Bottled Water Suppliers

by augatti

A. What are industry analysts saying about your industry?  What are the foreseeable   trends?  What will be the major forces that will affect the industry in the next five years?

Industry analysts are projecting that the soft drink industry will grow by almost 4% over the next 5 years. The significant growth is estimated to occur within the realms of the bottled water sector and new developments for both snacks and sodas in the U.S., as well as, the rest of the world. Although there are numerous substitutes and alternatives, the savory snack and soft drink industry is going to be a large part of our economy for many more decades. Foreseeable trends are obviously toward the healthier version of this industry. Bottled water sales and revenues have been continually rising since 2003. By 2012 they are projected to increase another 34% in the U.S. alone. Also, with this healthier America outlook many snacks and drinks are changing their ingredients leaning towards diet, zero carbohydrates, caffeine free and other healthier variations of currently popular soft drinks. However, on the opposite end of the spectrum are energy drinks, which are unhealthier than normal sodas, are representing an ever growing percentage of the soft drink industry.

Companies need to know these factors if they intend to operate with a competitive advantage in this industry, especially at a time when the economy is slumping. Major forces affecting the industry are economies of scale and barrier to entry. These forces represent the complexity and difficulty of emerging in this market, new entrants are few and far between one another. Additionally, oil prices could vastly affect this industry based on production costs and transportation costs, both are major fixed costs. Furthermore, as mentioned before, growing health concerns are going to somewhat force companies in this industry to start offering healthier and smarter choices for their everyday snacking needs.

B. Economic forecast:  What is forecast for the industry regarding growth and the factors that will affect it?  Existing markets?  Emerging markets?  Changes in demand for products/service?  Global competitiveness?

According to Datamonitor the soft drink industry is projected to show an average growth rate of around .7% for the next 5 years, culminating in a total marketplace increase of 3.6% for 2008-2013. Production and transportation are two of the largest costs in this industry; therefore the price of oil is going to affect the industry in numerous ways. Another significant expense is the cost of labor, as a direct result of Pepsi currently employing about 185,000 employees nationwide. Some of the existing markets in this industry have been around for many decades and are common household names, these include; Coke, Kraft, Dr. Pepper, Proctor and Gamble, Cadbury Schweppes, Nestle, and General Mills. Due to the large barriers to entry and economies of scale new markets are hard to find in this industry. Many of the newcomers are larger companies who have since decided to enter the savory snack or soft drink industry. Since the companies are all well established previous market entry for a brand new company entry is near impossible due to high fixed costs, expensive marketing requirements, and economies of scale. Supply and demand for this industry has been constant with some despite occasional up and downs. However, the new power sellers are the bottled water sector starting in 2000 and energy drink sector since 2002. As with many other international companies, global competiveness is maintained by market tests and approvals, by changing flavors and advertisements, and by further segmenting the soft drink and savory snacks sectors.

C. Financial performance:  What is the financial profile of the industry?  What are industry averages for the major financial ratios?  What specific ratios are used to measure performance within your industry group?  What are these ratios predicted to do over the next five years?

The ratios that were used to measure performance in the soft drink and processed food industries were: ROA, ROE, EBT Margin, quick ratio, current ratio, long term debt to equity, total debt to equity, interest coverage, days sales outstanding, days inventory, receivables turnover, inventory turnover, fixed asset turnover and asset turnover.

The activity ratios in particular are critically important to the soft drink and processed food industries. Efficient inventory management is crucial to the profitability of companies in these sectors. Inventory is often the least liquid asset. It’s also the one for which the book values are least reliable measures of market value, since the quality of the inventory is not considered. The quick ratio removes the inventory component so as to give a more accurate assessment of a firm’s ability to pay its bills in the short run. Short-term creditors prefer a high current ratio since it reduces their risk. Shareholders may prefer a lower current ratio so that more of the firm’s assets are working to grow the business. Typical values for the current ratio vary by firm and industry

Market Analysis: The United States soft drinks market grew at a slow and steady rate between 2003 and 2007. This growth is set to follow a similar pattern in the forthcoming five years. The United States soft drinks market generated total revenues of 0.1 billion in 2007, representing a compound annual growth rate (CAGR) of 2.2% for the period spanning 2003-2007. In comparison, the European and Asia-Pacific markets grew with CAGRs of 2.9% and 3.5%, respectively, over the same period, to reach respective values of 7.8 billion and .9 billion in 2007. Market consumption volumes increased with a CAGR of 2.7% between 2003 and 2007, to reach a total of 113.3 billion liters in 2007. The market’s volume is expected to rise to 132.8 billion liters by the end of 2012, representing a CAGR of 3.2% for the 2007-2012 period. Carbonates’ sales proved the most lucrative for the United States soft drinks marketing 2007, generating total revenues of .5 billion, equivalent to 57.6% of the market’s overall value. In comparison, sales of juices generated revenues of .4 billion in 2007, equating to 16.7% of the market’s aggregate revenues. The performance of the market is forecast to accelerate, with an anticipated CAGR of 3.5% for the five-year period 2007-2012, which is expected to drive the market to a value of 0.5 billion by the end of 2012. Comparatively, the European and Asia-Pacific markets will grow with CAGRs of 3.8% and 5.3%, respectively, over the same period, to reach respective values of 1.9 billion and .4 billion in 2012.

Market Value: The United States soft drinks market grew by 2.5% in 2007 to reach a value of 0.1 billion.

Market Value Forecast: In 2012 the market is forecast to have a value of 0.5 billion, an increase of 18.6% since 2007. The compound annual growth rate of the market in the period 2007-2012 is predicted to be 3.5%.

Market Volume: The market grew by 2.8% in 2007 to reach a volume of 113.3 billion liters.

Market Volume Forecast: In 2012, the market is forecast to have a volume of 132.8 billion liters, an increase of 17.2% since 2007.

Market Segmentation I: In value terms, the largest category is carbonates with 57.6% of the market.

Market Segmentation II: The United States accounts for 33.4% of the global soft drinks market values.

Market Share: In value terms, the largest company is The Coca-Cola Company with 30.5% of the market.

Distribution: In volume terms, the largest channel is supermarkets/hypermarkets with 76% of the market.

D. Driving forces:  What are the major factors that drive your industry group?  What are the key success factors that every major competitor must have to survive in your industry?

There are many major forces that drive an industry and numerous key success factors that determine the survival of a competitor. PepsiCo uses strategic planning to determine the future success of their company. The major forces that drive this industry group include customer satisfaction and unique varieties of beverages and snacks. The food and beverage industry offers a wide variety of options for a consumer, and the specific company must please the consumer in order to foster their success and growth. Customer satisfaction is vital in the success of a company and at the end of the day that is what matters most.

There are also numerous key success factors that every major competitor must have in order to survive. To endure the crucial competitiveness within this industry companies must: be able to compete with low prices, product diversity and meeting the consumer’s wants and needs. Location is an essential factor in order for competitors to survive in the tough nature of this industry. PepsiCo has an exclusive agreement with the fast food giants Taco Bell, KFC and Pizza Hut to only sell Pepsi products. PepsiCo is exploiting its unique relationship with these restaurants to gain more recognition and popularity for its various products. Another important aspect of surviving in the food and beverage industry is the requirement to adequately advertise products. By doing this, companies attract the attention of their prospective consumers and maximize brand awareness. The more the consumers visually see the product, the more likely they are to buy and use that specific product. Brand loyalty is vital to surviving in this industry. The