1. Executive Summary
2. Overview of the Industry
The carbonated beverage industry in 2021 is characterized by two major players:
Coca-Cola Company and Pepsi-co. The combined market capitalization of these two
companies is $467.38 Billion(USD). 1 The industry is a global one; it is growing year
over year with a strong outlook for the future as participants continue to reach new
markets in the undeveloped world and increase sales in established markets. The soft
drink industry is profitable with both major companies’ stocks paying a quarterly stock
dividend. Judging by the size of the market capitalizations of Coca-Cola Company and
Pepsi-co, shareholder sentiment is strong and continues to be positive for the future.
Soft drinks, soda, and pop are some of the names for the wide range of naturally
or artificially flavoured carbonated beverages. Soft drinks are by definition non-alcoholic
and not 100% composed of fruit juice. Iconic brands and flavours such as Coca-Cola,
Pepsi and Fanta are recognized and sold worldwide. Coca-Cola, the first soft drink, was
originally sold in 1886 as a tonic to prevent and cure diseases. 2 Today, soft drinks are
widely believed to be harmful to the health of both children and adults both because of
their sugar content and high acidity but remain overwhelmingly popular in North America
and across the globe. 3
3. PESTEL ANALYSIS
Political Factors
Political interest in beverages, especially soft drinks, is increasing as countries struggle
to maintain or reduce obesity levels in their populations. Efforts to respond to the uptick
in childhood and adult obesity as well as type-2 diabetes have been enacted across the
world in the form of taxes on sugary beverages. Governments and health officials intend
through these taxes to reduce consumption of soft drinks through these taxes and
hopefully curb the rise in childhood and adult metabolic disease. Some of these efforts
have proven effective in reducing consumption in their host countries. 4
Economic Factors
Economic conditions impacting the North American soft drink industry are numerous:
disposable income, exchange rates, economic growth rates and unemployment rates, all
of which impact the consumer directly and indirectly. These factors affect the demand for
soft drinks. Companies, individuals and governments must have spare cash and
confidence in their future to feel comfortable making capital expenditures to create
infrastructure and expand soft drink production. Given the global nature of the soft drink
industry, ingredients and final products are sent around the world and soft drink
companies partner with firms in various countries to accomplish these tasks. Exchange
rates therefore have an important impact on the profitability of selling soft drinks
internationally.
Soft drinks are also subject to fluctuations in input prices. When the costs of
sugar, syrups or even metal increases, companies must adjust their prices accordingly.
This does not always fare well for sales however, soft drinks in some countries are as
price-elastic as – 40%. This means a 10% increase in price could mean a 4% decrease
in sales. 4
Soft drinks have also been shown to be a normal good, meaning as consumer
income increases, so too does demand for soft drinks. In Guatemala for example, the
income effect far outweighed the substitution effect on soft drinks. One study found that
an increase in income of 10% would increase demand for soft drinks by 9.9%. This is
great news for soft drink makers who can reach developing markets and capitalize on
this ever-expanding demand. 4
Sociocultural forces
The potential growth in the soft drink industry will ultimately be fueled or stifled by
sociocultural forces. As individuals become increasingly concerned about obesity and
demand action from corporations, commercial enterprises will be forced to take
measures to slow and eventually halt the negative health impact of their products.
Unfortunately, the negative health effects of sugar are difficult to avoid in a conversation
about soft drinks and the verdict is quite clear: sugar sweetened beverages are bad in
many ways for health. 7 Besides the increased chance of obesity, soft drinks have also
been shown to reduce tooth enamel and lead to rapid tooth decay. What this means is
that companies can get ahead of this by developing products that combat these
objections directly. In light of these revelations, experts look on fruit juices and non-fruit
juice, non carbonated beverages more favourably in terms of health benefits than soft
drinks. 7
Technological Factors
While soft drinks have been around for over 100 years, the industry continues to
innovate and is fiercely competitive. Companies like Coca-Cola Company, Pepsi-Co and
Keurig-Dr Pepper invest heavily in research and development to benefit from advances
especially in technological fields. 9 Most notable in the technology advances of late are
artificial intelligence scanners for product quality control. Another technology driven
innovation are vending machines. Users will soon purchase soft drinks using their
smartphone, which will send personal data to the company and improve user experience
through personalized marketing.
