Porter’s five forces analysis for soft drinks industry
The soft drinks industry
The soft drinks industry is a $60 billion dollar industry which is largest in the beverage industry. It currently has two main competitors, Coca Cola and Pepsi. The industry has a huge market with America alone consuming 56 gallons of soda every year.
Porter’s five forces analysis for the industry
The Porter’s five forces analysis was invented by Michael Porter in 1979 and is used in making analysis of the competitiveness of companies within the industry. It basically analyzes five basic factors that affect the company internally and externally and influence how it can compete in the market effectively. The following is an analysis of the five forces that affect the soft drinks industry.
- Threats of new entrants. The soft drinks industry is very difficult to penetrate. This is because entrepreneurs require approval from the FDA and other licenses before beginning operations. In addition to this, new entrants into the market must also compete with well established brands and this can prove very challenging especially in terms of capital investment and marketing strategies. These new entrants have to struggle to get the best suppliers and distributors considering that the well established companies have already created a solid relationship. This reduces the threat of new entrants for already established companies.
- Threats of substitute products. The brand names in the soft drinks industry are highly popular and it is therefore difficult for consumers to switch from these drinks to other newer ones. Substitute drinks outside the soft drinks industry include water, juices and beverage drinks. These may not be as popular as drinks like Coca cola and Pepsi hence cannot attract more clients as compared to these soft drinks. Besides, the prices of such substitute drinks may not be any different from those of the soft drinks.
- Bargaining power of buyers. Buyers of the soft drinks are particular about the costs of the drinks they buy. This gives the consumers a lot of power over the pricing of the soft drinks because the companies cannot raise the prices without considering the clients’ opinions. The buyers are also very particular about the brands that they love because they enjoy specific tastes and preferences.
- Bargaining power of suppliers. Suppliers in the soft drinks industry do not have bargaining power. This is because some of the established firms have their own supply chains and different companies require different ingredients. Additionally, there are many suppliers and this means that the supply market is very penetrable. Any supplier who does not provide the best ingredients can be dropped off by the company immediately.
- Competitiveness of the industry. There are three main competitors who make up 89% of the market share in the soft drinks industry. There is stiff competition amongst these top brands and they have to spend a lot of money in marketing and branding themselves. The companies also have to collaborate with major retailers and fast food restaurants to ensure that they capture a larger market share. From time to time, soft drinks companies also carry out promotional activities.
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