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ACKNOWLEDGEMNT

Perseverance Inspiration and motivation have always played a key role in the success of any venture. So hereby, it is our pleasure to record thanks and gratitude to the people involved.

Firstly, we thank MR. R.K OJHA, for his continuous support in the project. Prof. R.K OJHA was always there to listen and to give advice. He is responsible for involving us in the project on Softdrink Industry in the first place. He showed us different ways to approach a research problem and the need to be persistent to accomplish any goal. Without his encouragement and constant guidance we could not able to finish the project. He was always there to meet and talk about any query.

Last, but not least, we would like to thank all class mates and hostel mates who support us throughout the project.

Introduction to Soft Drink Industry


The main production of soft drink was stored in 1830s & since then from those experimental beginning there was an evolution until in 1781, when the worlds first cola flavored beverage was introduced. These drinks were called soft drinks, only to separate them from hard alcoholic drinks. The drinks do not contains alcohol & broadly specifying this beverages, includes a variety of regulated companies that manufacture carbonated soft drinks, diet & caffeine free drinks, bottled water juices, juice drinks, sport drinks & even ready to drink tea/coffee packs. So we can say that soft drinks mean carbonated drinks. Today, soft drink is more favorite refreshment drink than tea, coffee, juice etc.

Raw Materials used in Soft Drinks

There are different types of raw materials used in different soft drinks. Most of the raw materials are as under:

1. Water
The simple sweetened soft drink contains about 90% of water, while in diet drinks; it contains 95% of water.

2. Flavour
Flavour is of great importance in soft drink. Even water from different places has different taste. The flavour for taste added can be natural or artificial, acidic, caffeine.

3. Artificial Flavour
These are the flavours manufactured from natural extracts; this is used to give greater choice, in taste to consumers.

4. Acids
Acids like citric acid & phosphoric acid are added to give refreshing tartness or bite & help in preserving the quality of a drink.

5. Natural Flavors
These are the flavors, which are extracted from fruits, vegetables, nuts, barks, leaves etc. in soft drink containing natural flavors & fruit juice

6. Caffeine
Caffeine has special kind of taste makes the taste of soft drink a royal one. Caffeine was added to soft drink from its introduction to a commercial market but now caffeine free soft drinks are also available. Its quality is than compared with same amount of coffee.

7. Carbon Dioxide
Carbon Dioxide is a colorless & smell less gas, which is added to cold drink to get bubble & it also help in keeping drink strong & fresh

8. Colour
Along with taste of soft drink is also of very important, the company tries to maintain both taste & colour of the soft drink everywhere in the world.

9. Sugar
Sugar syrup is added to the drink at around 75 degree C to the pure drinking water, this is to make soft drink taste sweet. Even artificial sweetness is also use

Distributions of Soft Drinks

The

soft

drinks

can

be

distributed

on

the

basis

of

two

concepts.

1. Distribution according to taste. 2. Distribution according to consumption.

1. Distribution according to taste:


The soft drinks can be distributed in Cola & non cola taste. Non cola taste consist of drink of orange, lime, mango etc. & lime taste can further divided in to cloudy lime & clear lime. Orange taste market is occupied by brands like Fanta, Mirinda Orange & Crush. Mango taste market occupied by brands like Slice, Maaza, and Mangola.Cloudy lime taste is occupied by brands like Limca, Mirinda Lime etc.Clear lime taste is occupied by 7 UP, Sprite, Canada Dry etc. This is basically produced in green bottle as sunlight spoils the taste of the drinks; its colour is transparent like water.

2. Distribution according to the consumption:


80% of soft drinks are consumed on the spot, where it is sold at place like cinemas, railway stations etc. Other 20% of the market of soft drink is consumed at home or other places

Soft Drink Production area in India


The market preference is highly regional based. While cola drinks have main markets in metro cities and northern states of UP, Punjab, Haryana etc. Orange flavored drinks are popular in southern states. Sodas too are sold largely in southern states besides sale through bars. Western markets have preference towards mango flavored drinks. Diet coke presently constitutes just 0.7% of the total carbonated beverage market.

Types
Soft drinks are available in glass bottles, aluminum cans and PET bottles for home

consumption. Fountains also dispense them in disposable containers Non-alcoholic soft drink beverage market can be divided into fruit drinks and soft drinks. Soft drinks can be further divided into carbonated and non-carbonated drinks. Cola, lemon and oranges are carbonated drinks while mango drinks come under non carbonated category. The market can also be segmented on the basis of types of products into cola products and non-cola products. Cola products account for nearly 61-62% of the total soft drinks market. The brands that fall in this category are Pepsi, Coca- Cola, Thumps Up, diet coke, Diet Pepsi etc. Non-cola segment which constitutes 36% can be divided into 4 categories based on the types of flavors available, namely: Orange, Cloudy Lime, Clear Lime and Mango.

