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Global market forces are identified as responsible aspects in driving major changes within the food and beverage industry. However, the food and beverage industry have also been affected by the constant changes in consumer preferences as well as increasing government regulations on businesses.
The beverage industry comprises of both alcoholic and non-alcoholic drinks. The nature of competition within this industry calls for players to offer variety of products capable of meeting consumer demand; this goes hand in hand with the quality. Beverage industry experiences frequent entrance of new products and this explains the reason as to why there are hundreds of different drinks in the markets from different companies.
The beverage industry comprises manufacturers and distributors of various drinks such as soft drinks, energy drinks, coffee and tea as well as sports drinks, alcohol, nutritional drinks amongst others (Deichert et al 2-9).
Trends influence and logics within the alcohol beverage Industry touches such areas as marketing practices, success within trade agreements as well as financial progress. Globalization marketing tendencies have since affected areas of society which were previously not considered as potential economic hubs.
The beverage alcohol industry has been mostly affected by globalization which has also affected alcohol policies within different market segments across the globe. The industry is considered superior in terms of economical advantages, its marketing principles focuses on defining, forming and creating goods with target group in mind. Obtaining of raw materials and the overall process of production presents separate entity which has little to do with final product sold to consumers (Tremblay and Carol).
Major brewers within the US market are considered to be Anheuser-Busch, Inc., SAB-Miller, and Molson Coors Company. Anheuser-Busch recognized as the major supplier of beer within the market followed by SAB-Miller (Elzinga). One of the most important aspects is that companies should produce beer that is mostly liked by the customers.
One of the most sold beer brand in the US are Bud Light, Budweiser, Coors Light, Miller Lite, Natural light, Busch Light, Miller Genuine Draft, Miller High Life, and Michelob Light. USA has one of the largest beer import market with a total value of about $2.7 billion. The overall high demand for beer in USA is because of the growing demand for larger that has low amount of calorie (American Beverage Association).
There is intense pressure from competitive forces within the alcohol industry. There are high levels of competition from major brewing countries like the US, China and European countries (Elzinga). The companies within this industry have resorted to differentiating their final products to suit the current consumer desires. This as a result of the stiff competition between domestic and exotic alcoholic products, creating an environment of mergers for the purposes of gaining cost benefits and market share.
The current beer industry appears very attractive for big companies such as Heineken. This is because of the low pressure from suppliers, as well as low threat of new entrants and moderate pressure from buyers. According to analysis the industry is highly competitive since there is presence of many substitutes.
These calls for every company dealing with alcoholic products to develop competitive strategies which could help them counter pressures from the global forces. The Porters five forces have great influence within the industry when it comes to designing of strategies within the market environment. However, the level of competition within the industry determines the development of products and services that would grant the required competitive advantage (Tremblay and Carol).
There is decline in traditional key markets for European beer consumption. Some of the factors contributing to these could be government’s aggressive campaign against drunken driving. This affects greatly the propensity of drinking beer within restaurants, pubs and bars.
The overall beer consumption per capita varies greatly between countries with Germany recording four times higher consumption compared to Italy. Brewers’ main purchasing costs include such things as packaging and acquisition of raw materials such as barley. Research shows that the majority of the companies within packaging industry in Europe are international. These include companies such as Crown which produces cans and Owens-IIIinois specialized in glass bottles (Tremblay and Carol).
Majority of Americans consume lots of beer since they consider it preferred beverage. Recent surveys shows various percentages of beer consumption with the percentage of beer consumers being around 65% showing an increase in the rate of consumption from previous years. There is an average of 4.5 beer drinks per week based on individual health matters. In the year 2010 statistics revealed that almost 41% of Americans prefer taking beer, 33% wine and 23% liquor (Tremblay and Carol).
Table1: Percentage of Global Alcohol Consumption (Source: GfK “Alcohol consumption” survey 2008, GfK Custom Research/).
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|Figures in %||Beer||Wine||Liqueurs and fortified wines||Spirits||Cocktails/alcopops|
The beverage industry is currently dominated by three major players which are known to control the global market. These major players are Coca-Cola, PepsiCo and Cadbury Schweppes which accounts for 80% of the global market. Coca-Cola commands 50%, Pepsi 21% and Cadbury Schweppes 7% of the total global market.
The remaining market share is made up of other smaller companies such as Cott Corporation and National Beverage Company (Deichert et al 3). There is tremendous growth within the industry despite low concentration experienced. The appropriate evaluation of the general development and work of the Soft Drink industry is measured by the size of the market it is sold in and the audience it is focused on from the very beginning.
Statistics shows that soft drink consumption commands a market share of approximately 47% in the non-alcoholic drink industry. Recent research reveals that the total market value of soft drinks was estimated at over $ 305 billion in 2004 and over $ 360 billion in 2009. This shows the high level of profitability within soft drink industry (Datamonitor).
