Typically, buyers have the ability to switch their tastes from one soft drink brand to the other.
Barrier to Entry: It is very difficult to enter the industry due to several factors:
First, a new firm will need to implement economic of scale to enjoy cost reduction and compete favourably within the industry. To establish economic of scale, a new firm will require huge capital investment ranging from several millions of dollar. Huge capital needed to enter the industry serves as a barrier for a new firm. More importantly, a new firm will need to overcome the tremendous marketing muscle to establish market presence within the industry, and entering into the industry requires substantial capital. Moreover, government regulation is another factor making entry into the industry very difficult. Regulations such as Soft Drink Inter-brand Competition Act are making the new entry nearly impossible in the U.S. market.
Assessment of the Industry
Overall assessment of the industry reveals that firms within industry have been able to record super normal profits yearly because of the difficulties a new firm will face to enter the industry. While buyers have ability to switch their brand loyalty from one firm to the other, substantial capital needed to enter the industry make firms in the industry to continue to record high profits yearly. While the industry is very profitable, the economic of scale and government regulations are making the new entry nearly impossible.
Part C: Competitor Analysis
Soft Drinks and Beverage industry is highly competitive. Top firms within the industry are Coca Cola, Pepsi Cola, Dr. Pepper, and Nestle. However, Coca Cola competes under the non-alcoholic beverage segment, and the beverages segment is highly competitive, consisting of several companies. Coca Cola competes in several geographical regions, and the company competes with local retailers and local companies. Thus, competitive factor has special impact on the Coca Cola business, which includes pricing, sales promotion programs and the introduction of new packaging. (Annual Report, 2010). As being revealed in Table 1, competitions have an impact on the revenues of Coca Cola. Companies such as Nestle and Pepsi Cola are ahead of Coca Cola with reference to the total revenues. Within the industry, Coca Cola is ranked second in market capitalization with $152.22 billions.
Table 1: Direct Competitor Comparison
The Coca-Cola Company
Dr Pepper Snapple Group Inc.
Pepsi Cola Inc.
Industry (Soft Drinks / Beverages
Qtrly Rev Growth (yoy):
Gross Margin (ttm):
Recent economic recession is having a significant effect on the purchasing power of people making many consumers to slice their consumption rates. The effect is having impact on the company revenues. Intense competition within the industry is another threat that the company is facing. Several big, medium and small companies are competing with Coca Cola within the industry and this is having impact on the company market capitalization. At the end of 2009 fiscal year, there was a decrease of 0.7% in the company revenue. The decrease in the revenue of Coca Cola was attributed to the significant low sales in its brands. Despite the threats facing Coca Cola within the industry, the company is enjoying several opportunities.
First, fast growing Hispanic population in the U.S. will boost the sales of Coca Cola. An average adult Hispanic has between three and five children, which are more than national average. Increase in the population of Hispanic will increase population of younger generations making the sales of soft drinks to increase. Population increase in the emerging market will also enhance the sales of Coca Cola. Typically, Coca Cola operates in several emerging markets; and increase in the population and increase in the standard of living of people in the emerging economies will boost the sales of Coca Cola.
Coca Cola is one of the global top producers of soft drinks with headquarter in the Atlanta, United States. Analysis of Coca Cola reveals that the company is enjoying huge economic of scale making Coca…
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