RESEARCH

SOFT DRINKS
INDUSTRY

GROUP C
Ariana Angel
Karen Balladares
Jorge Iván Mendez
 Content
1. INTRODUCTION ................................................................................................... 3
2. FIVE FORCES PORTER. ...................................................................................... 4
3. ANALYSE COMPETITORS ................................................................................... 7
3.1 DIRECT COMPETITORS ............................................................................... 7
3.2 INDIRECT COMPETITORS ............................................................................ 7
3.3 STRATEGIES ................................................................................................. 8
3.4 COMPETITIVE ADVANTAGE ........................................................................ 9
4. ATTRACTIVE OR UNATTRACTIVE ...................................................................... 9
5. STRATEGY TO COMPETE WITHIN THE SOFT DRINK INDUSTRY .................... 9
6. DIFFERENTIATOR FACTOR ................................................................................ 9
7. FINAL RECOMMENDATION TO THE INVESTOR .............................................. 10
8. BIBLIOGRAPHY .................................................................................................. 11
1. INTRODUCTION
Soft drinks have an important market at the national level, in which there is a
great diversity of brands and flavors for the free choice of the customers. The food and
beverage industry is one of the most dynamic in the country. In 2015, the sector
accounted for 39% of the GDP of the Ecuadorian non-oil industry, so it is considered,
according to data from the “Asociación Nacional de Fabricantes de Alimentos y
Bebidas” (ANFAB), as one of the most important in production and job creation.
Christian Wahli, president of the guild, says that the segment involves various actors
such as farmers, mills, bottlers, manufacturers of lids and containers, and the
transportation system, a dynamic that employs 252,945 people.
In Ecuador 81.5% of people consume soda or sugary drinks. The age range with
the highest prevalence of intake of this product is between 15 and 19 years, with
84.0%, according to the Ensanut survey. In addition, a Euromonitor International study
on the intake of soda, places the country in the tenth place among others of Central
and South America consuming 63.8 liters per capita. The key and for the sector hits is
the diversification of products. The soft drink market, which generates about $ 10
million a month in Ecuador, is mainly engaged in three bottling companies: Arca
Continental with Coca Cola, Fanta, Sprite, Inca Kola, Fiora Vanti; Ajecuador with the
brand Big Cola; Tesalia Spring with Pepsi, Seven up, Kola Gallito, Manzana, Más and
Quintuples.
A lot of competition is generated in the beverage industry. In the specific case of
soft drinks, these companies usually also produce water, so competition between them
is almost equal; really the problem is with packaged juices, powered juices, iced tea,
energizing, among others. In the beverage industry, substitute products cannot be
missed.
Effective May 1, 2016 in Ecuador, the Public Finance Balance Law governs 18
cents per 100 grams of sugar contained in soft drinks, powdered juices, processed
drinks, soft drinks, ready-to-drink tea and other sugary drinks. The company Geodata
carried out a survey in November 2015 to January 2016, to know details of the
behavior of the Ecuadorian consumer. According to this study the product that
occupies the first place were the soda.
Only the Special Consumption Tax (ICE) on soft drinks has a collection target of
USD 81.1 million until the end of 2016 and by 2017 would enter USD 139 million,
according to figures from the Internal Revenue Service (SRI).
The main tool of the soft drinks industry is advertising in which they invest large
amounts of money to get into the minds of consumers. On the other hand, as far as
prices are concerned, they are similar between one brand and another, each company
analyzes its prices well since consumers have the possibility to choose more
alternatives. The consumption of soft drinks is linked to tradition and function as a
substitute for juice at meals.
3
2. FIVE FORCES PORTER.
2.1 Indicate if each one of the forces is high, medium or low

Bargaining Power of Suppliers: MODERATE

Bargaining Power of buyers: MODERATE
Threats of new entrants: LOW
Threat of substitute products: HIGH
Rivalry among competing Firms: HIGH
2.2 Justify your rating of the force

Bargaining Power of Suppliers: The supplier has the power but can be negotiated
considering a mass production. In addition, the business relationship is direct with the
supplier of the good or service.
Bargaining Power of buyers: Buyer power is moderate. It depends on what kind of
client people are: if it is a large client, the client would have the power to negotiate; but
if it is not a large customer, it would have to adjust to the price defined by the company.
Threats of new entrants: there are factors such as economies of scale, investments
and cost of technology; which are variables that hinder and act as strong barriers to the
entry of new competitors.
Threat of substitute products: there are major threats of substitution considering the
differentiated products and multiples choices that the consumer can choose at the time
of consumption.
Rivalry among competing Firms: The competition is extremely aggressive, the market
is very segmented and divided for the specialized attention of each competitor. It is an
oligopolistic market that has control of the entire industry through its price adjustment
and supply of goods in their specialized sizes and directed to the market.
2.3 Provide full explanation

