Strategic Analysis:

Soft Drinks Industry

Joanna Zwirbulis
Olga Zagodon
Magorzata
Zubiel
Piotr Bartenbach
Bartomiej
Staszczyk

Table of Content
1. Basic information about the sector
2. Characteristics of the sector on global level
3. Analysis of the European market
4. Analysis of national markets
5. Conclusions as the answers to investors
questions

Soft drink industry

The soft drink industry is actually made up of two major
manufacturing systems that, taken together, bring soft
drinks to the market:
flavoring syrup and concentrate manufacturing
soft drink manufacturing
The industry as a whole faces challenges as a result of
the slumping economy and changes in consumers
consumption patterns due to increased health
consciousness.
Marketing is an important component of the industry
chain, used to generate demand and build consumer
3
loyalty.

Short History

4
Source:

Main products
Soft drinks

5
Source:
http://www.encountermagazine.co.uk/features/tips-increase-soft-drink-sales

Global Beverage
Segments Market Share
in 2012
9%
6%
4%

34%

9%

19%

19%

Carbonated Drinks
Fruit Beverages
Bottled Water
Ready to Drink Tea
Ready to Drink
Coffee
Asian Speciality
Drinks
Sport & Energy
Drinks
6

Value System
Our main
focus!
Suppliers of
raw
materials
10%
Carbona
ted
water
Sugar
Flavorin
gs

Concentra
te
40%
Producers
Blend
raw
material
Ship the
concentrates
and syrups

Bottlers
20%

Wholesalers
15%

Retailers
15%

Add
sweeteners
and water

Bottle the
product

Own
bottling
or
External
company

Vertical Integration
The market leaders have high level of vertical
integration
With acquisitions of bottling companies these
two companies changed the structure of the
soft drink industries

Future of value system

Following the leaders and
establishing own bottling company

Tendency towards vertical

integration
9

Characteristics of the
sector on global level

Size of the sector, profitability and

its dynamics on the global level
$ 440.3 BILLION
3%
3.1% by 2016
3.5% by 2010
4.5% by 2015
11

Global Leaders in 2012 &

CR4
37.1%
30.2%
21.4%
4.8
%
Very high degree of concentration:

12

- Top four companies account for 93,5% market

Macroenvironment
analysis of the European
Market
13

Economic Factors
No.

Factors in the
environment

Intensity
of
influence
-5.+5
+2

1.

Economic growth

2.

Consumption and
spending

+3

3.

Economic
stagnation

-2

Opportuni
ty or
Threat
Opportunity
Opportuni
ty
Threat
14

Legal Factors
No.

Factors in the
environment

Intensity
of
influence
-5
+5

1.

Stability of Law

+4

Opportun
ity
or
Threat

Opportunit
y
2. The European
industryOpportunit
was the
Lack ofsoft drinks+4
first to adopt
Guideline Daily Amount (GDA)
Taxation
y
nutrition labeling
3.
Labeling
-1
Threat
15
Source:

Other Legal Initiatives

UNESDA:
- Commitment of members not to advertise soft
drinks to children under 12 on TV, in print or
online
- In 2010 extension to new digital media including
social media and their own websites.
- In 2006 commitment not to sell soft drinks in
primary schools across the EU

16

Political Factors
No.

Factors in the
environment

1.

Political Stability

2.

Ban on
advertisement

3.
Regulation of new
laws

Intensity Opportuni
of
ty
influence
or
Threat
5.
.+5
+3
Opportuni
ty
-3
Threat
-3
Threat

17

Social Factors
No.

Factors in the
environment

Intensity
of
influence
-5
+5

Opportunit
y
or
Threat

1.

+4

Opportunity

+3

Opportunity

4.

New Trends and

Lifestyles
Brand
image/celebrity
endorsements
Social Media

+4

Opportunit
y

5.

Health

-4

3.

18

Social Branding

19

Demographic Factors
No.

Factors in the
environment

Intensity
of
influence
-5
+5

Opportun
ity
or
Threat

1.

Size of the
European
Market
Age Structure

+3

Opportunit
y

-3

Threat

Level of
education

-3

Threat

2.
3.

20

Population structure in
Europe

21
http://www.webpronews.com/germany-elections-can-angela-merkel-save-aging-dying-europe2013-09

Technological Factors
No.

Factors in the
environment

1.

New Technologies
(Production,
Packaging, servicing
the client)
Internet (advertising,
selling, informing,
etc.)

