Class 7: Industry Analysis, Beverages Flashcards
What is the growth of the carbonated soft drink industry?
Average revenue growth of 10% in US from 1975-1990
US CSD consumption peaked in 2000
What is the rule of 72?
Divide 72% by revenue growth is years to double
What is the big difference between coke and pepsi re that graph?
Pepsi has higher market share while coke has more profit
What are interesting areas to note from 2015-2018?
energy drinks increased, bottled water decreased, value added water appeared,
What are major trends in soft drinks?
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
Why is new product development notable?
important tool to differentiate products, R+D spending at an average annual rate of 20% over the past 5 years
what is the importance of brand power?
strong brand power provides manufacturers with considerable pricing power, pricing increases in the low single digits covered commodity cost increases
What does MA look like?
likely to continue
shifting portfolios towards faster growing categories,
leveraging global distribution systems
ie keurig green mountain - dr pepper snapple
Why is it a good idea for coke to buy costa?
break into market without testing product, once you’re so big you need to do things big
Why is it a bad idea for coke to buy costa?
coke seems to focus on revenue instead of market share, this is opposite,
they’re just buying a lot of rando stuff
What do gross margins look like?
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
What do SG+A expenses look like?
Increases due to the consolidation of bottle companies,
decreasing bc of multi-year productivity improvement programs
What are the strategic positions of coke and pepsi?
Coca-cola is a pure-play beverage company while Pepsi is diversified into food and snacks
What does distribution look like for the beverage industry?
Two types of distribution:
- direct delivery: transport, stock shelves, order product
- Warehouse: 3rd party transports from WH to store
What do channels look like for the beverage industry?
Supermarket, mass merchant, vending machine, convenience store, fountain accounts, drugstores, schools
What does branding look like?
Branding v private label
- Brand loyalty is the “holy grail”
- —significant advertising dollars
- —raise WTP
- Threat from private label (13% of market) and growing
What are the operating margins of concentrate producers and bottlers?
concentrate: 32%
bottlers: 8%
What are the steps in the beverage supply chain?
suppliers to concentrate, concentrate producers, bottlers, retail channels
What is important to know about supply chain steps?
firms can forward/backward integrate to capture more value
supply chains are typically global, complex and overlapping
How does Coca Cola maintain its profitability??
Barriers to new entrants, economic moat
- brand equity allows coke to claim a higher portion of value
- contractual relationships with bottlers and retail outlets
How do coke and pepsi compete without destroying each other?
- 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
How does coke implement its strategy globally ?
- 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