Bargaining Power of Suppliers: MODERATE

Number of suppliers in the industry: The number of suppliers is moderate, among
them: suppliers of sugar, water, suppliers of bottles, etiquette, etc. There are different
companies that mean options that the producer can choose depending on cost and
quality.
Power of decision in the price by the supplier: The power of decision is moderate. The
supplier can have the power to define the price but also it can be negotiated, reason
that there are other companies that realize the same service and can offer it to A lower
price.
Level of organization of suppliers: each company acts on its own and are not
organized, each company finances and negotiates the price based on different criteria
directly with its supplier. When the production of goods is massive, the negotiation
must be carried out by order quantity.
4
Bargaining Power of buyers: MODERATE
Number of customers: Consumers are supermarkets and minimarkets stores. In the
market there is a wide range of consumers to whom the price of each good can be
defined.
Size of each order: There are potentially strong customers such as supermarkets
(Supermaxi, Mi Comisariato, Aunt), who handle large order quantities and make them
strong buyers for the company. They can define the purchase price if they wish.
Differences between competitors: the difference between competitors is moderate, this
can be in colours, flavours, etc. The difference can be seen in their taste and
presentation of containers and sizes.
Cost to change: the cost to consumers of product change is no obstacle for them to
substitute one drink for another. It's not expensive for them. And they will look for the
one that offers greater benefits.
Sensitivity of the price: the consumer is very sensitive to the price, usually the soda is
an elastic good, reason why the rise of the price in a small percentage, causes a
purchase of a substitute of the good.

Threat of new entrants: LOW

Time and Cost of Entry: To get entry into this industry the company will probably spend
a lot of money and make strong investments to push its products into the market.
Knowledge of specialists: The process of entering the market would be less
complicated if there is a person specialized in how you can do it. He or she should
have a lot of knowledge to work with and how you can make it more effective.
Economies of scale: When the size of the industry is large, it is recommended to apply
programs or systems at the production stage to obtain cost savings. It is so difficult for
the company because it had not defined how many units of performance and
developing such systems is so costly.
Protection of technology: the government could protect some special national
companies through defining special import tariffs for it. However, it could negatively
affect the company; in this country this does not happen but it could be so complicated
and very difficult to get this in Ecuador. The type of technology that is used for this
business is expensive and very difficult to find.
Barriers of new entry: the investment necessary to start the business is a strong barrier
of entry, this business is large therefore a strong investment is needed. The need for
working capital is also another important barrier to entry, working capital must be large
to support losses in the early years. The advertising that the company also has for the
product is great as well. In addition, there are products in the market highly positioned
and differentiated compared to other drinks, it will be very difficult to change that in the
minds of consumers.

Threat of substitute products: HIGH

Substitution of the prices of the products: The price of a soft drink is similar to the price
of the substitute good (juice or a moisturizing drink), in other words, it does not vary
much. Since the price of soda is relative to other types of drinks, the consumer is prone
5

to buy another type of drink by soda.

Cost or ease of the buyer: for the buyer it is easier to buy a drink in the nearest place
(store or supermarket), since it is expensive to mobilize at great distances for a soft
drink. Therefore, the level of reach must be massive, which means that the soft drink is
in every store and supermarket in the country.
Perceived level of product differentiation: Ecuador is a small country that is strongly
positioned by soft drink companies such as Coca Cola and Pepsi. The product is
already differentiated in the consumer's mind so it is difficult to penetrate it and change
that concept.
Availability of close substitutes: direct or indirect competition covers all the provinces of
Ecuador and has good geographical reach. Any substitute drinks are in the corner
shop, supermarkets and restaurants, among others.

Rivalry among competing Firms: HIGH

Number of competitors: Few competitors make sodas, but they are very large and
handle much of the market. The market is segmented by large Soda companies. In
addition, large companies are highly positioned in the consumer's mind, especially
Coca Cola and Pepsi. There is an aggressive competition between Coca Cola and
Pepsi such as the price war, advertising and geographic reach for greater global
market attention.
Quality preferences: quality is considered, in its presentation, packaging or texture of
the beverage that differentiates the good from others. The companies based on the
growth and expansion of their competition, these have developed products such as:
Diet Coke, Pepsi Light and Coca Cola Life being this way the exhaustive attention to
the different market segments.
Customer loyalty: Considering the taste and particular characteristics, soda brands
develop customer loyalty. In particular, the consumer gets to identify with the brand,
whether for its product differentiated in taste, colour, presentation, etc.

