Class 7: Industry Analysis, Beverages

Question 1

What is the growth of the carbonated soft drink industry?

Answer 1

Average revenue growth of 10% in US from 1975-1990

US CSD consumption peaked in 2000

Question 2

What is the rule of 72?

Answer 2

Divide 72% by revenue growth is years to double

Question 3

What is the big difference between coke and pepsi re that graph?

Answer 3

Pepsi has higher market share while coke has more profit

Question 4

What are interesting areas to note from 2015-2018?

Answer 4

energy drinks increased, bottled water decreased, value added water appeared,

Question 5

What are major trends in soft drinks?

Answer 5

1) focus on growing non-carbonated product lines
2) maintain soft-drink volumes by introducing smaller-size cans
3) improve consumer perception of soft drinks by switching to natural sweeteners

Question 6

Why is new product development notable?

Answer 6

important tool to differentiate products, R+D spending at an average annual rate of 20% over the past 5 years

Question 7

what is the importance of brand power?

Answer 7

strong brand power provides manufacturers with considerable pricing power, pricing increases in the low single digits covered commodity cost increases

Question 8

What does MA look like?

Answer 8

likely to continue
shifting portfolios towards faster growing categories,
leveraging global distribution systems
ie keurig green mountain - dr pepper snapple

Question 9

Why is it a good idea for coke to buy costa?

Answer 9

break into market without testing product, once you’re so big you need to do things big

Question 10

Why is it a bad idea for coke to buy costa?

Answer 10

coke seems to focus on revenue instead of market share, this is opposite,
they’re just buying a lot of rando stuff

Question 11

What do gross margins look like?

Answer 11

holding at 55% from pricing power and cost reductions, growth in international markets supports gros margin expansion, expand margins to expand bc of pricing power and cost reduction

Question 12

What do SG+A expenses look like?

Answer 12

Increases due to the consolidation of bottle companies,

decreasing bc of multi-year productivity improvement programs

Question 13

What are the strategic positions of coke and pepsi?

Answer 13

Coca-cola is a pure-play beverage company while Pepsi is diversified into food and snacks

Question 14

What does distribution look like for the beverage industry?

Answer 14

Two types of distribution:

• direct delivery: transport, stock shelves, order product
• Warehouse: 3rd party transports from WH to store

Question 15

What do channels look like for the beverage industry?

Answer 15

Supermarket, mass merchant, vending machine, convenience store, fountain accounts, drugstores, schools

Question 16

What does branding look like?

Answer 16

Branding v private label

• Brand loyalty is the “holy grail”
• —significant advertising dollars
• —raise WTP
• Threat from private label (13% of market) and growing

Question 17

What are the operating margins of concentrate producers and bottlers?

Answer 17

concentrate: 32%
bottlers: 8%

Question 18

What are the steps in the beverage supply chain?

Answer 18

suppliers to concentrate, concentrate producers, bottlers, retail channels

Question 19

What is important to know about supply chain steps?

Answer 19

firms can forward/backward integrate to capture more value

supply chains are typically global, complex and overlapping

Question 20

How does Coca Cola maintain its profitability??

Answer 20

Barriers to new entrants, economic moat

• brand equity allows coke to claim a higher portion of value
• contractual relationships with bottlers and retail outlets

Question 21

How do coke and pepsi compete without destroying each other?

Answer 21

• stable industry structure:
• coke and pepsi- duopoly, competing without destroying each other
• -compete on non-price terms
• -competition fosters innovation
• -advertising polarizes choice
• stay aware of macro trends (trend towards healthy drinks)
• strategic planning for both organic and inorganic growht

Question 22

How does coke implement its strategy globally ?

Answer 22

• treat each market differently
• the overarching strategy may have differences in implementation by geography
• -industry structure of markets vary (eg # of bottlers)
• -target local preference