Technology in the soft drink industry is not limited to distribution methods. A
recent development by SodaStream sold by PepsiCo represented a direct competitor to
bottled soft drinks. Currently this is a niche market that owes much of its success to the
Covid-19 pandemic. This has created a new product category to circumvent the
environmental concerns younger consumers have and disrupt the industry.
Environmental factors
Another important aspect of the soft drinks industry is the environmental impact both the
products themselves and their packaging have. Soft drinks for later consumption are
packaged in 3 main ways: glass bottles, PET bottles (plastic) and aluminum cans. While
all 3 have potential for sustainable uses, PET bottles have been shown to have the
smallest up-front cost in terms of carbon footprint of the three. PET bottles cannot
however be recycled to be used as bottles again; the material must be repurposed.
Aluminum cans, which are easily recyclable but carbon heavy to produce initially. Glass
bottles can be reused in original form unlike the other two options, but must be
regathered unblemished and unbroken.8 Besides the packaging, soft drinks create
chemical runoff, electricity, cases for transportation of product, and
transportation/storage itself. On the whole, soft drinks are responsible for an annual
carbon footprint of millions of tonnes of carbon dioxide and many more tonnes of
garbage. In coming years the soft drink industry will be forced to reckon with this social
imperative as individuals and governments demand environmental responsibility from
commercial operators.
Laws and regulatory factors
Not all political obstacles stem from elected officials. The Federal Drug Administration in
the United States has also taken aim at soft drink manufacturers. On the FDA.gov
website it concedes that while approved soft drinks are safe to consume, they contain
Benzene, a known carcinogen, albeit in trace amounts. 5 Every country has its own
regulation and governing body to determine the safety of food and beverages imported
or produced within itself and this creates a barrier to entry. New products for widespread
distribution must be first approved by the country’s federal food (and/or drug)
administration. Some have criticized the FDA for being too relaxed in its attitude toward
soft drinks, and opponents of the big soft drink makers argue the FDA needs to do more
to limit consumption of soft drinks nationally. 6
4. Five Forces Model
Buyers:
Consumer behaviour varies from generation to generation. Today’s consumers are very careful
about what they buy and how the product is manufactured. Younger consumers tend to buy
from companies that present themselves as socially responsible. Soft drinks are an industry that
must take into account consumer behavior and emotions. companies should expect an increase
in demand, especially in the United States and Canada where soft drinks are part of household
eating habits, the per capita consumption rate is around 2.2 liters and 4 liters. According to a
report published by Catherine Haeck, Professor of Economics at the University of Quebec at
Montreal, 67% to 85% more budget is allocated for carbonated drinks, than for water and milk in
Canada. 12 This is a testament to the importance of carbonated drinks and other types of
sugary drinks in the cupboards of households, even low-income households. This is not just the
case in Canada. Worldwide, you will find that soft drinks are readily available and inexpensive.
There are all types of drinks that meet many types of needs. The customer finds exactly the
sensation and the taste they are looking for. There are drinks that aim to quench thirst and
refresh, others that have energizing properties. Soft drinks are part of a diverse category of
beverages with something that appeals to all.
Substitutes:
The threat of substitution is permanent, diversification is a key success factor in the industry as
it allows large companies to exercise control over small companies by flooding niche markets
with alternatives. This is particularly the case of Coca Cola, which today has 38 brands of drinks
and a large catalog of more than 250 drinks divided into 5 main categories (carbonated drinks,
bottled water, fruit juices, sports drinks, iced tea and dairy drinks). 10 There are other direct
substitutes for soft drinks in which Coca Cola and Pepsi-co are not yet present. For example,
value-added drinks (such as drinks based on CBD) and alcoholic beverages. The soda-stream
platform mentioned above offers a new take on the pre-packaged paradigm of soft drinks and
could in time become the de-facto option.
New entrants:
The soft drink industry is highly competitive, with historically dominant operators controlling the
majority of industry revenues and posting significant profits (like Coca-Cola Company). 10 Over
the past five years, the industry has undergone significant changes, small regional companies
have experienced substantial growth, causing a large number of new operators to enter the
industry. 11This substantial increase in the number of players has contributed to increased
competition in the sector, a competition that experts say will continue to intensify over the next
five years. There will be a transformation of the soft drink industry, where the large companies