6
3. COMPETITORS ANALYSIS
3.1 DIRECT COMPETITORS

Direct competitors are those companies that offer similar products and services within
the same market, in the soft drinks industry there are the following direct competitors:
The Coca-Cola Company is an American multinational beverage
corporation. The company is best known for its soda: Coca-Cola.
Coca-Cola is distributed in Ecuador through the Arca Continental
bottling. The Coca-Cola brand is considered the most valuable in
the world according to the consulting firm Interbrand, and has a
recognition of 94% of the world population, but not everything is
Coca-Cola, the company sells more than 500 brands and 3,500
products in Ecuador Are sold four of the five most famous brands of soft drinks in the
world: Coca-Cola, Coca-Cola Light, Fanta y Sprite.

PepsiCo Inc. is an American multinational beverage and snacks

corporation dedicated to the manufacture, marketing and distribution
of beverages and snacks. PepsiCo was formed in 1965 from the
merger of the Pepsi-Cola Company and Frito-Lay.
PepsiCo enters Ecuador with its flagship product Pepsi, which
competes with Coca-Cola and local competitors. In the market there
is also 7 Up which competes with Sprite.

AJE is a multinational company dedicated to the manufacture,

distribution and sale of beverage, which started in Peru. It’s the
fourth largest non-alcoholic beverage company in sales volume
and the third largest carbonate producer in the countries in which
it operates.
AJE's flagship product is BIG, and is sold in all markets where
the company is present. AJE's global product portfolio is
complemented by brands such as CIELO (water), Cifrut (juice), Pulp (nectar), Sporade
(electrolyte-containing beverage), Cool Tea and VOLT (energy drink).
3.2 INDIRECT COMPETITORS

Indirect competitors are those companies that offer substitutes

products, which sale different products and services, but the target
market is the same group of customers with the goal of satisfying
the same need.
In Ecuador substitute products such as juices, energy drinks,
moisturizing drinks and teas are distributed by companies
competing in the soft drinks industry:
7
The Coca-Cola Company in Ecuador is also present with brands: Del Valle (juices),
Powerade (isotonic drink), Dasani (mineral water) and Fuze Tea (tea drink).

PepsiCo Inc. is present with the brands:

• Tesalia y Güitig (PepsiCo/Tesalia): are Ecuadorian brands of mineral
water without and with gas respectively. They compete with Dasani
from The Coca-Cola Company.
• Gatorade: competes against Powerade from The Coca-Cola Company
and local competitors.

AJE competes in the market for substitute products with brands:

Pulp (Fruit Juices), Sporade (drinks) and Cielo (mineral water)
and Cool Tea.

3.3 STRATEGIES

Arca Continental - Coca Cola

In Ecuador, Coca-Cola is a leader in the soda industry, its brand and flavor is
recognized by most Ecuadorians. The company develops a strategy of differentiation,
in the country this is directed by the company Arca. The strategy is supported by the
following aspects:
 Coca-Cola created a strong brand positioning through an aggressive and
uninterrupted advertising strategy, which has made Coca-Cola a brand known
and preferred by Ecuadorians.
 Its secret formula, which is an industrial secret, gives it a unique and preferred
flavor.
 Promotional products, such as Christmas bears and bottles in which various
names of people appear, which were well received by consumers.
AJE - Big Cola
The Aje group develops a cost leadership strategy. Its commercial strategy focuses on
covering sectors where traditional soft drinks could not be consumed due to their price,
with Big Cola being one of its flagship products in the country, characterized by its low
prices. The strategy is supported by the following aspects:
 They own their own brand: the bottler does not have to pay licenses of any kind
to the company.
 They use subcontracting for the logistics of their product to the point of sale.
 Do not invest large amounts in advertising.
PepsiCo – Pepsi
In Ecuador Pepsi is the second most well-known brand, PepsiCo follows a combined
strategy as it seeks a segmented target market: young people, their advertising
campaigns are aimed at young people, but their drinks are sold to the entire population.
8
  With Big Cola's entry into the soft drinks market, Pepsi lowered its prices
without becoming a cost leadership.
 It uses strong publicity campaigns, using the image of recognized artists in the
country.
3.4 COMPETITIVE ADVANTAGE

A company has a competitive advantage when the strategy it implements is difficult or

expensive to imitate for its competitors.

