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Executive summary
Soft drinks are enormously popular beverages consisting primarily of carbonated water, sugar and flavoring (Council of American Food Technology Association, 2010). The industry has been among the most vibrant and profitable for a long time but has now come under great criticism for its products health effects (The Coca-Cola Company, 2010b). As obesity and other health complications become a priority in many countries, the industry is facing criticism from stakeholders in the health industry. The results have been reduced sales and revenues.
It is for this reason that there is a need for the industry to diversify its markets by introducing more nutritious drinks such as vitamin-enriched sports drinks. This paper aims at studying the soft drinks market and establishing the viability of a new vitamin-enriched sports drink in the global market through a survey that covered 500 people. The survey revealed that many people are more conscious of their health today, many people are working out and are willing to try a sports product if they were assured of benefits and zero side effects on their health.
Introducing a new product in such a competitive market would require a strong and effective strategy. This paper provides market analysis, market trends and a market entry plan intended at ensuring a good market share for the product. The implementation strategy will comprise a marketing plan, distribution channels, supply chain and logistics, promotion, pricing and finance operations. The paper finally makes recommendations based on the research. Among the recommendations include understanding competitors, marketing, establishing brand loyalty and using natural sweeteners to win customers who are concerned about their health.
Introduction
Soft drinks are enormously popular beverages consisting primarily of carbonated water, sugar and flavoring (Council of American Food Technology Association, 2010). Some contain caffeine, some have fruit juice and most of them have artificial additions for flavor and preservation. Some soft drinks also have small percentages of alcohol but beverage standards require that the percentage be less than 0.5% for a drink to qualify as soft (Deichert, et al., 2009). Soft drinks are rarely heated but can be stored and served at room temperature.
During the production process, of most importance is that the ingredient meets the agreed specification on all major parameters (Novinture, 2011). Standards put in place are less concerned about functional parameters such as major constituents but are more concerned about the absence of impurities, safety for consumers, and other physical parameters such as particle sizes (Shin, 2003). Packaging is mostly done in 300ml- 3liters packages. For a long time, soft drinks have been packaged in plastic bottles but the emergence of aluminum cans and glass bottles is slowly changing the trend (Solove, 2006).
In every part of the world, there are major soft drinks producers (Seddigh, Peter and Ashraf, 2006). However, Coca-Cola and Pepsi have dominated the market for a long time and registered a presence in every part of the globe. Other major producers include RC Cola in North America, Ajegroup, AmBev, Corporacion Jose R. Lindley S.A, and Embotelladora Don Jorge SAC, all in South America. In Europe, Perrier boasts of a good market share in the region while Bundaberg and Kirks do the same in Australia (Heinnman, 2010).
The industry has come under great criticism for its products health effects (The Coca-Cola Company, 2010b). As obesity and other health complications become a priority in many countries, the industry is facing major criticism from stakeholders in the health industry. Soft drinks have low nutrient levels and are largely associated with many types of diseases such as obesity, dental cavities, type 2 diabetes, and decreased immunity, among many others (Retail World, 2010). Many ingredients such as caffeine and sweeteners are on their own a source of major concern. The industry is largely blamed for the number of obese children today and the deteriorating health among children and adults alike. This is because, unless fortified, soft drinks contain little or no vitamins, fiber, protein, or other essential nutrients . (U.S Commercial Service, 2011).
Aim of the study
As soft drinks continually lose popularity for health-related concerns, manufacturers are forced to venture into other markets to boost profitability and distribute risk (Chaston, 2009). Big and small manufacturers of soft drinks find themselves urgently requiring new products and sources of income. A recent study by (Thompson, 2009) reveals that soft drinks manufacturers are switching to natural sweeteners as more people become health conscious. As more healthy products such as ice tea and bottled water gain market shares, the soft drinks industry continues to suffer and becomes less profitable (Capparell, 2010). It is for this reason that there is a need for the industry to diversify its markets by introducing more nutritious drinks such as vitamin-enriched sports drinks. This paper aims at studying the soft drinks market and establishing the viability of a new vitamin-enriched sports drink in the global market. Through a survey that covered 500 people, the results will be used to determine whether such a product would be viable or not.
