MEMORANDUM

To: Marisa Michaels

From: John DeSouza
Subject: Soft Drink Industry Report
Date: December 9, 2016

I received your request for a report on the soft drink industry and have synthesized this
memorandum for your review. This breakdown of the industry will help you to better understand
the information for any further analyses of soft drink companies and their products. The
following document examines a brief history of the soft drink market, an overview of the
industry, major competitors, and trends of where the industry is headed.

History of the Soft Drink Market

Analyzing the past of the soft drink market is important to understanding the industry today. In
1886, Dr. J.S. Pemberton created the first working formula for Coca-Cola and originally sold it
as a brain tonic in Atlanta, Georgia (Coming of the Colas, 2000). Soon, Coca-Cola began
reinventing itself by changing the formula until it became what people know today. Along with
Coca-Cola, Pepsi-Cola was established soon after as a competitor with a new cola formula.
Although, these two became the main competitors in the cola sector, new soft drinks popped up
as well such as 7-UP and Dr. Pepper (Coming of the Colas, 2000). Soon after, many of these
companies spread across the seas to new countries such as Japan and Europe, generating
enormous sales.

The Soft Drink Industry

The industry itself has several parts. The supply chain, markets, and competitors are all
components which work to keep the industry running. Soft drink companies all rely on different
factors to sell the product to the consumer and generate revenue.

Supply Chain
Soft drink producing companies have to depend on other industries in order to compile the
materials they need for their formula and packaging. Among these are, the sugar industry, syrup
and flavoring industries and plastic/metal bottle manufacturing industries (Stivaros, 2016). Once
the supplies are gathered, the sodas are produced by Coca-Cola, PepsiCo, etc. and sold to
wholesale, vending machines, restaurants, and grocery stores (Stivaros, 2016). All of these
industries work together to create and then sell the product. Depending on how each supply or
demand industry is doing, the price of producing soft drinks will fluctuate.

Markets and Revenue

There are different markets which the soft drink industry sells their product to. From Coca-Cola
to Gatorade, all these drinks are delivered to consumers through one of these markets. Factoring
in all the markets which soft drink companies have sold to, the industry produced roughly $42.8
billion dollars in revenue this year (Stivaros, 2016).
Below, you can see a graph showing how the markets are broken down as well as the total
revenue generated by the soft drink industry.

A majority of the revenue, 41.2%, comes from grocery stores (Stivaros, 2016). Many households
buy soft drinks constantly, in liter bottles and cans, from stores like Wal-Mart and Target. One of
the markets which many people buy their soft drinks from is included in the Other section,
restaurants. Online sales are also included in the Other section and it is a market that is
surprisingly growing (Stivaros, 2016). People are ordering drinks right to their door, mainly
because of the convenience factor. Although the graph above has broken down the revenue, over
50% of sales come solely from Coca-Cola and Pepsi (Stivaros, 2016). Because of this, new
competitors entering the industry do not gain a very large share of the market.

Around the Globe

A great deal of sales in the industry come from exports as well as factories in other countries.
Over $1 billion dollars in sales come from exports, mostly to Canada (Stivaros, 2016). Imports
are also prevalent with $2.8 billion dollars in sales (Stivaros, 2016). This is mostly from products
such as Red Bull which are founded outside the US. However, recently there has been a health
movement around the in the United States regarding eating well and fighting obesity. Because of
this, exports are expected to increase and imports are expected to decrease (Stivaros, 2016). This
will hardly have an effect on overall sales of soft drinks because the demand is far too massive.
New competitors are also trying to take advantage of this health movement and enter the market
through different means like drinks with organic ingredients (Roderick, 2016). However, the
biggest soft drink companies have too great of a market share to be challenged in any major way.

Biggest Soft Drink Companies

Overview of the Major Players
There are four main companies competing in the soft drink industry and they were all founded in
the United States. The biggest player is the company which started it all, Coca-Cola. Following
Coca-Cola is PepsiCo, which was created a little over 10 years later than Coca-Cola. The two
have been the biggest competitors in the industry since that time and have the biggest shares of
the market (Stivaros, 2016). The final two, Dr. Pepper Snapple Group Inc. and Monster
Beverage Corp., have the third and fourth largest market shares respectively in the soft drink
industry (Stivaros, 2016).

This diagram shows the soft drink market share that each of the major companies control.

Below is a list of each drink that falls under each company. There are a surprising amount of soft
drinks that each company owns besides their own namesake beverages.
Coca-Cola PepsiCo Inc. Dr. Pepper Snapple Monster Beverage
Company Group Inc. Corp
Coca-Cola Pepsi Dr. Pepper Monster
Diet Coke Mountain Dew Snapple Full Throttle
Fanta Sierra Mist 7-UP NOS
Sprite Mug Root Beer A&W Root Beet Burn
Coca-Cola Zero Izze Canada Dry
Barqs Diet Pepsi RC Cola
Cherry Coke Pepsi Zero Sugar Sun Drop
Powerade Gatorade Sunkist
Schweppes
Source: IBISWORLD

Coca-Cola Company
Coca-Cola is, by far, the biggest company in the soft drink industry. People may argue which
soda tastes best, but as of now, Coca-Cola is making the most money. In 2016 alone, theyve
made a little over $7.2 billion dollars in revenue and their performance seems to be improving
(Coca-Cola Co, 2016). Through innovative measures such as inventing a diet version of their
drink, creating new flavors, and removing sugar, Coca-Cola has continually sold more soft drink
products than every other company.

