Introduction:Gary Lavin founded Vitz Drinks Limited on May 23rd 2000 in hopes of creating low calorie and sugar beverages to compete with the “buckets of sugar” found in most popular beverages. Lavin believed that there was a “lack of healthy drinks available in our fridges today” and developed the brand VITHIT to fill this void. WIth calorie counts between 16 and 35 calories, VITHIT aims to provide consumers with a sweet tasting beverage  that lacks the high calorie counts of most sugary drinks. Having a background as a professional rugby player, Lavin specifically targeted growing fitness trends by looking to substitute post workout recovery drinks that would be “undoing the workout” with the lower calorie VITHIT. VITHIT is now the fasted growing soft drink in Ireland with over 17 million bottles sold annually in 8 countries with self space at large retailers such as Tesco and Boots.Industry:Even though the drink VITHIT lies at the intersection of teas and fruit juices, it competes within the larger competitive environment of the non-alcoholic beverage industry.

Some of the major beverage types that inhabit this environment include soda, diet soda, energy drinks, sports drinks, teas, juice drinks, lemonades, 100% juices, ready-to-drink coffee, and waters (still, sparkling and enhanced). Coca-Cola, Pepsico, and Nestle are often described as the “industry titans” as they produce many well-known brands across a variety of beverage types with a powerful global distribution network (Value Line). From a management perspective, developing strong relationships with retailers, adapting to changing social trends and consumer preferences as well as hedging against volatility in the price of raw materials (i.e.

sugar and aluminum) are key factors to success in this industry. Political: An important factor to consider when analyzing where a beverage firm should incorporate and site subsidiaries is the corporate tax rate of the specific country. As of 2017, the United States has a rate of 38.91% ( the new tax plan passed in December by the US Congress will lower the corporate tax rate to approximately 21%),  United Kingdom 19%, Ireland 12.5%, and a global average of 22.96% (Jahnsen). Corporate tax rates heavily influence the development of a firm as a low tax rate can help develop and grow a new firm as the money saved can be reinvested into the company, while a high corporate tax rate might hinder the expansion of a large firm by cutting into profits.

Even though the US’s 38.91% rate might seem unappealing, targeted subsidies for the beverage industry can counteract taxes. The Supplemental Nutrition Assistance Program (SNAP) in the US funnels over 4 billion USD a year into soft drinks by covering them with food stamps at supermarkets ( Wells). This direct government intervention into the beverage industry can encourage firms to develop in countries that choose to subsidize their product or key ingredients in its production.

 Economic: Making a combined $147 billion of revenue in 2017, Coca-Cola, Pepsico, and Nestle are the largest players in the beverage industry with global reach (Market Watch). For developing companies, these large firms have a history of acquire other brands to reduce competition and expand their beverage portfolio. In 2015 Coca-Cola spent $2.15 billion for 16.7% stake in Monster Energy Drink to form a strategic partnership, while Pepsi acquire Gatorade as part of their Quaker Oats purchase in 2000 for $13.

4 billion (Buehler). Furthermore, these larger companies have the resources to create “copycat” products to directly compete with other brands, such as Coca-Cola’s “Powerade” to compete with Pepsico’s “Gatorade”.Because of the competitive nature of the beverage industry, firms use exclusive distribution partnerships to strengthen their product in otherwise highly competitive outlets. Since 1955 Coca-Cola and the fast food chain McDonald’s have partnered together in a symbiotic relationship that has allowed the two complementary goods, burgers and sodas, to expand globally together. By locking out the competition, Coca-Cola insured that it completely controls one of the most profitable distributors it has. Social:Constantly changing social trends and consumer demographics are critical factors that a firm in the beverage industry must understand for their product to be successful. One of the largest and most active demographics currently are the “Millennials”, people born between the early 1980’s and 1990’s (Main), who spent more than $200 billion in 2017 alone (Packaging).

Studies from the EcoFocus group estimate that 69% of Millennials have changed what they buy in order to avoid artificial ingredients in foods and beverages, showing how firms looking to capitalize on the this demographic must create a product to fit Millennial’s needs (Packaging). In the United States the obesity crisis results in social trends that span over many different consumer demographics, causing many consumers to look for nutritionally drinks. Surveyed shoppers in 2016 by BevNet show that over 60% of consumers are looking drinks that are, good sources of calcium, fiber, antioxidants, and have reduced levels of sugars (Packaging).Technological:As technology continues to advance, firms in the beverage industry must utilize new technological developments to increase efficiency. Because of the importance of efficiency in distribution network of a beverage, creating a “store friendly pallets” can help disruptors manage a move product with ease. Stock keeping units or SKU’s are pallets that can be made of many different beverage by robotic gantry systems are how most distributors ship goods (Rogers).

Firms should take this into account when designing their product so that it can be packaged with ease. Furthermore, an executive at Swisslog, a Swiss warehouse manager, states that “it costs more to cool than to heat”, so a different type of pallet was developed to store cooled drink to maximize cooled storage facility space. Firms can design their product to account for this different pallet or can avoid this different system all together by trying to avoid chilled spaces. Environmental:Over 480 billion plastic bottles were sold in 2016 and the number is expected to increase by up to 20% by 2021 (Laville). The majority of these bottles come from soft drinks and other beverages and firms should be very conscious of the environmental impact of their product. Dr. Pepper Snapple co.

