Substitutes Beer, Milk, Coffee, Bottled Water, Juice, Tea, Powdered Drinks, Wine, Sports Drink, Distilled Spirits, Tap Water etc… There is a wide array of substitutes that consumers may choose. These products are widely and easily available at low price. Hence the threat posed by these substitutes exist at a high level. However these risks can be mitigated through diversification and offering more products in the portfolio. Since the range and the number of suppliers far exceed the buyers in the market, the industry has a very bargaining power.
Most of the inputs required are basically commodities and available on a global scale. Potential Entrants – Brand awareness and loyalty of established brands – Technical know how required is low – Well established network with retail channels – Highly capital intensive – Regulation – Soft Drink Inter Brand Competition Act, 1980 Suppliers Leather manufacturers, textile companies, producers of glass and other accessories, … Relationship with the buyers is established through distribution channels and since these channels varied their bargaining power also varied.
While the buyers have a relative power in case of fountain drinks due to stocking of one brand, their power is limited in case of vending, where the products can be sold directly to consumers. Hence their overall power can be considered average. Buyers – Distribution channels – High end customers (very wealthy individuals) Industry / Competition – Few players dominating the market with a very high brand loyalty. – Industry characterized by slow grow rate. Hence there is intense competition amongst the players to gain a higher market share. Growing buying preferences for differentiated products amongst the consumers and hence companies resorting to growth through innovation and consolidation. – Changing lifestyles, increasing health consciousness and societal concerns are causing firms to change their business strategy. Though the technical know how required to manufacture a soft drink is low, it requires continual and substantial investments to establish brand awareness and compete with established brands like Coke & Pepsi Cola.
Further the existing arrangement for distribution between these players and the retail channels makes it difficult for new players to gain a visibility in the market – a key determinant for success in the soft drink industry. Moreover the Soft Drink Inter Brand Competition Act of 1980 makes it nearly impossible for a new bottler to get started in the region where existing bottler operates. Thus the industry is characterized by very high entry barriers.