Exploring Soft Drink Industry: PESTEL and Porter's Five Forces Analysis - Free Paper Sample

Introduction

Soft drink is defined as any nonalcoholic beverage class usually but not necessarily carbonated containing an artificial or natural sweetening agent, artificial or natural flavors, edible acids, and juice. Natural flavors are resultant of fruits, berries, herbs, roots, nuts, as well as other plant sources. The reason for recommending soft drinks was to substitute the habit of hand-drinking adopted by early Americans. The soft drink contains several strategic groups, and these include PepsiCo, Coca-Cola, Monster Beverage, along Keurig (Meyer, 2017). This paper discusses the issues that face the soft drink manufacturing industry following the significant categories of PESTEL and Porter’s Five Forces model.

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PESTEL Analysis is essential in a company since it is a tactical tool used in its macro environment. Changes in factors for the macro-environment can have a direct effect on the soft drink industry, along with the National Beverage Corporation. These forces can also influence Porter’s Five Forces with the ability to shape strategy as well as the competitive landscape. They can influence the competitive advantage of the firm or overall levels of profitability of the user goods industry.

Political Factors

These play an essential role in shaping the aspects that can impact the long-term profitability of the soft industry in a specific market or country. There are various factors that the industry is expected to analyze before investing or venturing into a targeted market. Some of these include political stability, level of corruption, pricing regulations, and taxation, among others. Fluctuations in political stability affect business situations in emerging markets. The economies of the emerging markets have witnessed different variations in political stability, with essential implications for the soft drink industry.

Besides, the level of corruption is a threat to these companies. Frugalities that are distressed by a high corruption level involving the power misuse in authority or money form to gain a particular goal in dishonest, unfair, or illegal ways face a prospering challenge compared to the companies with low corruption levels. Corrupted companies are unable to function appropriately since corruption hinders the economy’s natural law from performing freely. Corruption has discouraged various soft drink industries since they undergo unfair competition as well as illegal pressure from other companies that are linked to government officials (Meyer, 2017). Since there are both large along with small companies in the soda manufacturing industry, is the big companies are corrupt, the small businesses will become vulnerable to unscrupulous business practices.

The taxation factor has a substantial impact on the soft drink industry. The mainstream taxes the company that deals with soft drinks apply to drinks that contain added sugar. The aim of such taxes is to minimize the consumption of sugar by maximizing the sugary drinks’ price, which is expected to cause a reduction in commensurate and purchases reduction in consumption. It may also lead to decreases in the consumption of sugar via other channels as a result of product formulation to decrease the content of sugar or via conveying information concerning the health expenses of sugar consumption. The ability of these effects is contingent on the structure of the tax, along with the way individuals and companies retort to the tax (Meyer, 2017). Even though soft drinks tax containing sugar is effective at persuading individuals to divert from consuming sugary soft drinks, it is also essential to understand that they chose to buy instead.

Economic Factors

The macro-environmental factors, such as the exchange rate, inflation rate, interest rate, and savings rate, along with the economic cycle, are suitable determinants for aggregate investment along with the aggregate demand in the economy. Microenvironment factors like norms of competition influence the firm’s competitive advantage. The soft drink company can use economic aspects like growth rate, industry, and inflation indicators, and consumer spending to forecast the trajectory of growth in the sector name and the organization.

Under the currency exchange rate, soda manufacturing industries are immersed internationally in many markets that subsidize a large percentage of the total revenues. Unfortunately, as the Federal Reserve for the United States reduces the purchasing rates of the products, other markets experience downward pressure. As a result of the prepositioning of the cash flow, the rates of currency depreciate in the whole world. For instance, the yen’s value decreases as a result hence affecting the pricing of soft drinks in the Japanese bazaar.

The inflation rate increases the production cost. Consequently, soft drinks companies are facing the uncontrollable challenges of maximizing their pricing. With this elevation, they risk losing clients who are unable to buy their products since it is a desired and not a necessity product. For instance, in 11 years now, and as a result of inflation, the price of Coca-Cola’s identical bottle has increased in price hence leading to increased expenditure on the product (Shaw, 2018). However, Coca-Cola could consider lowering the product’s price to enhance soda consumption while acquiring a less favorable margin of profit.