‘s product Snapples chooses to use glass bottles for most sizes to reduce the environmental impact of the drink. Poland Spring Water by Nestle created an Eco-Bottle in 2012 that uses 5.2 less grams of plastic product that reduced the amount of plastic being produced by 200 million pounds per year (Stevenson). However in the State of California, Nestle is creating an adverse effect on the environment. Following the recent droughts in California, it was revealed that Nestle has been illegally extracting 62.6 million gallons of water  from San Bernardino National Forest area, a region that must conserve its water supply (Chappell).  Legal:In relation to the obesity crisis in the United States and social trends pushing for healthier lifestyles, many countries are implementing sugar taxes to reduce the consumption of sugary drinks. The Minister for Finance, Paschal Donohoe announced in October his plan for a sugar tax:Tax of 30 cent per litre on drinks with over eight grams of sugar per 100 millilitres will be introduced, along with a reduced rate of 20 cent per litre on drinks with between five and eight grams of sugar per 100 millilitres (RTE).

Such a tax could could cut into the sales of sugary soft drinks while boosting the sales of less expensive healthy alternatives. However at the same time, it might encourage firms to look for artificial sweetening agents to avoid this tax. Another legal hurdle that drinks might need to overcome is restricted distribution. In 2014 the U.S.

Department of Agriculture implemented regulations to said:Vending machines are only allowed to sell fruit, dairy products, whole-grain foods, lean-protein products or vegetable items that are less than 200 calories for “snacks” and 350 calories for “entrees” (Chumley).With increasing public awareness of these health issues and growing legal restrictions on sugary beverages, firms should seek to compete in areas that avoid legal hurdles that might cut sales. Porter’s Five Forces Analysis  – Soft Drink Industry:Bargaining Power of Buyers:Buyers within the beverage industry can be broken down into two distinct groups, distributors and consumers. Distributors can be defined as the location in which the beverage is actually sold, such as a 7/11 or Londis, while the consumer the actual individual that buys the beverage itself. Distributors power lies within their self space. Self space is the the physical space that the distributor uses to sell drinks and how that space is allocated (Farlex). Because it is very hard for a drink to sell without self space at major retailers, distributors will charge “slotting fees” of up to $50,000 for a new drink to get on the self (Business Dictionary). This system heavily empowers distributors and makes it financially challenging for new drinks to compete with more established brands with reliable sales.

Once a drink is on the self, the power of the consumer takes overs. Although the “industry titans” make up the majority of sales within the industry, the low price and variety of needs of consumers encourages them to experient. While an individual might be loyal to Coca-Cola when it comes to soft drinks, their tastes in fruit juices might be in a different brand, causing a very diverse mindset of the for the consumer. This results in a competitive environment where new beverages have the ability to enter into the market if they can successfully find a niche that they can compete in without challenging more power firms. Bargaining Power of Suppliers:Even though beverages contain a variety of ingredients and a bottling process to be made, the relative power of suppliers in very low. Larger firms have used vertical and horizontal integration to Threat of New Entrants:New entrants in the beverage industry face a very difficult uphill battle to crack into the market, but it is not impossible. When developing a new beverage, firms must take into account the minefield of patents regarding process and flavoring that more established brands own, while also seeking to get FDA approval for their product.

. New firms have the ability to outsource their production and distribution to other agencies, however this method is not sustainable if the firm wishes to expand to a larger market (Jonathan). To avoid initial slotting fees, firms might consider starting development at a local or regional level at small businesses that might not have the leverage to charge fees, then look to expand after establishing the brand. Although it might appear to be easy for a beverage company to start, competing against powerful firms is the largest challenge for new entrants. Industry titans have the power and reach to, create copycat products of new brands, use connections with distributors to force new brands off the shelf, or even simply buyout the company. Furthermore many larger firms already have products in a variety of beverage categories and can look to bolster already existing brands in an attempt to suppress new ones.

Threat of Substitutes:Competition within the beverage industry can be described as a game of substitution. Many consumers look to buy a drink to fulfill a specific goal, whether it be to energize, hydrate, or to drink something sweet. Firms are aware of these trends and look to compete within them. Sprite, Seven-Up, Sierra Mist all share similar flavors and can be considered substitute goods, causing brand loyalty to drive consumer choice. However, in reality many consumers are not incredibly loyal to specific brands as convenience is often the driving factor. If there is no Sprite at a convenience store, the consumer will most likely just substitute it for a similar brand. This results in firms firms trying to force out possible substitutes and hopefully be the only thing on the shelf.Recent trends in healthy lifestyles have posed new threats to the industry as a whole.

Popular sodas such as Diet Coke and Diet Pepsi sales have declined by 9.2% and 4.3% respectively, while sales of many different bottle waters have increased by over 10% (Kell). This trend displays how consumer’s perception of soft drinks has changed, causing many to switch to the simple substitute- water. Rivalry Among Existing Players:Because some might consider the beverage industry to have an oligopolistic structure with Coca Cola and Pepsico on the top, rivalry amongst these firms is very fierce. This rivalry is often known as the “Cola Wars” and has played a major role in both firms marketing campaigns since it began with the “Pepsi Challenge” in 1975 (Bhasin).  Furthermore in both the 2006 and 2010 world cup, Pepsi lead a global marketing campaign in an attempt to undermine Coca Cola’s sponsorship with the tournament (Bold).

 The “Cola Wars” has also proven to be an efficient marketing strategy for both Coca-Cola and Pepsi as it creates brand loyalty for many consumers. By making the preference between Coke and Pepsi an important choice, consumers are much more likely to stay true to the brand of their preference.    


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