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EXTERNAL ENVIRONMENT: NEAR ENVIRONMENT



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EXTERNAL ENVIRONMENT: NEAR ENVIRONMENT

INDUSTRY/MARKET REVIEW


The soft drink market consists of the retail sale of bottled water, coconut water, carbonates, concentrates, functional drinks (including sports drinks), juices, RTD tea and coffee, flavored milk and smoothies.

The Australian soft drinks market generated total revenues of $11 billion in 2010, a year that proved the most lucrative for the Australian soft drinks market.


The Australian soft drinks market value grew by 3.3% in 2010 to reach a value of $10,953 million.

The compound annual growth rate of the market in the period 2006–10 was 3.3% (refer Appendix E.1).


The Australian soft drinks market grew by 2.9% in 2010 to reach a volume of 4,649.7 million litres.

The compound annual growth rate of the market in the period 2006–10 was 3.1% (refer Appendix E.2).


Carbonates are the largest segment of the soft drinks market in Australia, accounting for 59.9% of the market's total value. Comparatively, the juices segment accounts for a further 15.9% of the market (refer Appendix E.3)
SUNDAY: prepare a product life-cycle chart showing the size of the total market for each of the main product categories within volume. In analysing the data, review the annual growth rate. Then project the size of the market and each product category for the next 3–5 years which is the time frame of the strategic marketing plan (Refer to chapter on forecasting techniques). Product life cycle idea is important: level of industry sector, product category and even brand level. Identify if you have a balanced portfolio (diff PLC).
Despite the strong sales growth in the bottled water and functional drinks categories, the Australian soft drinks market grew at a steady rate during the period 2006-2010 however this is expected to decelerate in the forthcoming five years due to increasingly health conscious consumers and government regulations regarding water use and safety of sweeteners. Yet, given the market consumption increase between 2006 and 2010, market volume is expected to rise over the next five years, deeming it an attractive market for new business adhering to the new regulations and anticipating changing consumer trends.

PORTERS FIVE FORCES – INDUSTRY SPECIFIC

FORCES

TYPE OF FORCE

STRENGTH

1

Supermarkets/hypermarket chains are most significant distribution channels for soft drinks

Bargaining power of buyers
5

2

Most inputs are readily available commodities

Bargaining power of suppliers
2

3

New brands must contend with the reach and strengths of established brands

Threat of new entrants
2

4

Consumers may chose to drink coffee, tea, or homemade juices, or fruit juices

Threat of substitutes
2

5

Supermarkets and hypermarkets account for 48.5% of the total market volume, followed closely by on-trade retailers at 32.5%

Bargaining power of buyer
5

6

Consumers in this market are likely to be strongly influenced by brand

Bargaining power of buyers
5

7

Retailers are forced to stock brands popular among consumers

Bargaining power of buyers
2

8

Inputs are available from several sources although they are subject to price fluctuations

Bargaining power of suppliers
4

9

Packaging manufacturers are growing because of a demand for more consumer friendly packages

Bargaining power of suppliers
4

10

Advertising and marketing agencies play a significant role in the brand building process in the soft drinks market

Threat of substitutes


Supplier power

4

11

Brands try to distinguish their products by stressing health benefits

Threat of new entrant
4

12

Setting up a new business would be fairly capital-intensive

Threat of new entrants
5

13

Leading firms have diverse product offerings

Threat of substitutes
3

14

The Australian soft drinks market is fairly concentrated and top three firms have more than 50% volume

Threat of new entrants
4

5 = strong, 1 = weak


MAREE: I just rated according to the data but would you mind to look over?
FIVE FORCES ANALYSIS

The Australian soft drinks market is fairly concentrated, with the top three players holding 54.9% of the total market volume. The market has the presence of leading players such as The Coca-Cola Company, Asahi Breweries and PepsiCo. Switching costs for retailers are not prohibitive, which boosts rivalry. Overall, there is a moderate degree of rivalry in the soft drinks market (refer appendix E.10).



