The soft drink manufacturing industry is one of the largest and fastest-growing sectors globally, with a strong customer base spread worldwide. To maintain its dominance on the international stage, the industry ensures that it meets the ever-changing taste of its rapidly growing customer base by ensuring that its products reach all its customers promptly and in perfect condition (Demartini, Pinna, Aliakbarian, Toneli, & Terzi, 2018). To achieve this, the industry players use advanced technology, adhere to customer demands, and follow strict regulations. This has seen the company registering a steady growth for a long period despite stiff competition from rival manufactures and global economic uncertainties. However, this growth has not been without challenges, especially considering the current COVID-19 pandemic, which has caused unprecedented economic losses due to strict containment measures issued by different governments worldwide (Tahmassebi & BaniHani, 2020). To better understand the performance soft drink manufacturing industry, this study will conduct external analysis using PEST analysis and Porter’s Five Forces analysis to identify opportunities and threats that exist in the market.
PESTLE Analysis
Political Factors
Some soft drinks, such as milk, are consumed as food, while others form an integral part of a healthy diet as they provide an enjoyable and refreshing way to reach that target (Tahmassebi & BaniHani, 2020). They are subjected to high standard quality checks like those conducted on food products (Buestãn, Cañizares, Camacho, & Suàrez-Nùñez, 2020). Meaning all soft drinks are regulated by government agencies such as the FDA, mandated with regulating the production and consumption of food products. Government regulations are prone to change anytime depending on the political interest and policies of the serving administration. Similarly, changes in labor laws, taxes, and the internal market can affect the production, distribution, and selling of soft drinks worldwide.
Economic Factors
The soft drink manufacturing industry distributes its products to billions of customers spread across the world. These customers have different tastes, desires, and different cultural and social backgrounds (Buestãn, Cañizares, Camacho, & Suàrez-Nùñez, 2020). To meet their unique demands, the industry is forced to change and update how it handles its products by producing flavors that accommodate these varying needs.
Social Factors
The soft drink manufacturing industry is a global entity that operates in cultured countries. The industry players are determined to meet that demand of every country by producing alternative flavors to appeal to their unique taste and demand. This is evident with Coca Cola which created about 30 alternative flavors in Japan to appeal to its Japanese market (Law, et al., 2020). The same player has also ventured into the production of water and sugar-free sodas to cater to the section of its customers keen on soft drinks that are good for their health.
Technology Factor
The fast growth of technology has played a major role in producing soft drinks and continues to change producer-consumer interaction. Players in this industry continue to use advanced technology to ensure quality production and fast delivery (Tahmassebi & BaniHani, 2020). Some have also focused on using social media technology to connect with their targeted audience. They market their products and get instant feedback from the consumers, thereby being in a better position to promptly make necessary changes.
Legal Factors
All players in this industry retain all rights related to their businesses, including past and future products developed under patency terms.
Environmental Factors
Production of soft drinks requires a considerable amount of water. However, due to the ongoing global warming, some places are facing water shortages that affect the production process and compromise the quality of the products.
Porter’s Five Forces Analysis
Bargaining Power of Buyers
Many soft drink consumers are sensitive and highly sensitive to the price of the products and are willing to swift brands if one raises its prices because soft drinks are not basic needs but taken for leisure. Not so many people will be willing to pay high prices. Moreover, making a home-made soft drink is easier, and most consumers will easily opt for a home-made beverage if they notice a significant change in taste or price of soft drinks.
Bargaining Power of Suppliers
Soft drink product suppliers play a critical role in this industry of delivering soft drink beverages and equipment for the firm to the consumers. Because of many industry players coupled with many consumers, it is relatively easier for suppliers to enter the industry. Companies will have the opportunity to choose suppliers who can deliver at a fair price.
Threats of New Entrants
Existing players have a performance and cost advantage in the industry because they have purchased large capital expenditures and have economies of scale. Besides, they have direct distribution and supply channel setup. Considering that anyone can make soft drinks, they are not a priority to some people, and the only proprietorship largely depends on the brand and flavor. As such, a new entrant will not cause any significant threat for the existing players.
Threat of Substitutes
The available substitutes for soft drinks do not have any special factors such as high prices or performance limitations that justify their use over soft drinks. Soft drink manufactures are producing alternative products to what they are traditionally known for, such as Coca-Cola manufacturing for consumers who may prefer water over soda (Law, et al., 2020). As such, there are available substitute carbonated drinks within the soft drink industry. Moreover, loyal consumers are not likely to go for substitutes owing to brand name loyalty.
Rivalry among Existing Players
There is significant competition between existing players in the industry as everyone is determined to seize considerable market share to gain a competitive advantage over other players. This industry’s market share is not evenly distributed as some players control the lion’s share of the market.
Financial Comparison
The total global carbonated soft drink market was valued at 221.6 billion USD in 2020 and is projected to register a 4.7 percent annual growth from 2021 to 2028 (Tahmassebi & BaniHani, 2020). The current consumers tend to focus on convenience rather than the traditional bulk buying products, hence a large part of everyday purchase includes single grab-and-go products. This is the main driving force behind the industry’s growth.
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