 The competitive advantage of Coca Cola is its brand; Coca-Cola has 130 years of
operations worldwide and in Ecuador 85 years, combined with a unique taste that
distinguishes it. Its formula secret developed is the best factor that differentiate it
from the others.
 Big Cola's competitive advantage lies in its low price, its cost leadership that it has
maintained since the beginning of its operations.
 Pepsi's competitive advantage is distribution.
 PepsiCo owns a large restaurant chains: KFC, Pizza Hut and Taco Bell. If
someone stops to eat and orders a Coke, most of the time they will take a
Pepsi.
 PepsiCo pays large amounts of money to restaurants to stock Pepsi. Free
fridges, lower prices and so on.

4. ATTRACTIVE OR UNATTRACTIVE
Considering the analysis of Porter and the Analysis of Competitors it is defined like
Unattractive Industry

5. STRATEGY TO COMPETE WITHIN THE SOFT DRINK INDUSTRY

The soft drinks industry is highly competitive, brands such as Coca Cola, Pepsi and Big
Cola maintain a strong market position, so that the entry into the industry through a
new product becomes a high risk decision, due to the competitions.
One option to compete in the Ecuadorian soft drink industry is the acquisition of
competition. The acquisition is a strategy that allows expanding a products portfolio or
expanding market power, and in the Ecuadorian market will ensure a market share. In
turn, the acquisition reduces the risk derived from the development process of new
products and the cost of developing new products and increasing the speed to the
market.

6. DIFFERENTIATOR FACTOR
We will consider the following:
1) Models and design: we will innovate and invent new designs in carbonated
beverage bottles so that our customers have the possibility to choose the type
of design that they like.

2) Price: Will be equal to or below the industry average, always

calculating that sales revenues should cover costs and
maintain the desired profit margin.
9
3) Distribution: We will be concerned about maintaining the best
transportation network. That is, the fastest national level in sales to
physical stores and we will also try to venture into internet sales,
offering free shipping.

4) Celebrity Appeal: We will contract with national and foreign

celebrities at different times of the year to help us boost sales in each of
the regions of Ecuador, including Galapagos.

7. FINAL RECOMMENDATION TO THE INVESTOR

Considering the analysis of Porter and the Analysis of Competitors it is recommended
not to invest in this type of industry because of its high costs and high risk rates. It
may be that the business is profitable, but its high rate of risk and its strong
investments in capital does not favor the industry as a good option to invest.
In the soft drinks industry, the level of competitiveness is very high due to the great
variety of products of different brands, with very similar characteristics. Soft drink
Beverage´s industry makes so difficult for any company to be able to apply the
differentiation strategy because statistically the profits are given by the sales in large
quantities, never for margin profit. Also, exist a competition rivalry so strong and
aggressive that, which is posicionated in each geographic market.

10
8. BIBLIOGRAPHY
 C. (2014, April 09). La historia de Coca-Cola: El planeta conoce tu nombre.
Retrieved August 10, 2017, from
http://www.cocacolaespana.es/informacion/origen-coca-cola
 Universidad de las Américas Puebla. (s.f.). Análisis de la dinámica competitiva.
Retrieved August 10, 2017, from
http://catarina.udlap.mx/u_dl_a/tales/documentos/lad/beyrute_b_r/capitulo5.pdf

 Mind Tools Editorial Team. (s.f.). Porter´s Five Forces Analysis. Obtenido de
Porter´s Five Forces Analysis:
https://www.mindtools.com/pages/article/newTMC_08.html

 Dada G. (2016, April 24). What is Pepsi's competitive advantage? Retrieved August
10, 2017, from https://www.quora.com/What-is-Pepsis-competitive-advantage

 Araujo, A. (06 de 06 de 2016). El Comercio. Obtenido de

http://www.elcomercio.com/datos/ecuador-gaseosa-leche-data-impuestos.html

 Carrera. (14 de 06 de 2016). Ecuavisa. Obtenido de

http://www.ecuavisa.com/articulo/televistazo/noticias/164971-estudio-revela-cuales-
son-productos-mas-vendidos-ecuador

 El Telégrafo. (24 de 03 de 2016). Obtenido de

http://www.eltelegrafo.com.ec/noticias/sociedad/4/el-81-5-de-ecuatorianos-
consume-gaseosas-y-bebidas-azucaradas

11