2.

Intensity of Opportunit
influence
y
-5
or
+5
Threat
+3

Opportunity

+3

Opportunit
y
22

International Factors
No.

Factors in the
environment

1.

Emerging
markets that
drive sales
Tourism (Big
international
events such as
Euro 2012)

2.

3.

Intensity
of
influence
-5
+5

Opportuni
ty
or
Threat

+3

Opportunit
y

+3

Opportuni
ty
23

-2
Competition (hot

Threat

Natural Factors
No.

Factors in the
environment

1.
2.

Global Warming
Quality of
Water/Water
Shortage
Environmental
issues
(Plastic, cans,
etc.)

3.

Intensity of Opportunit
influence
y
-5
or
+5
Threat
+3
-3

Opportunity
Threat

-2

Threat
24

Macroenvironment AnalysisConclusions
The environment to invest on the European
market is quite favorable. Political, economic
and
legal factors are stable.
Major opportunities include differentiating
drinks offer and adapting to new trends and
lifestyles. To satisfy the market, the producers
should invest in the range of healthier drinks,
such as a low-calorie drinks.
Other opportunities include new technologies
and more efficiency in production, high role of
Internet and the power of the social media.
The main threats are market saturation and

25

Economic profile of Soft

Drinks industry on the
European Market
26

Soft drinks market

Market growth rate:

72.9

bln

2.4%*

Industry profitability:

3.5-

4.5%**
Stage in growth cycle:
mature

Scope of competetive rivarly:

global

Backward/foward integration:

medium
Capacity utilisation: 60%

(medium)
* For years: 2008-2012

** 2010 and forecast for 2015

27

European Market Leaders

21.5%
7.9%
4.8%
28

Followed by 781 other companies

Entry Barriers
High marketing spendings
(Coca Colas marketing for 2012
$4billion)
High investment costs
(Manufacturing plant starting from
couple millions
e.g. Nestle investment - $22m)
Massive competetiveness
Hardly accessible distribution channels
exclusive contracts

Exit Barriers

Fixed costs
Binding contracts
High irrecoverable costs in advertising

29

Economies of scale &

experience curve effect
Economies of scale in each and every
aspect
Experience curve effect crucial (contracts,
manufacturing)

30

Nature and pace of

technological change
Product as well as production technology
driven by:
Competitive pressure
Customer requirements
Pace: MEDIUM
Trends: Just in time, Lean
31

Characteristics
PRODUCT
Purchased on daily basis
High-level technological
production
Brand-focused
Rather bought without
testing
Ready-to-consume
Mass produced
No barriers of changing the
product

CUSTOMER (individual)

Customer of every age

Brand and taste importance
Price sensitive
Customer segmentation on
price and quality
CUSTOMER (businesses)

From small retailers to huge

chain stores, restaurants
etc.
Co-marketing beneficial for
both parties

Geographic scope of competition/companies:

50% Global, 35% European, 15% National

32

Customers division

33

Economic profile Conclusions

Basic market indicators uphold that European Market
has a great value for future investments.
In contrast to global perspective, European market has
only around 50% of its share owned by branch leaders
(in global almost all).
The main threats are connected with high initial
expenditures and costly exit process.

34

Comparative Analysis of
European Markets
35

Weight

Poland

Slovaki
a

German
y

Russia

GDP PC

12

15

Average
income

15

15

25

10

12

16

20

Labour
costs

25

20

15

Taxes

25

25

15

15

Political &
legal
stability

10

12

12

15

Population

Infrastruct
ure
SUM

25

10
27
6
84,8%

36
25

96

76,8%

28

101

80,8%

22

84

67,2%

Country Level
Analysis: Poland

Poland: Characteristics of the

Sector
Market size
(in USD)

$8.2 Billion

Market growth rate

(in per cent)

3.3%

Expected market growth rate

2.9% by 2016

Number of players

45

Market share of leaders

12.1%
9.4%
8.5%
5.8%

PORTERS FIVE FORCES ANALYSIS

Rivalry among competing

sellers

Brand name
High quality
Divers distribution channels
Large product portfolio
Marketing/Advertisement

Domestic brand
High quality
Mostly water products
Domestic brand
High quality
Mostly juice products
Brand name
High Quality
Large product portfolio

Force assessment

Medium

Competitive force of new

entrants
Profitability

High, but also very high initial

investment

Role of bottlers and retail channel Big companies own the bottling
companies and well established
retail channels
Brand Loyalty

Existing brands have strong

market position

Advertising expenditures

Huge amount of money is spend

on the advertisement and
marketing

Force assessment

Low

Competitive force of
substitution
Present substitutes

Beer, wine, milk, coffee, tee etc.