PepsiCo Inc.
PepsiCo is still trailing close behind Coke in the soft drink industry. In 2016, PepsiCo made
about $6.6 billion dollars in net income (PepsiCo Inc, 2016). However, PepsiCo makes a lot
more than just soft drinks, they also sell and manufacture food. Foods such as Quaker and Frito-
Lay products are all sold by PepsiCo (PepsiCo Inc, 2016). Their established position in both the
food and soft drink industries help to keep PepsiCo ahead of several other competitors.
Dr. Pepper Snapple Group Inc.
Although their products have not been as strong or well-known as the big two, Dr. Pepper
Snapple Group Inc. keeps a strong tertiary position in the soft drink industry. Their net income
for the year of 2016 is about $867 million (Dr Pepper Snapple Group Inc, 2016). However, they
do have one of the most diverse collections of soft drink brands. Unlike the other two, where
many of their drinks are derivatives of their main drink (e.g. Diet Pepsi and Coca-Cola Zero), Dr.
Pepper Snapple Group has created different successful drinks loved by many. The fact that there
are still more derivatives for each of their products (e.g. Diet 7-UP, Diet Snapple) makes their
product lines even more varied.

Monster Beverage Corp.

Monster Beverage Corp is a bit different when considering the soft drink industry. Monsters
main products are all energy drinks. Because of this, it is not sold in some of the markets which
normal sodas can tap into, such as restaurants. Despite this, their net income is still quite high for
their market share at $678 million dollars in 2016 (Monster Beverage Corp, 2016). One of their
main competitors in this sub-market of energy drinks is Red Bull, which is sold outside of the
United States.

The Future of Soft Drink Companies

It is safe to say that none of these companies will be going away any time soon. Each one is
financially strong enough to remain stable with the products that they sell and the share of the
market which they own. They will also continue to invent even more products in order to retain
their solid hold in the industry.

Trends
Mixing Drinks
There are several new trends popping up which are attempting to breathe new life into the
industry in different market spaces. One of the biggest market spaces which needed
reinvigorating recently was restaurants selling soft drinks. In 2015, soda sales were down about
4-5% in restaurants with a healthier attitude in the United States possibly being the culprit
(Hennessy, 2016). In order to remedy this, restaurants introduced machines to mix all kinds of
different sodas and their derivatives. With a normal soft drink dispensary, you would only get
about 10 choices at the most. However, with the new and improved machines, you select what
you want on a touch screen from a selection of over 120 drinks (Hennessy, 2016). More people
have been buying soft drinks from restaurants because of the fun factor which these machines
deliver.

Cream Soda and other Combinations

Different restaurants are also using their own innovative ways to incorporate sodas in their
menus. One example of this is cream soda. At Sonic Drive-In, they introduced a Soda Pop
Shoppe with different cream sodas for their customers (Hennessy, 2016). It was only for a
limited time, but several customers bought the cream sodas because it reminded them of the past
(Hennessy, 2016). Another example of this is bars including products like Coca-Cola in their
mixers which have become extremely popular (Robinson, 2016). Restaurants will likely continue
to include different ways to add sodas to menu items in the future.
Less is More
One of the biggest trends has been creating diet versions of already existing drinks. Strangely,
the trend started with another competitor in the industry, Diet-Rite (Siegel, 2006). However, it
only really became popular when Coca-Cola started to sell diet versions of their drink in the
1960s (Siegel, 2006). Pepsi soon followed the trend and now we have diet/no sugar/low calorie
versions of drinks from a majority of the companies in the market, from soda to energy drinks.
The most recent have been Coke Zero and Pepsi Zero Sugar (Stivaros, 2016). Every company
seems to keep making different types of healthier product derivatives after Diet Coke was
created.

This report provided an evaluation of the soft drink industry by examining its history, reviewing
the state of the industry, going over major competitors, and looking at trends of where the
industry is going. I hope that this information will be useful for you in any further reports you
would like to conduct about the soft drink industry. Please feel free to contact me at
jdesouza@email.arizona.edu if you have any questions or comments regarding the report.
 Industry Report Works Cited
Coca-Cola Co. (2016). Company Details. Retrieved from Mergent Online
database.
Dr Pepper Snapple Group Inc. (2016). Company Details. Retrieved from Mergent Online
database.
Hennessy, M. (2016). Reversing the soda slump. Restaurant Business, 115(6), 32. Retrieved
from EBSCOhost.
Monster Beverage Corp. (2016). Company Details. Retrieved from Mergent Online
database.
PepsiCo Inc. (2016). Company Details. Retrieved from Mergent Online database.
Robinson, N. (2016). Soft drinks are not a hard sell. Publican's Morning Advertiser, (9), 28-29.
Retrieved from EBSCOhost.
Roderick, L. (2016). Meet the challenger brands taking on the soft drink giants. Marketing Week
(Online Edition), 1. Retrieved from EBSCOhost.
Siegel, B. (2006, July). Sweet Nothingthe Triumph Of Diet Soda. Retrieved from
http://www.americanheritage.com/content/sweet-nothing-triumph-diet-soda-0
Stivaros, C. (2016, October). IBISWorld Industry Report 31211a. Soda Production in the US.
Retrieved from IBISWorld database.
The coming of the colas. (2000). In K. Kiple & K. Ornelas (Eds.), Cambridge World history of
food. Cambridge, UK: Cambridge University Press. Retrieved from
http://ezproxy2.library.arizona.edu/login?url=http://literati.credoreference.com/content/en
try/cupfood/the_coming_of_the_colas/0