Although major players are fighting for the dominant position, there is scope for growth in niche categories (refer to appendix E.5).
Leading players tend to have a diverse product offering, which reduces the threat posed by substitutes. Overall, there is not a great threat imposed by the soft drinks' substitutes except from traditional coffee and tea or homemade juices, along with the tendency of consumers switching towards the fruit juices (refer appendix E.9).
Supermarkets and hypermarkets form the most significant distribution channel in the Australian market, followed closely by on-trade retailers. The presence of big supermarket chains increases buyer power however this remains moderate, as consumers in this market are likely to be strongly influenced by brand and retailers are forced to stock popular brands. Many players have managed to develop strong brands, which will tend to decrease buyer power, as buyers feel obliged to stock certain products to meet their customer's preferences. Overall, buyer power in the Australian soft drinks market is moderate (refer to appendix E.6). Advertising and marketing agencies also play a significant role in the brand building process in the soft drinks market (refer to appendix E.7).
Supplier power is not great, as most inputs are readily available commodities. Most revenue is generated from the production of concentrates, which are sold to bottling companies and here the buyer power is relatively weak. Some of the primary inputs for the soft drinks manufacturer, although available from several sources, they are subject to price fluctuations. The power of packaging manufacturers is growing since there is a growing demand for more consumer friendly packages.
Entry to the market will generally be fairly capital-intensive, restricting market entry to players however; new entrants can exploit niche categories. Overall, there is a moderate likelihood of new entrants (refer appendix E.8).
Description:
Although the industry is predicted to decline (refer A.2, A.4, A.6), opportunity exists for new entrants appealing to the changing consumer trends, increasingly conscious of their health and packaging sustainability. A popular company entering the market would be at an advantage as a new entrant if the corporate brand value resonates with consumers. Market share would increase, in this otherwise homogenous product category, as consumers would be drawn to a brand they know, like and delivers on their evolving values. It is the strongly brand influenced consumers that the new entrant must satisfy as these consumers dictate buyer purchasing choices. The degree of exposure Australian consumer’s have to advertising strengthens supplier power to an extent, providing they have the capacity or existing brand image.
It remains an attractive market for entry despite the predicted decline due cola’s dominance of the CSD category, despite the availability of alternatives however this must be taken into consideration and new entrants should provide a range of alternative products if they want to survive. This presents an opportunity for new business considering the emerging consumer health concerns when planning strategy, research and development and product innovation. The recent decrease in market share is the cause of the shift in consumption patterns due to growing health issues such as obesity suggesting possible long-term shifts for the market further increasing attractiveness of market as dominate brands may be viewed as the unhealthy options.17
Maree - Should this be a description of our findings (including the below table?). Should we relate the threats/opportunities specifically to new entrants into the industry? Should we also make suggestions of how to overcome implications?

Implications:

A large amount of capital is required to compete in this industry due to the economies of scale enjoyed by competitors and also the dominance of competitors regarding supply chain and distribution also presents implications for new entrants. However, this can be overcome by way of acquisitions, strategic partnerships and utilisation of core competences.

Although the role of advertising can be leveraged to build consumer awareness of a new entrant, the advertising capabilities of competitors are great enough to attack new entrant efforts to the market.

Although supplier power is not great this could be an advantage rather than an implication for a new entrant, providing an opportunity to gain market share despite the size and dominance of the key competitors.



OPPORTUNITIES

RATING*

THREATS

RATING*

Switching costs for retailers are not prohibitive

4/5 - na

Supplier power is not great

5/5 – 5/5

Scope for growth in niche categories

5/5 – 5/5

Primary inputs for the soft drinks manufacturer are subject to price fluctuations

5/5 – 4/5

Advertising plays significant role

4/5 – 4/5

Increasing packaging power

5/5 – 5/5

Established brands may be regarded as unhealthy options,

5/5 – 3/5

Strong, established competitor brands

5/5 – 5/5

Retailers are forced to stock brands popular among consumers

5/5 – 4/5




The rating is based on a double-digit 5-point scale for the degree of significance and for probability of occurrence. The first number/5 represents the degree of significance rating out of 5, 5= extremely significant and 1 = not very significant. The second number/5 represents the probability of occurrence, 5= extremely likely and 1 = low probability.


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