Future substitutes

Vitamin water, energy shakes

Dealing with substitutes

Threat of substitute is countered

by huge advertising, branding,
marketing and by offering the
substitute

Force assessment

Medium

Competitive force of
suppliers
Supplied items

Sugar, caffeine, water, fruits,

vegetables...

General cost connected with the

supplier

Small and it is easy to change a

supplier

Possibility of starting production

of the final product by the
supplier

Very low, since the main

ingredient is the concentrate.

Competition in the suppliers

sector

High

Force assessment

Low

Competitive force of
buyers
Uniqueness of the product

Product might be unique, but it

easy to change a supplier

General cost connected with the

supplier of a bought item

Small and it is easy to change a

supplier

Possibility of backward
integration

Very low

Competition in the buyers sector

High

Force assessment

High

Conclusion

s Five Forces Analyses proved again that is its worth investing in P

Competitive force of
new entrants

Competitive force of
buyers

Low

High

Medium

Low

Rivalry
among
competing
sellers
Medium
Competitive force of
Competitive force of
suppliers
substitution

Strategic Group Mapping

High

PRIC
E

21,3%

22,8
%

10,4
%

45.5
%

And
others

Low
Low

BRAND RECOGNITION

High

Strategic Group Mapping

21,3%
Broad

PRODU
CT
RANGE

22,8
%
39.1
%

16,8
%

And
others

Narrow
Local

GEOGRAPHICAL SCOPE

National

Comments
The Strategic Group Mappings showed that global
companies like Coca-Cola and Pepis have high price
and high brand recognition, as well as a broad
products range and a national geographic scope in
Poland.
On the other hand, Polish companies such as ywiec
Zdrj o Maspex Wadowice (Kubu, Tymbark) have
relatively high price and medium to high brand
recognition, as well as medium product range and a
national geographic scope in Poland.

Strategic Profile of the Industry Leader in

Poland:

Key success factors

No.

Key success factors and other

relevant
measures of competitive strength

Strong distribution network

Strong supplier network

Successful product positioning

Successful promotional programs

Successful brand positioning

Brand loyalty

High operating capacity utilization

Product differentiation

Successful new product introductions

Value
1

50

Strategic Profile of the Industry Leader in Poland:

Key success factors - Conclusion

Market leader is a well established and
managed company with extremely high brand
recognition and loyalty as a result of very high
marketing expenditures.
Taking look at the key success factors gives us
the answer at which spheres we need to focus
while investing in a soft drink industry. The most
important spheres to take care of:
- Distribution & supplier networks
- Marketing
- Production capacity

51

Investors Questions
Question:
Is the sector worth investing
in Europe?
Answer:
The market is quite saturated in every
subcategory (carbonated drinks, energy
drinks, juices, water).
That's why we think that investment in soft
drinks industry is risky but when executed
properly might be worthy.

Investors Questions
Question:
If the sector is worth investing
which country and which
development mode to choose?
Answer:
As we stated in our presentation a good place for
investment in CEE region would be Poland. It is
hard to suggest any specific development mode as
it depends on investors capabilities. In our opinion
there are two most viable types of investments
are:

Investors Questions
Question: Which groups of investors may be
interested in the entry and what
entry barriers will they have to
surmount? What would the cost be?
Answer:
1. Investors that might be interested in the entry would
be already operating beverage companies that would
like to introduce their product to a new market or a
capital group interested in taking over a polish soft
drink company as a form of investment.
2. Some of the most critical entry barriers are:
Starting capital

Investors Questions
Question: Which groups of investors may be
interested in the entry and what
entry barriers will they have to
surmount? What would the cost be?
Answer:
3. The cost associated with investing in the soft drink
industry by an acquisition of an already established
company varies between the target companies.
Renown middle-sized companies are usually a part of a
larger group. We decided to valuate Kofola Group,
Hostile takeover
Acquisition
producer of soft drinks like Hoop Cola, R20+ and Arctic.
With the use of a tender offer:
51% of shares * 1.25 market
share price

580 MLN PLN = 141 MLN

With the use of valuation: 4x

EBITDA

610 MLN PLN = 149 MLN EUR

Thank you!

56