Consumption of Soft Drink in India


India is one of the lowest soft drink consuming countries in the world. The per capita consumption in India is 5 bottles per year, while highest consumption in USA of 800 bottles per year. Delhi reports the highest per capita consumption in the country 50 bottles per annum. The consumption of PET bottles is more in the urban areas [75% of total PET bottle (plastic bottles) consumption] whereas the sales of 200ml bottles were higher in the rural areas. Reports say that Lower, Lower middle & upper middle class consume 91% of soft drink market. But even in india The consumption diagram graph of soft drink is constantly growing from 1993 the people of India consume only 0.7 lt/head, while in 1995 it increased from 0.7 to0.93 lt/head, in 1997 it was 1.14 lt/head & in 2001 it was 1.62 lt/head.

1-131989-2001

Nature of Soft Drink Market Oligopoly


Indian Soft-Drink industry in an oligopoly market. Coca-cola, Pepsi, etc are the only producers. An oligopoly is a market dominated by a few large suppliers. The degree of market concentration is very high (i.e. a large % of the market is taken up by the leading firms). Firms within an oligopoly produce branded products (advertising and marketing is an important feature of competition within such markets) and there are also barriers to entry. Another important characteristic of an oligopoly is interdependence between firms. This means that each firm must take into account the likely reactions of other firms in the market when making pricing and investment decisions. This creates uncertainty in such markets - which economists seek to model through the use of game theory.
Economics is much like a game in which the players anticipate one another's moves.

Game theory may be applied in situations in which decision makers must take into account the reasoning of other decision makers. It has been used, for example, to determine the formation of political coalitions or business conglomerates, the optimum price at which to sell products or services, the best site for a manufacturing plant, and even the behavior of certain species in the struggle for survival. The ongoing interdependence between businesses can lead to implicit and explicit collusion between the major firms in the market. Collusion occurs when businesses agree to act as if they were in a monopoly position.

Key features of Oligopoly market


* A few firms selling similar product * Each firm produces branded products * Likely to be significant entry barriers into the market in the long run which allows firms to make supernormal profits. * Interdependence between competing firms. Businesses have to take into account likely reactions of rivals to any change in price and output

Theories about oligopoly market

There are four major theories about oligopoly pricing: (1) Oligopoly firms collaborate to charge the monopoly price and get monopoly profits (2) Oligopoly firms compete on price so that price and profits will be the same as a competitive industry (3) Oligopoly price and profits will be between the monopoly and competitive ends of the scale (4) Oligopoly prices and profits are "indeterminate" because of the difficulties in modelling interdependent price and output decisions

The importance of price and non-price competetion


Firms compete for market share and the demand from consumers in lots of ways. We make an important distinction between price competition and non-price competition. Price competition can involve discounting the price of a product (or a range of products) to increase demand. Non-price competition focuses on other strategies for increasing market share. Consider the example of the highly competitive UK supermarket industry where non-price competition has become very important in the battle for sales

Mass media advertising and marketing Store Loyalty cards Banking and other Financial Services (including travel insurance) In-store chemists / post offices / creches Home delivery systems Discounted petrol at hyper-markets Extension of opening hours (24 hour shopping in many stores) Innovative use of technology for shoppers including self-scanning machines Financial incentives to shop at off-peak times Internet shopping for customers

PRICE LEADERSHIP IN OLIGOPOLISTIC MARKETS


When one firm has a dominant position in the market the oligopoly may experience price leadership. The firms with lower market shares may simply follow the pricing changes prompted by the dominant firms. We see examples of this with the major mortgage lenders and petrol retailers.

