Soft drink industry

1.

The soft drink industry in the world is made up of many firms competing for the market share. Two companies, however, stand out as the major players with a massive influence in the soft drink industry globally. These are Pepsi and Coca-Cola. The following is a Porter’s five force analysis of the soft drink industry.

1. The threat of substitutes- medium force. There are relatively low entry barriers to the beverage industry. The capital requirement is not immense, and there are no consumer switching costs. Market power is derived from brand loyalty.
2. The threat of substitute products- high intensity. There are many types of non-alcoholic beverages that can be consumed instead of sodas. These include juices, sports drinks, coffee among others. More so, similar brands of sodas produced and branded by competing firms have an almost identical taste.
3. Bargaining power of buyers-low intensity. Individual buyers have little pressure on soda firms regarding the prices given it is a minute portion of their income that they spend on soft drinks. Large retailers have some bargaining power since they buy in bulk
4. Bargaining power of suppliers- low pressure. The suppliers for the primary ingredients for soft drinks such as carbonated water, sweeteners, and phosphoric acid are neither concentrated nor differentiated.
5. Rivalry among existing firms-high intensity. The two large firms compete in a variety of areas such as marketing and branding. Securing the market share is dependent on a firm’s ability to have a pool of customers who are loyal to the brands it offers (Porter, 2008). The firms are heavily involved in sponsoring events and activities to ensure they remain in the public’s eye always. Despite there being upcoming giants such as Dr. Pepper, the stiff competition is still limited to the top two players who are keen to outsmart each other.

2.

I would expect greater rivalry in the soft drinks industry given the strengths of the other forces. The market takes an oligopolistic structure implying that there are a few firms selling similar but slightly differentiated products. In a blind test, a consumer may not be able to tell the difference between Coca-Cola’s Coke and Pepsi’s Pepsi-Cola. The soft drinks near-homogeneity makes the firms to seek other ways to enhance uniqueness. This ranges from being associated with various societal ideals and sports to arts and music. Nevertheless, Coke and Pepsi have been competing so intensively that some of their methods can be termed as unorthodox. Such include defaming the competitor’s product by associating it with undesirable effects on the consumer. This market takes the shape of a duopoly due to the size of the top two firms. Competition can be increased, however, if other companies are large enough to possess the resources to compete with the two major companies.

Rivalry among existing firms is one of the changing forces. As the small firms increase in size and influence, so does the nature of competition in the industry. Instead of the Coke and Pepsi focusing on each other’s actions, they now have several other actions to consider making strategizing more complex (Hamilton, 2016). Another rapidly changing force is the threat of substitutes. The world is waking up to the dangers of an unhealthy lifestyle that is often accompanied by consumption of large amounts of soft drinks. As such, a healthy lifestyle movement is likely to advocate for the substitution of soft drinks with other beverages such as fruit juices and water. The firms have acknowledged this reality and are diversifying their product portfolios to include new healthy beverages such as diet soft drinks. More so, the soft drink companies also have a line of bottled water that promote sales.

References

Porter, M. E. (2008). The five competitive forces that shape strategy. Harvard business review, 86(1), 25-40.

Hamilton, S. F., & Réquillart, V. (2016). Market competition and the health composition of manufactured food. Health economics.