Research on Carbonated Soft Drinks Market in the UK

Introduction

This report provides an analysis of the UK market for carbonated & concentrated soft Drinks. Our Carbonates in the UK report offers a comprehensive guide to the size and shape of the market at a national level. It provides the latest data, allowing you to identify the sectors driving growth. It identifies the leading companies, the leading brands and offers a strategic analysis of key factors influencing the market. Information provided includes: – market definition, market size, Industry background, competitor analysis, strengths, weaknesses, opportunities and threats. It will also look at the buying behaviour, current issues, forecasts and company profiles. conclusively we will look at the effects of this industry in the global market. The purpose of the research project will be to investigate the carbonated soft drinks market as a major sector in the worlds refreshment industry but majoring in the UK markets and should be considered as a very lucrative business and economy booster.

We will write a custom Research on Carbonated Soft Drinks Market in the UK specifically for you
for only $14.00 $11,90/page
308 certified writers online
Learn More

General data collected from specific articles suggest the growth pattern of this industry have to archive a general definition of the soft drinks market in the United Kingdom as this gives the necessary picture of the industry in respect to this research. With this in mind, the differences in their strategies and market plan will determine their popularity and growth in the market Data monitor (2005). We will look at the markets, industrial background and all the competition forthcoming in the industry due to similar brands, this is according to soft drinks facts by the American Beverage Association (2005).

Aims and Objectives

The general aims and objectives are therefore to look at the financial growth and strategies of the several soft drinks industries in the UK and tabulate the research findings based on their differences and strengths.

Research objective Research question
To establish peoples commitment to certain drinks. what entices growth in the industry
To investigate growth with the aspect of competition. What is the effect of competition?
To understand the stability of various industries in the market. What are the profit margins in different players in the market
To assess the future presence of the industry in the market. what is their ability to grow and expand in the specified market?

Literature reviews

The dominant economic factors, five competitive sources, industry trends, and the industry’s key factors. In accordance with my knowledge of the global markets, I gathered information and based my arguments on this structure and on the ideas and analysis put across by the data monitor. The carbonated drinks industry in the United Kingdom presents a complex picture the American Beverage Association (2005) and Barbara Murray articles help in the insight of these.

According to the American beverage association, the two largest bottlers, together enjoying almost 60 per cent market share by volume, are CCSB and Britvic. The three major brand owners, which are not also bottlers in the United Kingdom, are Coca-Cola, Cadbury Schweppes and Pepsi. Coca-Cola and Cadbury Schweppes license their brands of carbonated drinks to CCSB in Great Britain, as well as being CCSB’s shareholders. Pepsi franchises its Pepsi-Cola and 7-Up brands to Britvic, in which it has an indirect 10 per cent shareholding. The market in which the bottlers sell their carbonated drinks is shared among the brands together with the role of other manufacturers of carbonated drinks in the financial structure and performance of the industry.

In order to fully understand the soft drink industry, the following will be considered the dominant economic factors, five competitive sources, industry trends, and the industry’s key factors. Based on the analyses of the industry, specific recommendations for competitors can then be created. Market size, growth rate and overall profitability are three economic indicators that can be used to evaluate the soft drink industry. The market size of this industry has been changing. Soft drink consumption has a market share of 46.8% within the non-alcoholic drink industry.

Data monitor also found that the total market value of soft drinks reached $307.2 billion in 2004 with a market value forecast of $367.1 billion in 2009. Further, the 2004 soft drink volume was 325,367.2 million litres Clearly, the soft drink industry is lucrative with a potential for high profits, but there are several obstacles to overcome in order to capture the market share. The rate of growth has been recently criticized due to the U.S. market saturation of soft drinks. Data monitor (2005) stated, “Looking ahead, despite solid growth in consumption, the global soft drinks market is expected to go down slightly, reflecting stagnation of market prices.” The change is attributed to the other growing sectors of the non-alcoholic industry including tea and coffee (11.8%) and bottled water (9.3%). Sports drinks and energy drinks are also expected to increase in growth as competitors start adopting new product lines.

Get your
100% original paper on any topic done
in as little as 3 hours
Learn More

Profitability in the soft drink industry will remain rather solid, but market saturation especially in the U.K. has caused analysts to suspect a slight deceleration of growth in the industry. Because of this, soft drink leaders are establishing themselves in alternative markets such as the snack, confections, bottled water, and sports drinks industries (Barbara Murray, 2006c). In order for soft drink companies to continue to grow and increase profits, they will need to diversify their product offerings.

The geographic scope of the competitive rivalry explains some of the economic features found in the soft drink industry. According to Barbara Murray (2006c), “The sector is dominated by three major players…Coca-Cola is the king of the soft drink -empire and boasts a global market share of around 50%, followed by PepsiCo at about 21%, and Cadbury Schweppes at 7%.” Aside from these major players, smaller companies such as Cott Corporation and National Beverage Company make up the remaining market share. All five of these companies make a portion of their profits in and outside of the United Kingdom. The U.K. does not hold the highest percentage of the global market share; therefore companies need to be able to compete globally in order to be successful.