Demand curve

Above the kink, demand is relatively elastic because all other firms' prices remain unchanged. Below the kink, demand is relatively inelastic because all other firms will introduce a similar price cut, eventually leading to a price war. Therefore, the best option for the oligopolist is to produce at point E which is the equilibrium point and the kink point. This is a theoretical model proposed in 1947, which has failed to receive conclusive evidence for support. Major Market Players Coca Cola: Coca-Cola India Pvt. Ltd maintains its leading position. Coca-Cola India Pvt Ltd maintained its leading position in soft drinks in India, followed by PepsiCo India Holdings Pvt Ltd in 2006. Whilst the retail volume shares of Coca-Cola India and PepsiCo India slipped in 2006, as a result of the growing health concerns caused by the aftermath of the pesticides controversy, both maintained a comfortable lead over the other manufacturers. Parle Bisleri Ltd has steadily gained shares from the carbonates giants over the review period, to emerge as the third ranked company in 2006. The battleground for beverages has moved from carbonates to bottled water and fruit/vegetable juice, with manufacturers

turning their attention towards these healthier beverages, as consumer interest continues to surge forward. A number of new players have entered fruit/vegetable juice and bottled water, vying for a slice of the growing pie. Future soft drinks growth to come from healthier beverages. Soft drinks is expected to grow at a healthy pace over the forecast period. Much of the demand for soft drinks is expected to be for healthier beverages. With consumer preferences shifting towards healthier options worldwide, India is following suit. A growing consumer awareness about healthier soft drinks and the effects of the pesticides controversy mean that consumers are likely to opt for healthier alternatives over the forecast period. Thus, sales of carbonates are expected to stagnate over the forecast period while fruit/vegetable juice and bottled water are projected to experience robust growth. Functional drinks and RTD tea are expected to reproduce the dynamic growth of 2005-2006, albeit from a low base.

Pepsi: Pepsi gained popularity following the introduction in 1934 of a 12-ounce bottle. Initially priced at 10 cents, sales were slow, but when the price was slashed to 5 cents, sales went through the roof. With twelve ounces a bottle instead of the six ounces Coca-Cola sold, Pepsi turned the price difference to its advantage with a slick radio advertising campaign, featuring the "Pepsi cola hits the spot / Twelve full ounces, that's a lot / Twice as much for a nickel, too / Pepsi-Cola is the drink for you,", encouraging price-watching consumers to switch to Pepsi, while obliquely referring to the Coca-Cola standard of six ounces a bottle for the price of five cents (anickel), instead of the twelve ounces Pepsi sold at the same price. Coming at a time of economic crisis, the campaign succeeded in boosting Pepsi's status. From 1936 to 1938, Pepsi Cola's

profits doubled. Pepsi's success under Guth came while the Loft Candy business was faltering. Since he had initially used Loft's finances and facilities to establish the new Pepsi success, the near-bankrupt Loft Company sued Guth for possession of the Pepsi Cola Company. A long legal battle then ensued, with Guth losing. Loft now owned Pepsi, and the two companies did a merger, then immediately spun the Loft Company off. In 1975, Pepsi introduced the Pepsi Challenge marketing campaign where PepsiCo set up a blind tasting between Pepsi-Cola and rival CocaCola. During these blind taste tests the majority of participants picked Pepsi as the better tasting of the two soft drinks. PepsiCo took great advantage of the campaign with television commercials reporting the test results to the public. In 1996, PepsiCo launched the highly successful Pepsi Stuff marketing strategy. By 2002, the strategy was cited by Promo Magazine as one of 16"Ageless Wonders" that "helped redefine promotion marketing

Growth & Size of Market in India

Until 1990s, domestic players like Parle Group (Thumps Up, Limca, Goldspot) dominated the soft drink market in India. However, with the advent of the MNC players like Pepsi (1991) and Coke (re-entered in 1993 after it was banned in 1977) in the early 1990s, the market control shifted towards them by the late 1990s.Last one century witnessed the entry of various soft drink companies but only few of them were able to survive. The major among them are COKE and PEPSI. These are the only two companies that has shared the whole market between them and left a very small share for the remaining ones. This made the word cola drink synonymous to the word soft drink. In the booming soft drinks industry, multinationals seem to be the biggest winners in terms of market share. The Coca-Cola Company led the highly consolidated market with a 57% volume share, followed by PepsiCo at 41% in 2004. Danone is a minor player in India with a 0.5% share, chiefly due to its late market entry and limited offerings.