Additionally, interest rates are vital for determining the investment’s viability. Lower interest rates encourage the soft drinks companies to borrow loans from other corporations to expand their company and advance on the products. Thus, lower rates of interest encourage business investments in various markets. Nevertheless, when interest rates increase, these companies are discouraged in terms of investment.

Social Factors

The culture of a society, as well as the way people perform their activities, impacts the organization’s culture in an environment. Shared beliefs, along with the attitudes of different individuals, play a vital role in the way marketers at soft drinks companies understand the clients of a particular market. Several factors need to be analyzed by the soda manufacturing industries before they enter a market, and these include attitudes, culture, and demographics along with the population’s skill level.

Different cultures have different preferences for the quality level of the product, foods, as well as brands. The meaning of colors, iconic features, along with shape features, can contain varying cultural significance (Strategic Management Department, 2018). As a result, the management in the soft drinks companies should consider cultural differences to determine if the products are appropriate for the market or if they can be modified to achieve greater business.

Attitudes determine the rate of consumption of soft drinks. For instance, if people develop some interest in a particular type of beverage, it means that this type is the one to be consumed at much in that market. As a result, it implies that the company should consider distributing this type more than others. Besides, demographic factors such as health issues limit the use of soft drinks. Sugary beverage consumption is linked to the gaining of weight due to increased energy consumption. As a result of health issues, some people are discouraged from consuming sugary things hence reducing the sift drinks companies’ customers.

Technological Factors

Technology is fast disorderly various trades across the board. Over the past five years, the manufacturing industries have been transforming very fast without giving the manufacturers time to deal with changes. A company should do the industry’s technological analysis along with the speed at which the technology disrupts the industry. Slow speed offers more time, and the fast rapidity of technology disruption gives the company little time to survive and be profitable (Alkemi, 2018). The analysis of technology involves understanding various impacts such as the rate of diffusion of technology, the effect of technology on product offering, impact on expense structure in soft drinks.

Considering the technological diffusion, new soft drinks processing technologies can enhance or replace prevailing processes; nevertheless, the distribution of these novelties is not straightforward. Besides, apparent factors like regulations and costs found in soft drinks companies influence the spread of new product processing technologies. According to the industry’s stakeholders, soft aspects like the behavior of an individual, and communication among stakeholders in the chain of soft drink production are essential factors for innovations’ implementation.

There are several ways in which technology has affected the distribution of the products in the company. One way is by maximizing distribution efficiency, optimizing warehouse management, and integrating information flow between marketing, distribution, sales, as well as logistics. The communication enhancement that is offered by technology has affected the flow of information in various ways. From the time an order is established as well as throughout the process of the distribution process to consignment, information can be flawlessly unified across all departments.

Soft drinks’ expense structure has changed in various countries due to different reasons. A levy was introduced in the soft drinks industry in some countries to respond to concerns regarding rising childhood as well as childhood obesity. It smears to production as well as soft drinks’ importation that contains added sugar.

Environmental Factors

Different markets have varying environmental standards or norms which can influence the organization’s profitability in those markets. Even in a country, states can have dissimilar environmental laws as well as liability laws. Before starting an innovative business in an existing bazaar or entering new markets, the company should carefully evaluate the environmental morals needed to operate in such markets. Some of these factors include climate change, weather, recycling, air along with water pollution regulations, and standards that regulate environmental pollution, among others.

The period of high temperatures contains an immediate influence on sales as individuals buy refreshing drinks for immediate consumption to cool down. During this period, the companies are urged to produce several soft drinks before the season picks to ensure no shortage (Wells, 2019). When temperatures are high, people tend to consume more beverages. Alternatively, retailers are urged by the suppliers to begin the plans for the vital season when it is still early before the warm weather begins to ensure there are appropriate sales.

Although each factory of soft drinks may bottle various products, plus the required water may have varying origins, there are standard processes series in the line of manufacturing to generalize the main scheme related to the water consumption of different quality in regards to its application. Various bottling firms have their protocols plus mark the lines of water treatment that are followed to homogenize their products’ quality as well as comply with the needed parameters by the laws on drinking water. Besides, the suppliers of soft drinks are working together with the rest of the global businesses to enhance a ground-breaking technology for recycling plastics to support the circular economy.

Legal Factors

In several countries, the institutions, along with the legal framework, are not fully equipped to protect the rational organization’s property rights. A company should evaluate the legal factors properly before they enter a market to control the theft of secrets from the organization hence the general competitive edge.