Three leading companies have a prominent presence in the soft drink industry. The leaders include the Coca-Cola Company, PepsiCo, and Cadbury Schweppes. PepsiCo’s soft drink product line includes Pepsi, Mountain Dew, and Slice, which make up more than one-quarter of its sales. Cadbury Schweppes, (2004) entrusts that Cadbury Schweppes had soft drinks such as A&W Root Beer, Canada Dry, and Dr Pepper and coca cola with sprite, Fanta and coke drinks.

The carbonated beverage industry is a highly competitive global industry as illustrated in the financial statements as this also hold for the UK market. Coca-Cola was the number one brand with around 4.5 billion cases sold in 2004. Pepsi followed with 3.2 billion cases, and Cadbury had 1.5 billion cases sold. However, the market share shows a different picture. Coca-Cola and PepsiCo control the market share with Coca-Cola holding 43.1% and Pepsi with 31.7%; however, these market shares for both Coca-Cola and PepsiCo have slightly decreased from 2003 to 2004. Coca-Cola’s volume has also decreased 1.0% since 2003, whereas PepsiCo’s volume has increased 0.4%. Overall, Coca-Cola’s market position has declined in 2004. The strategic group map also shows the growth of Cott Corp. of 18%, which is significantly higher than that of Coca-Cola and PepsiCo.

The American Beverage Association (2006) states that in 2004, the retail sales for the entire soft drink industry were $65.9 billion. Barbara Murray (2006e) analyzed the industry averages for 2004 and the average net profit margin was 11.29%. The current ratio average was 1.11 and the quick ratio average was 0.8. These figures help analyze the financial statements of the major corporations in the industry and help in evaluating the U.K market.

Coca-Cola’s working capital was around $1.1 billion in 2004. This is a large increase from 2003 at only $500 million. This shows that they have sufficient funds to pursue new opportunities. However, their current ratio and quick ratio are a cause for concern. A current ratio of 2 or better is considered good and Coca-Cola’s was 1.102. This number shows that they may not have enough funds to cover short-term claims. The quick ratio for 2004 was at 0.906 and is considered good when it is greater than 1. This illustrates that Coca-Cola may not have the ability to pay the short-term debt without selling inventory. These two numbers are a concern because they are not able to satisfy their short-term obligations. The current and quick ratios are in line with the industry averages, however (Murray, 2006e), Coca-Cola needs to improve these ratios in order to focus on long-term plans (Coca-Cola Company, 2004).

PepsiCo’s financial statements cannot be analyzed for only the soft drinks industry because they do not distinguish between businesses. Over half their profits are from snacks or other beverage items; however, there are sales and profit figures for their two beverage subsidiaries. These sales figures grew from almost $16.5 billion in 2003 to $18 billion in 2004 (Pepsi Co. Inc., 2004). Their operating profit margin also increased 1% from 2003 to 2004. This shows that beverage profits are increasing for them, but also at a slow rate. The increase could be due to the increase in market share that Pepsi products gained in 2004 (Sicher 2004).The PepsiCo. Annual Report (2004) stated that beverage volume increased 3% in 2004, but was driven by the high growth of the non-carbonated beverage industry.

We will write a custom
Research on Carbonated Soft Drinks Market in the UK
specifically for you!
Get your first paper with 15% OFF
Learn More

Cadbury’s current and quick ratios are very similar to those of Coca-Cola. The current ratio and quick ratio for Cadbury Schweppes for 2004 were both 0.917. Again, the current ratio should be 2 or more, and the quick ratio should be over 1. This illustrates that Cadbury also has difficulty paying short-term debt and claims. Cadbury’s net profit margin has increased by 0.7% from 2003 to 2004. This can be attributed to their market share growth in 2004 of 0.2% (Sicher, 2005). One ratio that is concerning is their debt to equity ratio for 2004. Their funds are mainly provided by creditors as opposed to owners. This is concerning because they owe a lot of money, and must make a decent profit to be able to pay it off. The industry average for debt to equity is 81%, and Cadbury is far from that number (2006e). Also, Cadbury has a negative working capital for both 2003 and 2004, meaning they have more liabilities than assets. This shows that they do not have any funds to pursue new opportunities, as their current assets are being used to pay off liabilities (Cadbury, 2004).