Literature review
To understand the soft drinks industry and the different parameters that drive it, different books, journal articles, and government and non-governmental statistics proved very helpful. The American Beverage Association is focused on providing consumers, producers and different stakeholders with relevant and up-to-date information on the industry and the different parameters affecting it. From their report on soft drinks facts, it is clear that the industry remains among the most vibrant and competitive. It is also among the industries with the highest levels of revenue in different regions.
Anderson, in his book, the soft drink industry, helps the reader understand the history of the industry and how it has grown with time. Anderson points out that the industry has reached a maturity level, especially in developed countries, denying manufacturers enough opportunities to experiment. Chaston on the other hand, in his book on new marketing strategies to fit soft drink markets circumstances, helps the reader understand how consumer tastes and preferences have changed with time. While health was not a major concern for consumers a few years back, today health concerns are shaping the way products are made and marketed.
Brandweek, an organization that conducts consumer surveys for different industries, conducted a survey on the brand keys customer loyalty leaders survey. From the survey, Pepsi enjoys the biggest level of consumer loyalty, followed by Coca-Cola. The report also reveals that due to a change in consumer preferences, the trend is slowly changing and other smaller brands such as Red Bull are coming up on the list.
In the journal of decision support systems, Chen describes the role of competitive intelligence in different industries. Competitive intelligence has been key in keeping the two giant companies ahead of the competition. Competitive intelligence has especially played a key role in helping businesses use information and data to their advantage by converting it into knowledge. To understand competition further, Ford looks at competition and ethics in the modern age. In his books, the author looks at how unhealthy competition strategies have influenced the industry. The book points out a case study where the soft drinks industry nearly collapsed in the 1980s due to price wars.
Datamonitor, an organization that conducts surveys and does analyses for different industries has presented the parameters that influence profitability and revenues in the global soft drinks industry. Among the parameters discussed include prices, foreign policies, agricultural activities, population growth, labor markets and health factors, among others. Deichert, together with other authors, also discusses the industry from the same perspective and gives an industry analysis in the year 2009, in the midst of the financial crisis. Due to the global nature of the industry, the report points out that it was among the most affected due to reduced consumer wealth and purchasing powers.
DiMeglio discusses in detail the issue of health and its relationship with the soft drinks industry. In the International Journal of Metabolic Disorders, in his article on foods, the author discusses the effects of food intake on body weight. It is through his analysis that the reader understands how the consumption of soft drinks affects health. The industry has for a long time used artificial sweeteners and preservatives, most of which contain too much sugar than is recommended by doctors. As a result, many children and adults who regularly consume the products are overweight and are likely to suffer other medical complications such as high blood pressure and diabetes. The author points out that the initiative by different governments to fight obesity has affected soft drinks sales negatively. It is for this reason that many producers are now investing in new products and having more healthy options for their consumers.
The Euromonitor International report on the soft drinks industry this year analyzes different companies market share and positions in the market. It also discusses new innovations by different soft drinks manufacturers and how they are shaping the future of the industry. Among the innovations are production technologies and different marketing strategies such as online marketing. Finally, Fleisher in his book, controversies in the soft drinks industry, describes the industry as the most enduring and among the oldest. The author points out that the soft drinks industry plays a big role in shaping the global economies and its future still looks bright.
Industry Analysis
The soft drinks market has been the most buoyant for a long time now (Prasad, 2010). Energy and sports drinks still command good authority in the market even though there is a big growth in the retro drink segment after the recent economic crisis (Penzkofer, 2010). Different economies have registered different results in the last two years, a factor that contributed to the fact that different economies have faced challenges after the economic crisis (IEEE Spectrum, 2010).
The Russian economy registered the biggest growth in the soft drinks industry last year. The regions GDP grew by 5% and production volume in the region grew by 10% (OzBevNet, 2010). In Saudi Arabia, population growth and hot weather throughout the year kept the soft drink market stable (The Coca-Cola Company, 2010c). The market is among those affected by consumers health concerns and therefore, health-oriented products such as vegetable and pure fresh juice products performed better. The bigger and developed markets such as Europe and North America are reported to have stagnated growth in the last few years. This is partly attributed to the global crisis. Analysts however argue that it is largely due to the fact that these markets have reached a maturity level, making it hard for producers to experiment (Nedja and Ajith, 2010).
