To: Cheryl Brodersen

From: Tyler Hull

Subject: Industry Report
Date: November 20, 2016

Per your request, this document will give an in depth summary of the soft drink industry. The
soda industry is a vast and very large industry driven by two main giants. It will be helpful as
you begin to research the industry and determine which company deserves your investment.
Included in this report will be information regarding the major players in the industry, the
services and products offered, notable trends, and themes in both the domestic and international
markets.

The Major Players

In the soft drink industry there are two major players, Coca-Cola and PepsiCo. These two
companies dominate the domestic market taking up 32.4% and 25.9% of the market
respectively. Dr. Pepper Snapple Co. is next on the list taking up 9.4% of the market followed by
Monster Beverage Corp at 6.4%. Aside from these four companies there are many competitors
that take up the rest of the remaining 25.9% of the market.

Coca-Cola
The biggest non-alcoholic beverage company in the world employs more than 123,000 workers
and is estimated to generate a global revenue of $42.3 billion in 2016. They own and operate
roughly 82% of the goods produced, sold and distributed in the US. This creates a much more
efficient supply chain. Due to a decline in sales of the featured products, such as Coke and Diet
Coke the company has chosen to invest in varying types of products. One products

Pepsi Co
Second only to Coca-Cola in terms of manufacturing, PepsiCo employs more than 263,000
people worldwide and is expected to generate a global revenue of $61.4 billion. Not unlike Coca-
Cola they have seen a decrease in units sold over the last 10 years. Though increases in prices
and in sales of their snack items, such as Frito Lay products, have helped in increase revenue.

Dr. Pepper Snapple Co.

The third largest on the market, Dr. Pepper Snapple Co.employs about 19,000 people and is
expected to generate a global revenue of $6.4 billion in 2016. Unlike Coca-Cola and PepsiCo
much of Dr. Pepper Snapple Co.s consumer base is located in the United States.

Monster Beverage Corp.

The smallest of the big four on the market, Monster beverage Corp. employs about 1,650
people worldwide. It is expected to generate a global revenue of $3.1 billion in 2016, up 10%
from 2015. Originally just producing its signature, Monster energy drink the company has
expanded to include various types of products including Hansen's natural soda.

Products
The soft drink industry has a variety of drinks, ranging from the classic Coke and Pepsi all the
way to bottled water. Most of the major players have products in all aspects of the refreshment
market. The largest
segment of the product
market is the regular
carbonated soft drinks;
Coca-Cola for
example owns four of
the top five branded
sodas: Coke, Diet
Coke, Sprite, and
Fanta (Soft Drinks and
Bottled Water,p. 3).
PepsiCo comes in next
with Pepsi and
Mountain Dew as their
signature drinks. Dr.
Pepper Snapple Co.
has its signature drink of Dr. Pepper along with the various Snapple Teas.

Aside from the typical soda and diet soda, the major players are beginning to expand their energy
and sports drinks. Gatorade, for example, was purchased by PepsiCo in 2000 and has become
one of the companies 3rd best refreshment product. In addition, Coca-Cola purchased nearly
17% of Monster energy Co. in order to try to expand more into the energy drink segment, which
is dominated by Monster and the smaller company Red Bull.

Many differing product lines are beginning to expand such as the iced tea and coffee, sparkling
water and the natural, no artificial sweeteners soda lines. As society shifts towards healthier
options, high fructose corn syrup and other artificial sweeteners are being looked down upon.
Product lines such as Coke Zero, Snapple Teas and other various lines that promote natural
products have seen sales increase over the last 10 years.

Notable Trends
One of the most notable trends in todays society is the shift towards healthier, lower calorie, and
natural foods. This trend has led to negative effects in the soft drink industry. Soda consumption
in the United States, traditionally the largest consumer of soda drinks, fell by almost 20 percent
between 1998 and 2014, from an average of 51 gallons per person to 44 gallons during that time
frame(Soft Drinks and Bottled Water,p. 1). Much of the cause for this decline in sales can be
attributed to the recent healthy phase. Sugary drinks (i.e. soft drinks) lead to weight gain which is
bad for your overall health. With this decline in sales, the companies are attempting to release
new products that are lower in sugar. For example, PepsiCo released a new soft drink in 2009
titled Pepsi Max and had zero sugar. As recently as 2016, Coca-Cola introduced Coke Life
which contains no artificial sweeteners in a way to bring back lost customers. Dr. Pepper Snapple
Co. has shifted towards marketing their tea products extensively, as tea is generally considered a
healthy alternative to high sugar carbonated soft drinks. Finally, Monster Energy Corp. acquired
Hansens Natural Sodas in 2012, which has flourished under their umbrella.

There is a clear correlation with the increase in healthy eating and the decrease in soft drink
consumption.

Domestic Themes
After looking through the data is it obvious that domestic sales have decreased in the last 10
years. Sales have fallen 44% from 1998 in the domestic markets, this is a sharp decline that
doesnt bode well for the future of the industry. Much of the blame for this decline can be
attributed to the societal shift towards healthier, more natural drinks. In 33 states there is a
special tax on soda in an effort to drive consumers away from them and towards water and other
drinks.

An interesting theme that is occurring in Americas imports, most notably is the desire for Red
Bull. Nearly 56% of Americas imports are from Red Bull alone. Other international distributors
have also seen increases on exports to America, as the

International Themes
While domestic sales have seen a sharp decline, the same cannot be said for international sales.
Coca-Cola has recently expanded its sales to India, where sales have increased immensely over
the last

Major Distributors
Another question to think about is where these products are being sold. Grocery stores are where
41.2% of soft drinks are being sold, followed by gas stations and convenience stores at 19.9%,
vending machines at 14.4%, warehouse clubs at 12.2% and then the rest at 10.1%. Exports make
up only 2.4% of the market share, as most of the companies have factories and bottling centers in
other countries.
As requested, this report included information regarding the major players in the industry, the
services and products offered, notable trends, and themes in both the domestic and international
markets. It is clear that the Soda Industry is an immense giant that reports massive revenues each
year. Despite still posting massive revenues, societal shifts towards healthier options has led to
questions about the future of the industry. I hope this assists you in your research as you attempt
to find a stock investment for your portfolio. If you have any further questions feel free to reach
out to me at tylerhull@email.arizona.edu or by phone at 520-904-4032.

References

SCHAEFER, S. (2016). Soda Pep. Forbes, 198(1), 20.

Soft Drinks and Bottled Water. (2015). In Encyclopedia of Global Industries. Farmington Hills,
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016/e655aab3d9f48f9da50d6beb7bbf01ab?u=uarizona_main

Coca-Cola Amatil Limited SWOT Analysis. (2016). Coca-Cola Amatil SWOT Analysis, 1-8.

Fagerng, S. (2016). Shoppers want choice as well as health in soft drinks. Grocer, 20.

A Guide to the soft drink industry - ChangeLab Solutions. (2012). Retrieved November 14,
2016, from http://www.changelabsolutions.org/sites/default/files/ChangeLab-
Beverage_Industry_Report-FINAL_(CLS-20120530) _201109.pdf

Stivaros, C. (2016, October). Soda Production in the US. Retrieved November 14, 2016, from
IBIS World.
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https://www.google.com/finance?q=NYSE:KO&ei=_VYpWPnsIpDHmAGi4ZmYCA

Dr Pepper Snapple Group Inc. (2016, November 13). Retrieved November 13, 2016, from
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PepsiCo, Inc. (2016, November 13). Retrieved November 13, 2016, from
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