PEPSI V/S COKE Heralding the cut-throat summer competition in soft drinks, Pepsi said on Tuesday that it has slashed prices of its 300 ml returnable glass bottles to Rs 6 in the capital and this price cut may be extended to other markets to make its brands more affordable. However, Coca-Cola appears to have been caught on the wrong foot, with its 300 ml pack still priced at Rs 8. When contacted, Sunil Gupta vice-president (external), of Coca-Cola India, told PTI, "We're making no fresh comments on our pricing strategy. Right now, our 300 ml pack continues to be priced at Rs 8."The fresh price war, triggered by Pepsi, follows an earlier onslaught when both the companies reduced prices by about 20 per cent across the board just before the Union Budget for 2003-04, which provided them excise duty relief.A Pepsi spokesperson said, "In a high-consumption market like Delhi, aggressive price points devolving from the 300-ml segment will work much better. Our price strategy for this market, therefore, works off this thinking. As a consequence, 200-ml bottles are priced at Rs 5. The new price points are 300 ml at Rs 6, and 200 ml at Rs 5." According to industry sources, this sector is heavily dependent on returnable glass bottles and Pepsi's latest price reduction strategy is critical to drive volumes.

Sources said earlier this year, Coca-Cola had taken the price war head on by introducing 600-ml PET bottles priced at Rs 12 each, beginning with Maharashtra, one of Pepsi's key markets. Pepsi, which was selling 500-ml PET bottles priced at Rs 15 each, was caught on the backfoot and was forced to react, beginning with reduction in prices of its 500 ml bottles to match that of Coke, the sources said. Meanwhile, action may now shift to the 200-ml segment. According to industry sources, Coke is offering Sunfill sachets priced at Rs 2 each, free with 200-ml and 300-ml bottles, in some regional markets. In effect, therefore, while Coke's price points for 200-ml and 300-ml bottles remain at Rs 5 and Rs 8 respectively, the consumer is being offered more for less. In the home-consumption segment too, Coca-Cola took the lead earlier this year by slashing prices of its 1.5-litre and 2-litre PET bottles. Pepsi too reduced prices of its 1.5-litre and 2-litre PET bottles, to Rs 35 and Rs 40 respectively, against the earlier price of Rs 43 and Rs 50. ANALYSIS: -

It can be inferred from the above article that Coca-Cola and Pepsi are perfect substitutes and hence the pricing strategy of one directly impacts the demand for the other product. Hence, the indifference curve of Coca-Cola and Pepsi would be a straight line with equal slopes across all points on the line.

Pepsi slashed the price of its 300ml bottles from Rs.8 to Rs.6, thus anticipating an increase in the demand and consumption of its product. The same can be depicted by plotting the price elasticity of demand for Pepsi. Pepsi reduced its price from P1 (Rs.8) to P2 (Rs.6), which would result in an increase in consumption from Q1 to Q2.

Since, Coca-Cola and Pepsi are perfect substitutes; an increase in consumption on Pepsi would result in a proportionate decrease in the consumption of CocaCola. In order to maintain the balance and not loose out on the market share, CocaCola decided to offer Sunfill sachets priced at Rs2. for free along with the 300ml bottle, thereby increasing the Marginal Utility of its product. This would also result in an increase in the consumption of Coca-Cola. Thus, as Coca-Colas Marginal Utility moved from MU1 to MU2, due to the value addition, so would the Quantity move from Q1 to Q2.

However, since Pepsi reduced the price of its 300ml bottle, it resulted in the movement of the budget line, due to which more customers will be prompted to consume Pepsi instead of Coca-Cola. As depicted in the adjoining figure, since the price of Pepsi reduced, the Budget Line of Pepsi and Coca-Cola, moved from B1 to B2. This resulted in a further increase in the consumption of Pepsi from P1 to P2. Hence, it can be concluded that the best way for Coca-Cola to counter this would be by reducing the price of its 300ml bottle to match it to that of Pepsis. This would be needed since Pepsi and Coca-Cola are perfect substitutes.

Economic Indicators Relevant for this Industry: The general growth of the economy has had a slight positive influence on the growth of the industry. The general growth in volume for the industry, 4-5 percent, has been barely keeping up with inflation and growths on margins have been even less, only 2-3 percent. Economies of Scale: Size is a crucial factor in reducing operating expenses and being able to make strategic capital outlays. By consolidating the fragmented bottling side of the industry, operating expenses may be spread over a larger sales base, which reduces the per case cost of production. In addition, larger corporate coffers allow for capital investment in automated high speed bottling lines that increase efficiency (Industry Surveys, 1995). This trend is supported by the decline in the number of production workers employed by the industry at higher wages and fewer hours. This in conjunction with the increased value of shipments over the period shows the increase in efficiency and the economies gained by consolidation. Proprietary Product Differences: Each firm has brands that are unique in packaging and image, however any of the product differences that may develop are easily duplicated. However, secret formulas do create a difference or good will that cannot be duplicated. The best example of this is the "New Coke" fiasco of 1985. Coke reformulated its product due to test marketing results that showed New Coke beat Pepsi 47% to 43% and New Coke was preferred over old Coke by a 10% margin. However, Coke executives did not take into account the good will created by the old Coke name and formula. The introduction of New Coke as a replacement of Coke was met by outrage and unrelenting protest by the public. Three months from the initial launch of New Coke, management apologized to the public and

reissued the old Coke formula. Test marking shows that there is only a small difference in actual product taste (52% Pepsi, 48% Coke), but the good will created by a brand can have significant proprietary differences (Dess, 1993). This is a high barrier to entry.