The industry is currently experiencing growth in other drinks such as tea and coffee with growth rate of approximately 12% as well as bottled water revolving around 10%. There is also inflow of sports drinks and energy drinks (Deichert et al 2-9). However, the market saturation level being experienced in the US markets contributes towards slow growth within the industry. This calls for soft drink companies to diversify their production to other markets for the purposes of maximizing profits (Murray).
People who are focused on healthy life style are often customers for those companies that produce bottled water and soft drinks that rises the popularity and provide rapid development of the company. Coffee and tea are considered by consumers to provide caffeine considered healthy by consumers. Starbucks provide special brands of coffee blends to the market making it more appealing to consumer tastes (Datamonitor).
It goes without saying that some companies are at the level of competitions at the market, for example, comparing companies producing soft drinks and the ones specializing on water, coffee and tea. The big companies have got already established brand names, competent distribution channels as well as high level on capital required for entry into the Industry.
The leaders within this industry, Coca-Cola, PepsiCo and Cadbury Schweppes invest so much in soft drinks (Deichert et al 2-9; Murray). Coca-Cola Company recorded highest sales in 2004 on soft drinks with record of over $22 billion. The company currently sells over 400 drink brands within 200 countries around the world (Coca-Cola Company).
Their product line comprises of soft drinks such as Coca-cola, Fanta, Sprite, Diet Coke and Barq. PepsiCo being the closest competitor has soft drink product line comprising of Pepsi, Mountain Dew and Slice and Cadbury Schweppes having soft drinks such as A&W Root Beer, Dr. Pepper and Canada Dry (Cadbury Scweppes; Pepsi Company Overview).
In the year 2004, Coca-cola recorded highest sales of over $ 4 billion followed by Pepsi with over $ 3 billion and Cadbury with 0ver $ 1 billion sales (Sicher). Comparing to 2003 and 2004, nowadays the share of the companies for Coca-Cola and Pepsi has greatly decreased. According to the statistic the difference makes up several percentages (Deichert et al 4).
Taking into account the research done by the American Beverage Association in 2006, the soft-drink industry sales made up about $ 70 billion. The industry net profit margin was approximately 11% while current and quick ration average were approximately 1 and 0.7 respectively. The overall financial review indicates high competition and less growth within the industry.
The top three companies within the beverage industry recorded small rate of profit growth, this could be attributed to major expansions within the companies’ product lines. The companies within the Beverage industry are experiencing average financial stability with slight annual increase in gross and net profits. There is a definite need for increasing the values of quick ratios for the companies to be ale to deal and to collaborate (if possibly) with the short-term obligations (Walker).
Changes within the Industry based on Priority Issues
Major changes are experienced within the Beverage Industry owing to some factors which are macro-environmental. Many factors contributes towards the choice of drink consumers might desire to take, these include; environmental situations, consumer tastes and lifestyles.
Some industrial companies specializing on the drinks productions benefit from economies by means of distribution. The free nature of exit and entry of firms leads to several changes. The products of the companies are really wide spread nowadays and it gives great opportunities for the further development of the companies. The mergers have made it easer for companies to improve on revenue as well as increasing market share as a result of increased economies of scale.
A good example is the acquisition of Quaker Oats by PepsiCo (Datamonitor). Globalization also presents one of the major challenges especially on the current growth in internet and other technological applications (Deichert et al 9). This has contributed to the expansion into world markets hence increase in competition. There are also major changes in societal lifestyles, attitudes and concerns with more focus given to healthy lifestyle.
American Beverage Association. Soft Drink Facts, 2005. Web.
Cadbury Schweppes. 2004 Annual Report, 2004. Web.
Coca-Cola Company. 2004 Annual Report. Hoovers, 2006. Web.
Datamonitor. Global Soft Drinks: Industry Profile. New York, 2005.
Deichert, Meghan, Ellenbecker, Meghan, Emily, Klehr & Kelly, Zeigler. “Strategic Management in a Global Context; Industry Analysis.” Soft Drinks Journal 2006: 2-9. Print.
Elzinga, Kenneth. Beer: The Structure of American Industry. Ed. Walter Adams and James Brock. Upper Saddle River, New Jersey: Pearson Hall, 2005.
Murray, Barbara. Comparison Data. Hoovers, 2006. Web.
Pepsi Company Overview. PepsiCo, 2006. Web.
Sicher, John. Beverage Digest/Maxwel Ranks U.S. Soft Drink Industry, 2005. Web.
Tremblay, Victor, & Carol Horton. The U.S. Beer Industry: Data and Economic Analysis. Cambridge, Massachusetts: The MIT Press, 2005. Print.
Walker, Tim. Cott Corporation. Hoovers, 2006. Web.