According to (Schweppes, 2011), as soft drinks manufacturers emerge from the global recession, many faces continued decline in developed countries due to maturity . It is also notable that as more economies recover, credit accessibility is bigger and more competitors will emerge. More companies are therefore looking beyond their domestic markets to stay profitable and grow revenues. More companies are also looking at expanding their products categories to increase revenue (National Research Council of the US., 2010). Another emerging trend is mergers by smaller companies to create strategic partnerships that will allow them to gain access to new and bigger geographies (Waye and Christina, 2009).
The other reason for slowed growth is health concerns about soft drinks. The Obama administration has pushed the fight against obesity further up the policy agenda, notably in areas such as labeling and advertising, ensuring a busy year for soft drinks lobbyists (DiMeglio, 2010). The European region such as the UK has also put in place measures to help fight obesity and encourage more healthy eating. These factors have presented a good opportunity for healthy beverages such as bottled water but negatively affected other drinks with artificial sweeteners and additives.
The Asian market has continually reported a positive trend, a factor largely attributed to the growing population and an economy that has recovered faster than other regions. Other developing markets such as Africa are currently a target for the big companies as they capitalize on the fact that these markets have recorded increased consumer wealth in the recent past (Economic Intelligence Unit, 2011). These markets present opportunities for major products in the industry and offer a good environment for further experiments.
The sports drinks industry is slowly growing as more people begin to appreciate sports and fitness (Rouach, 2009). Sports drinks can be categorized into three classes; Isotonic, hypertonic and hypotonic. These drinks have an equal concentration of salt and sugar as the body, higher concentration of salt and sugar than the body and lower concentrate of salt and sugar than the body respectively (Goldberg, 2000).
Sports drinks are used by sportspeople to reduce the risk of water intoxication, a situation caused by excessive consumption of water to replace electrolytes lost during sweating (Rao and Shambhu, 2009). The benefits of sports drinks include their ability to balance the bodys electrolytes levels, give energy and provide the body with carbohydrates required for muscle strength (Schudel, 2000). As a result of these benefits and as more people become actively involved in sports, the industry is experiencing a heightened level of activity. The biggest brands in the industry include Gatorade, Staminade, Isostar, Powerade and Lucozade. To give athletes more benefits, many producers are now incorporating other nutrients such as vitamins in the drinks (Nash, 2010).
Porters Five Forces
A porters Five analysis of the industry reveals that market forces are favorable for profitability (Morton Research Corporation, 2009). The soft drinks industry has shown tremendous growth in profitability for both the bottlers and concentrate producers (Murphy, 2005). These two parts of the industry have always been dependent of each other since the birth of the industry. They share costs in procurement, production, marketing and distribution (Hallgarten, 2004). Some of their activities and functions also overlap. For example, bottlers conduct promotional activities and some concentrate producers still do bottling, even though very few do that now.
Rivalry
The soft drinks industry is characterized by concentrated revenues. By 1994, Coca-Cola and Pepsi commanded a combined 73% market share, a number that stands at 74% now (Plunkett, 2010). The market is many times considered a duopoly between the two giant companies, a factor that has brought about tremendous economic benefits for the companies. However, the fierce competition existing among few players such as the intensive rivalry between Coke and Pepsi has sometimes hampered profitability (Sutter, 2000). For example, in past years, price wars have time and again caused reduced profitability. In the 1980s, price wars caused poor margins and both companies registered losses in some the years.
For the new vitamin product, the beverage market is at a mature level making it hard for a new entrant to do experiments. However, the energy and sports drink market is not very saturated as producers have been more focused on other soft drinks (Knox, 2010). The two brands, which dominate the market and enjoy more than half the market share, will be the biggest competition. Pepsi and Coke Colas brands identity is strong putting them in a better position to market themselves. The competition will be from Coca-Cola, Pepsi, Cadbury Schweppes and other small players.
The threat of substitutes
For a long time in the early years of the industry, a soft drink meant cola to many people ( Air-force Research Labs, 2002). In the 1970s and 80s, the industry started experiencing an expanded portfolio and other beverages such as tea and bottled water became common (McMillan, 2000). When these products came up, the two companies responded by expanding their varieties, mostly through alliances and more internal innovations (Rao and Manish, 2007). Businesses in the industry now work towards increasing substitutes internally and growing their brand names. The threat of substitutes has therefore been reduced by the expansion of products portfolio through the availability of alternative beverages such as juice, tea and many others (Doyle, 2009). The proliferation of brands and products has in the past threatened profitability as the markets get more and segmented, but the industry has put in place measures to ensure these threats dont hold (Qian, 2008).