Absolute Cost Advantage: Brands do have secret formulas, which makes them unique and new entry into the industry difficult. New products must remain outside of patented zones but these differences can be slight. This leads to the conclusion that the absolute cost advantage is a low barrier within this industry. Learning Curve: The shift in the manufacturing of soft drinks is gravitating toward automation due to speed and cost. However, industry technology is low and the manufacturing process is not difficult, therefore the learning curve will be short and will have a low barrier to entry. Access to Inputs: All the inputs within the soft drink industry are commodity items. These include cane, beet, corn syrup, honey, concentrated fruit juice, plastic, glass, and aluminum. Access to these inputs is not a barrier to enter the industry. Proprietary Low Cost Production: The process of manufacturing soft drinks is not a proprietary process. The methods used in the process are relatively standard within the industry and the knowledge needed to begin production can easily be acquired. This is not a barrier to entry.

Brand Identity: This is a very strong force within the industry. It takes a long time to develop a brand that has recognition and customer loyalty. "Brand loyalty is indeed the HOLY GRAIL to American consumer product companies." (Industry Surveys, 1995) A well recognized brand will foster customer loyalty and creates the opportunity for real market share growth, price flexibility, and above average profitability (Industry Surveys, 1995). Therefore this is a high barrier to entry. Access to Distribution: Distribution is a critical success factor within the industry. Without the network, the product cannot get to the final consumer. The most successful soft drink producers are aggressively expanding their distribution channels and consolidating the independent bottling and distribution centers. From 1978 to the present, the number of Coca-Cola bottlers decreased from 370 to 120 (Industry Surveys, 1995). In addition, 31.9% of the soft drink business is in supermarkets, where acquiring shelf space is very difficult (Santa, 1996). This is a high barrier to entry. Expected Retaliation: Market share within the industry is critical; therefore any attempt to take market share from the leaders will result in significant retaliation. The soft drink industry is a moderately mature market with slow single digit growth (Industry Surveys, 1995). Projected growth rates are 4-5% in sales volume and 2- 3% in margin (Crouch, Steve). Therefore, growth in market share is obtained by stealing share from rivals causing retaliation to be high in defense of current market position. This is a high barrier to entry.

Access to Capital The soft drink industry is very profitable and therefore looked upon favorably by financial institutions. This includes the stock market, direct investors (bondholders), and banks. Currently the operating margins for the industry have grown from 17.9% in 1992 to 19.5% in 1996. The projected operating margins are projected to grow to 20.5% from 1997 to 2001 (Value Line 1996). The profit margins and demand are increasing for the soft drink industry (Industry Surveys, 1995). What this means is that capital is available for expansion or upgrading, if additional capital is required. This is favorable to the industry.

Access to Labor The industry is not highly technical except for chemical engineering. This means that the demands for skilled labor are not very high. Which means that the soft drink industry will not have trouble finding labor.

Elasticity of soft drink industry


The elasticity of soft drink industry as a whole is inelastic but when we take the products individually it becomes elastic. for example- in case of coca cola Because there are many alternative brands for Coca Cola that have more or less the same taste. thus when the price of coca cola rises, demand decreases because consumers will find alternative brands that taste the same but at a lower price, therefore demand is elastic. Demand for soft drink as a whole is inelastic because whether or not the price increases/decreases, demand would not decrease/increase by a whole lot, since it's the consumers' preferred choice of drinks (just like milk is inelastic). Just because the price increases, doesn't mean that consumers will start to drink water all the time, they'll just drink less amounts of soft drink than usual (and vice versa).
Individual elasticity curve

Soft drink industry elasticity curve

Conclusion:
Thus it can be concluded that soft drink industry in India is growing day by day. According to our research we have observed that market share of Coca Cola is higher than Pepsi in Indian market. Our study shows that the demand of certain soft drink is more due to taste and preference than price. This industry works more on volume than on margin, and advertisement plays an important role in this nonprice competitive industry.

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