Overall, the financial statements of the three top competitors in the soft drink industry show that the industry is generally highly competitive and has little growth. Net profit margins increased for all three corporations, however only at a small rate. It also seems that all three companies lack sufficient current and quick ratios, but are all within a reasonable range of the industry average (2006e). This may be due to expanding their product lines to include energy drinks and non-carbonated beverages in order to increase profits and diversify their business. The soft drinks market is now in the matured stage of the life cycle. Growth in the industry has remained stagnant, and the financial statements of the major corporations in the industry illustrate that their sales and income are following this trend. The companies are in good financial positions; gross profits and net profit margins are continuing to increase each year. The leverage and activity ratios are all within a reasonable range. However, one area all three corporations need to improve on is the liquidity ratios. Their quick and current ratios are low and need to be increased so they are able to meet short-term obligations.

The soft drink industry is very competitive, the competitive pressure from rival sellers is the greatest competition that Coca-Cola faces in the soft drink industry. Coca-Cola, Pepsi Co., and Cadbury Schweppes being the largest competitors in this industry pursue the U.K, and they are all globally established which creates a great amount of competition (Murray, 2006c).

However, Coca-Cola has higher sales in the global market than PepsiCo. In 2004, PepsiCo dominated North America with sales of $22 billion, whereas Coca-Cola only had about $6.6 billion, with more of their sales coming from overseas. PepsiCo is the main competitor for Coca-Cola and these two brands have been in a power struggle for years (Murray, 2006c).

Brand name loyalty is another competitive pressure. The Brand Keys’ Customer Loyalty Leaders Survey (2004) shows the brands with the greatest customer loyalty in all industries. Diet Pepsi ranked 17th and Diet Coke ranked 36th as having the most loyal customers to their brands. The new competition between rival sellers is to create new varieties of soft drinks, such as vanilla and cherry, in order to keep increasing sales and enticing new customers (Murray, 2006c).

According to Datamonitor, (2005) Substitute products are those competitors that are not in the soft drink industry. Such substitutes for Coca-Cola products are bottled water, sports drinks, coffee, and tea. Bottled water and sports drinks are increasingly popular with the trend to be a more health-conscious consumer. There are progressively more varieties in the water and sports drinks that appeal to different consumers’ tastes but also appear healthier than soft drinks. In addition, coffee and tea are competitive substitutes because they provide caffeine.

Datamonitor, (2005) puts it that a trend in the microenvironment is globalization. With the growing use of the Internet and other electronic technologies, global communication is rapidly increasing. This is allowing firms to collaborate within the country market and expand into world markets. It has driven competition greatly as companies strive to be first-movers. Specifically, the global soft drink market’s compound annual growth rate (CAGR) is expected to expand to 3.6% from 2004 to 2009. Third, changing societal concerns, attitudes, and lifestyles are important trends. In the United States and Europe, people are becoming more concerned with a healthy lifestyle. “Consumer awareness of health problems arising from obesity and inactive lifestyles represent a serious risk to the drinks sector”.The trend is causing the industry’s business environment to change, as firms are differentiating their products in order to increase sales in a stagnant market. Thus, the long-term industry growth rate, the fourth trend, shows low growth in recent years. Since 2000, the CAGR is 1.5 per cent Datamonitor, (2005) explains. The low growth rates are of concern for soft drink companies, and several are creating new strategies to combat the low rates.

Not sure if you can write
Research on Carbonated Soft Drinks Market in the UK by yourself?
We can help you
for only $14.00 $11,90/page
Learn More

This leads to another trend of growing buyer preferences for differentiated products. Because soft drinks have been around since as early as 1798 (American Beverage Association, 2006), buyers want innovation with the products they buy. In today’s globalizing society, being plain is not good enough.

According to Barbara Murray (2006c), “The key for all of these beverage companies is differentiation. The giants have new formulations and appearances. Whatever the strategy, be it a new colour, flavour, or formula, companies will strive to create the greatest brand awareness in the minds of the consumer in the hopes of crowding out its competitors.” Thus, the last trend, product innovation, is necessary to combat buyer’s need for a variety of tastes. Firms are already differentiating by taste, with The Coca-Cola Company as an example. The firm’s product line includes regular Coca-Cola, Diet Coke, Diet Cherry Coke, Cherry Coke, Vanilla Coke, Coca-Cola with Lime, and Coca-Cola with lemon and many more (Murray, 2006a).

Murray, (2006c) places the key factors for competitive success within the soft drink industry branch from the trends of the macro environment. Primarily, constant product innovation is imperative. A company must be able to recognize consumer wants and needs while maintaining the ability to adjust to the changing market. They must keep up with the changing trends. Another key factor is the size of the organization, especially in terms of market share.

Bibliography

American Beverage Association (2005). Soft drink Facts. Web.

Cadbury Schweppes. (2004). 2004 Annual Report. Web.

Data monitor (2005, May). Global soft Drinks: Industry Profile. New York. Reference Code: 0199-0802.

Murray, Barbara. (2006a) (2006b) (2006c) (2006d) (2006e). Hoovers. Web.

PepsiCo Inc. (2004). 2004 Annual Report.

Check the price of your paper