This is due to the fact that capital requirement to engage in such business is high. Funds required in production and distribution systems are extensive and necessary to be able to compete successfully. In addition, with these companies having stayed in the business for quite some time now, they have been able to successfully ride down the experience curve and have been able to achieve a certain degree of economies of scale, which contributed to their attainment of efficiency and productivity.
With brand loyalty now considered as the HOLY GRAIL to consumer product impasses, potential entrants will have a difficult time in toppling existing industry players. These companies have already acquired goodwill with its customers and have well-recognized brands which fostered customer loyalty and created real opportunity for real market share, growth, price flexibility, and above average profitability. Moreover, potential entrants must provide new and distinct tastes away from close guarding patent laws which should capture the market.
Bargaining Powers of Suppliers. Inputs utilized (sugar, carbonated water, various Heimlich such as artificial sweeteners, aluminum cans, and plastic and glass bottles) In the production of soft drinks are widely available. With sugar as a commodity, companies may be able to source out from open market. Given the volatility of sugar process, corn syrups may be used in Lieu of high priced sugar Just like what these companies did in the early 1 sass. The companies’ dependence in sugarless sweeteners has been eased when Intrastate came off patent in 1992.
As a result, companies are able to source out these artificial sweeteners at a lower cost brought y the increasing number of suppliers and stiffer competition among them. Also, aluminum can, and plastic and glass bottle producers do not possess enough influence on industry players. In fact, these suppliers are competing among themselves to capture licenses to bottle the products. In addition, plastic and glass bottlers are currently competing considering the fact that their products are substitute. Bargaining Powers of Buyers.
The buyers in the industry are the bottling and market imposes a moderate influence on soft drink manufacturers. These companies are not price sensitive buyer in that, they acquire national contract wherein prices are at the same level to all bottlers and distributors. Since independent bottlers have contractual agreements to represent that company within a certain area, switching costs would include establishing new relationships with other companies to represent and the legal costs associated with distributors being released from the contract.
However, the latter case is not absolute owing to the fact that some bottlers ND distributors may see it more beneficial to drop a licensed product to achieve more outputs in another product that provides a higher return. With respect to distributors, their influence over the companies may be in the form of providing a lesser shelf space and backward integration. Wall-Mart, for example, is now producing there own beverage line, Cam’s Choice. End consumers may also contribute a significant influence on the industry. With soft drinks being considered as an alternative beverage, demand for these products is seasonal.
Substitute Products. Industry products’ susceptibility to the risk posed by substitutes is at a moderate level. This is brought by the presence of the wide array of substitutes that consumers may choose. This includes, among others, tea, coffee, sports drinks, bottled water, shelf stable Juices, powdered drinks, and spirits. With these substitutes accessible (low-priced) and widely available, consumers’ inclination to shift preferences is highly probable. This phenomenon, however, has been successfully answered by industry players.
With the onslaught of substitute products, impasses have diversified into producing substitute products; thus, maintaining their dominance in the industry. Rivalry Among Competitors. The dominance of Coca-Cola, PepsiCo and DRP Pepper/ Seven-up in the industry clearly depicts an oligopolies environment. Competition among these firms is fierce for the reason that the industry is at its maturity. Rivalry among competitors has been primarily in the form of price wars. Intensity of the rivalry among industry players may be attributed to the high level of exit barriers and the highly lucrative industry market.