Due to the high costs of doing business in major markets today, switching costs will be high for the new product. Soft drinks consumers exhibit brand loyalty, a factor that reduces the chances of a buyer switching to new products or trying out substitutes (McKnight, 2006). As a result, if the product is able to build high quality and desirable product, it would be able to enjoy loyalty from consumers and minimize the threat of substitutes
Supplier power
The inputs for most soft drinks are sugar and packaging. Suppliers have less bargaining power because there are many substitutes for sugar or corn syrups and packaging (Etzioni, 2002). Most of the time, sugar is easily available in many markets. When this is not the case or when prices are too high, corn syrup has been a viable option. This option has proved very viable in the past such as in the 1980s when sugar prices skyrocketed. As a result, suppliers do not have much bargaining powers and many times they have had to use price wars to get business.
The packaging industry such as the bottlers also has low bargaining power. Starting1990s, the availability of inexpensive aluminum further reduced bottlers bargaining powers (McCumber, 2001). Several companies went into a competition to get contracts with concentrated producers, putting them in a disadvantaged situation (Mathisen, 2003). With too many aluminum companies vying for the available contracts, concentrate producers have for a long time been able to negotiate agreements that favor them and disadvantage the packaging producers (Fleisher, 2003). The case will be the same for the new product.
Buyers bargaining powers
There are different levels of bargaining powers for buyers. According to Gansler and Hans (2004), the soft drink industry has in the past sold to consumers through five principal channels: food stores, convenience and gas, fountain, vending and mass merchandise . Consumers pay less through these channels than in other outlets. The supermarkets, which have been for a long time been the principal customer of producers, have become too much fragmented, a factor that affects their bargaining power negatively. This means that national merchandising chains such as Wal-Mart, which are able to build on customer traffic, are able to enjoy better bargaining powers (Gansler and Hans, 2004).
For the consumer, the bargaining power levels also differ. For example, there is no bargaining power at the vending machine but there is a higher bargaining power at a fast-food restaurant. Through vending machines, the customer is the consumer, a factor that eliminates many other expenses. The concentrate producers are therefore able to offer the products for a cheaper price. Most markets are currently experiencing a healthy economy and increased levels of income. There have been high numbers in consumer expenditure recorded, making it easier to market a food product. Buyer volume is high as the worlds population continues to grow with a majority of youth. Price sensitivity is an issue of concern and may play a key role in product differentiation. Asian products are much more affordable and they attract a majority of the low-end market. The new product can introduce incentives such as discounts and rewards for loyal customers to attract a bigger clientele.
Strong barriers to new entrants
Entry to the industry involves having a clear strategy for concentrating production and bottling. An investor will need well-developed operations in both disciplines. A new entrant in the concentrate production discipline will threaten both producers and bottlers but a new bottler entering the market may only present a threat to the bottlers. Because of how much the two disciplines overlap, many times they are both included when defining the soft drinks industry. As a result, a new entrant is faced with the huge challenge of investing in both. As a result, the amount of capital investments required to enter the industry is too big for most investors wishing to enter the industry. The distribution channel is also a major challenge since most of the big companies have established exclusive territories. This makes it even harder for new entrants to access retailers and the retail channels.
Due to high levels of competition, the new product may not enjoy absolute cost advantages as it tries to penetrate the market. The cost of doing business in the industry is expensive and so is the licensing process. Many governments have today launched a campaign that is intended at marketing the local products, making it more difficult for foreign companies and making it harder for foreign brands to penetrate regional markets. However, the industrys strengths such as high volumes of consumption serve as an advantage. An investors financial position plays an important role when trying to meet capital requirements. Access to distribution is a challenge since a product needs a well-established network through existing or new distributors.
Swot analysis
Market Analysis
A market analysis is aimed at determining the attractiveness of a market and understanding its evolving threats and opportunities as they relate to those of a business (Dutka, 2004). The new product would need this to help it determine who the customers are in the market and what they want from the product. When doing a market research, areas of interest for the new product will include existing marketing strategies and sales forecasts (Kahaner, 2009). As Prechter (2002) points out, The dimensions of a market analysis include the market size, its growth rate, trends, profitability, its cost structure, success factors and distribution channels .
