Supply and Demand Variables
Non-Price Demand Variables
Advertising. Brand recognition and loyalty is extremely important in the beverage industry. Coca-Cola Company spends almost 20% of their annual expenses on advertising (over $3 billion on advertising alone) to maintain the largest market share of any global soft drink brand. The Coca-Cola Company has more than 40% global market share across all company brands, with the Coca-Cola product as their most profitable and best recognized brand (The Coca-Cola Company 2014).
Changes in taste and preference. Differences in taste and preference among different regions, and changes in taste and preference within each region over time impact demand for soft drinks. This can include preferences for actual tastes, preferences for or concerns about ingredients and bias towards national or local brands in some foreign markets.
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Affect on Demand Quantities
Advertising. Advertising can increase the demand, and lack of advertising to maintain brand awareness can decrease the demand. In addition to broad advertising for brand awareness, soft drink manufacturers advertise to specific customer segments and demographics to capture greater market share where demand for carbonated soft drinks is highest, including men (of all ages) and young adults (Mendes, E. 2013).
Changes in taste and preference. Changes in taste and preference affect demand for different types of drinks, such as carbonated soft drinks, juices and bottled water. The Coca-Cola Company cites a rise in Western consumer health consciousness for flat sales in North America and a 1% sales decline in Europe (The Coca-Cola Company 2014). And total carbonated soft drink sales (from all manufacturers) world wide have dropped every year for the past 9 years (Beverage Digest 2014).
Supply Variables
Non-Price Supply Variables
Entry or exit of other sellers. As new competitors and substitutes enter the market, there is increased competition for supplies. Since the majority of global carbonated soft drink sales in North America are from large global manufacturers, these changes are not likely to have a large impact on the supply in North America. But in other countries and regions such as China and Asia, the entrance of an existing beverage manufacturer into a new market segment (such as carbonated soft drinks) can have a larger impact.
Weather and climate conditions. Water is perhaps the single most important ingredient in beverage manufacturing, and weather conditions and climate change can affect supply availability and cost due to their impact on price and availability of water. In addition, seasonal weather variations can cause seasonal changes in water availability and supply costs.
Affect on Supply Quantities
Entry or exit of other sellers. New sellers entering the market compete for supplies, which can increase the cost and availability of supplies. New sellers have entered the market in almost all regions Coca-Cola is sold; for example, established beverage company Suntory (Singapore) recently entered into a joint venture with Chinese beverage manufacturer Huiyuan Juice Group to bottle and sell all Suntory beverage brands in China (Suntory Corporation 2014).
Weather and climate conditions. Reduced availability of and competition for water resources can reduce supply. The Coca-Cola Company expects supply costs to change as water scarcity becomes more wide-spread, increasing prices due to reduced supply (The Coca-Cola Company 2014). Competition for water supplies has already directly affected The Coca-Cola Company; the company was forced to shut down a bottling plant in India in March 2004 due to reductions in quality and quantity of local water supplies, which were blamed on the plant (Holbrook, E. 2009).
Current Market Equilibrium
Demand Factors
The demand for many of The Coca-Cola Company’s most profitable products is declining in North America, but increasing in other regions of the world. Changes in tastes and preferences in much of the West is reducing demand for soft drinks, and while advertising can help The Coca-Cola Company maintain its market share, advertising has limited ability to improve sales when overall demand is declining. There is increased demand in the emerging markets of Asia, Africa and Latin America; although the primary driver of this increase is economic growth, tastes and preferences are also more favorable as consumers in these markets have a hunger for Western goods, and advertising in these markets can help improve brand awareness and market share.
Supply Variables
The supply in North America is relatively stable, but is threatened by water scarcity, especially in the South West (Holbrook 2009). Although existing major suppliers may introduce new products or brands, there is little change in the number of large suppliers and limited impact of regional suppliers. The global supply is at more risk, with both an increase in suppliers and decrease in availability of water in multiple markets, leading to an expected reduction of supply in many global markets (The Coca-Cola Company 2014).
External Conditions to Monitor
In North America, managers should be monitoring availability of and competition for water supplies, and continued changes in consumer preferences toward healthier products. Managers should proactively seek secure long-term water sources, reduce water use in operations, and adjust products and advertising messages to address growing health consciousness.
Managers should monitor these same trends for global markets, with even greater priority on securing long-term water sources. In addition, managers should monitor for the potential spread of health concerns from Western nations to emerging markets so product mix and advertising strategies can be adjusted accordingly.
- Beverage Digest (2014). U.S. Beverage Results for 2013. March 31, 2014. Available from:
- Holbrook, E. (2009). Water, Water Everywhere…But Not Enough for Business. Risk Management Magazine, Vol. 56, No. 5, June 2009. Available from: http://cf.rims.org/Magazine/PrintTemplate.cfm?AID=3920
- Mendes, E. (2013). Regular Soda Popular With Young, Nonwhite, Low-Income. Gallup, Aug 15, 2013. Available from: http://www.gallup.com/poll/163997/regular-soda-popular-young-nonwhite-low-income.aspx
- Suntory Corporation (2014). Establishment of a Joint Venture with Chinese Beverage Company China Huiyuan Juice Group Limited. Suntory Press Release No. 12011, March 20, 2014. Available from: http://www.suntory.com/news/2014/12011.html
- The Coca-Cola Company (2014). Form 10-K Annual Report for Fiscal Year Ended December 31 2013. Available from: http://www.coca-colacompany.com/investors/2013-annual-report-on-form-10-k
- The Coca-Cola Company (2014). Investor Relations Overview. Nov 2014. Available from:
