environment. This has led to a call for soft drink businesses to strive and provide eco-friendly packaging bottles to reduce environmental harm. In most cases, consumers purchase these drinks and then dispose the bottle inappropriately. Therefore, there lies a greater responsibility on these firms to act in line with the expectations of all key stakeholders.

Soft drink firms located in the UK take distinct CSR approaches. For example, PepsiCo and Coca Cola have adopted different campaign strategies that focuses on engaging major stakeholders. However, most of their initiatives align with the people’s health because the soft drinks they manufacture affect their health and overall well-being. Individual and managerial ethics shape organizational behavior through their interaction the developed rules of conduct. Adherence to these rules creates a viable organizational setting that internalise the value of all stakeholders.

Conclusion

The soft drink industry has a great potential in the UK market. The evaluation of the PESTEL, Five Forces, and CSR analysis reveals that businesses stands an opportunity to venture into this market. Even though there are few challenges that businesses might encounter, there is room for the development of strategies actions that can counter the emergence of adverse outcomes. The industry is expected to advance in the future due to the demand for healthier options. Overall, soft drinks companies located in the UK should re-strategize their operations to ensure they provide products that safeguard the health and well-being of their consumers. Also, meeting the needs and concerns of all other stakeholders is necessary for sustainability.

 

 

References

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Dorfman, L., Cheyne, A., Friedman, L. C., Wadud, A., & Gottlieb, M. (2012). Soda and tobacco industry corporate social responsibility campaigns: How do they compare? PLoS medicine, 9(6), e1001241. https://doi.org/10.1371/journal.pmed.1001241

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