In markets where vitamin-enriched drinks have done well such as Australia, the market for sports drinks seems to be dominated by one or two products. Using the Australian market as an example, the market is dominated by Suntory Holdings Ltd with their product V. The big companies market share in the energy and sports drinks industry seems to be so low, giving an advantage to the small players. The situation presents an opportunity for small businesses since it means they have a big market to target and cover. The best and most commonly used method of forecasting is an extrapolation of historical data into the future (Wood, Cogin and Beckmann, 2009). By studying the adoption rate of a similar product such as V, it will be easy to estimate or predict the shape of the products diffusion curve. The same strategy is applicable in other markets such as the USA where PepsiCo brand Gatorade dominates the market with a 75% market share.
The industrys cost structures are an important factor when evaluating a market and its viability. According to White (2005), it is equally important when formulating strategies for the product to develop a competitive advantage . Cost structures play a big role in a products indirect costs and consequently, profitability. A company may not be able to sell a certain product in a market whose cost structure is too high even though the product may have a very low production cost. The cost is dependent on the market share a business holds and the number of sales (Sherwood and Robert, 2007). For the new product, a small market share in the sports drinks industry at the moment may increase the markets cost structure for it, making it disadvantaged.
Market share: Companies
Market share: Brands
The following chart reveals different companies shares of functional drinks by off-trade value in 2009.
Market trends
A market trend helps identify the direction in which a market will move over time. Market trends can be secondary or secular. Secondary market trends are short term and give a direction within a primary trend which includes few weeks or months (Holtzman, 2011). The secular market trend is long-term and will cover the products presence in the market for the next five to more than twenty-five years. Changes taking place in a market are considered very important as they often come with new opportunities for businesses. They also come with threats that may work in favor of a company with better strategies because they can drive some of its competitors out. Relevant market trends are very dependent on different industries but are also dependent on other factors such as price, supply, demand and level of emphasis and support for various products and services (Holtzman, 2011).
Methodology
To understand the background of the industry, books, reports, academic journals and online materials were used. Government, non-governmental and companies statistics were also used to understand the market trends and structure. To determine how the consumers response to the new product would be and what influences such a reaction, a market survey was conducted using questionnaires and offering free samples to 500 participants. There were no restrictions on the age group but half of the questionnaires were given to people aged between 18 and 30 years old. To ensure gender balance, 250 of the participants were women and the rest were men, all of the different professions. 100 of the questionnaires were given to people who participated in sports professionally.
Participants were given a free bottle of the vitamin-enriched sports drink and they were required to use it during their exercise over a period of 30 days. Professional sportspeople, were allowed to consult with their doctors before trying the samples out. After the trial, they were required to fill out questionnaires where they would describe their overall experience with the product and give their observations or thoughts on several other parameters.
The questionnaires were easy and straight to the point to encourage more participants and help them fill them up more easily. The questionnaires were divided into different sections, each aimed at establishing a different aspect of the market. The first part of the questionnaires was aimed at establishing the consumers overall experience with the product. Factors included here include taste, smell and the general satisfaction level. Other parameters of importance included the switching levels, belief factor and what the respondent thought should be improved.
These variables were used to measure whether the participants found themselves likely to buy and use the sports drink product on a regular basis in the future after the trial period was over. The level of satisfaction was also an important parameter. The level of satisfaction was used to measure a respondents satisfaction during the trial period. A customer who is satisfied is more likely to purchase the product in future and even tell others about it (Groucutt, Patrick and Peter, 2004). This, therefore, helped determine the respondents intentions of purchasing the product in the future.
The exercise was also aimed at measuring the switching tendencies of the respondents. It was aimed at establishing how often respondents switch between similar products and their level of loyalty to a brand or a product. This was helpful in understanding how likely interested consumers were likely to switch to other products in the future. The respondents belief factor was another important parameter in the survey. The belief factor measured whether the respondent believed in the statement that the drink will improve their health. In an era where more people are very concerned about how a product affects their health, a participant who believes the statement is true is likely to buy the product even after the trial period.
Another area of importance during the survey was the worko
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