Part 4: SWOT Analysis

The soft drink industry is highly competitive. Characteristics of the industry include slow

growth and maturity, a phase during which weak companies are weeded out of the market by the

strongest corporations. In order to stay competitive, soft drink companies must be able to offer

their product at a low price. A price that can at least match (or preferably, beat) a competitor’s

price will allow that product to enter into a consumer’s mental set of possible brands to purchase.

Because the pop industry produces a fairly standardized product, competitors in the industry

cannot entice the consumer to pay a premium price for its product over another firm. Therefore,

the ability to produce soda at a low cost to the company is an extremely important determinant of

success.

Secondly, the firm’s brand of soda must be available for consumers to purchase easily.

This means that the brand must be on the shelves of stores where most consumers shop for

beverages, namely, large grocery stores. Although other channels of distribution are available,

once again it is important for the brand to enter into a consumer’s mental set of possible brands

to purchase. The fact that there are no switching costs associated with pop purchases means that

consumers will not travel to special distribution points just to purchase a certain brand of soda.

Convenience for the consumer is a very important consideration for successful firms in this

industry.

Of the two aforementioned keys to success in the pop industry, the National Beverage

Corporation possesses strengths in one area but may be vulnerable to threats in the other.

According to its 10K, it competes by “appealing to the ‘quality-price’ sensitivity factor of the

family consumer.” It has a low cost structure as compared to its competitors, and this shows in

its pricing structure. As well as being able to compete price-wise, National Beverage
Corporation is also well equipped to produce quality beverages. The larger competitors like

Coca-Cola and PepsiCo are not equipped for batch production, which helps to ensure quality.

Additionally, National Beverage Corporation is vertically integrated with its bottlers. This

ensures quality as well as efficiency through improved scheduling.

On the other hand, in terms of good distribution methods, National Beverage Corporation

is at a disadvantage. Trends in the grocery store industry are not coinciding with National

Beverage Corporation’s strategy, and this is beginning to pose a problem. The Detroit Free Press

recently pointed out that Faygo is no longer sold at Kroger, causing sales to shrink. The success

of Faygo, as well as of other brands sold by NBC, depend on regional brand loyalty. This

strategy worked well when grocery stores were locally and independently owned. However,

consolidation among the big grocery store chains are forcing smaller, local competitors out of the

industry, causing National Beverage Corporation to lose its main distributors. Competitors like

Coca-Cola and PepsiCo have more financial resources than NBC, which allows them to

negotiate with large grocery chains while NBC cannot. As a result, NBC’s small, local brands

are not of interest to large, nationally owned grocery chains, so they are not purchasing them to

be stocked on their shelves. If NBC’s brands are not on store shelves, it will be very difficult for

the company to maintain success while consumers are increasingly seeking one-stop shopping.

This trend in the grocery store industry will definitely prevent the National Beverage

Corporation from being successful in the future in terms of its distribution strategy. However, its

future in terms of price are not in danger. Although Coke and Pepsi are gaining cost efficiencies

in purchasing and production through economies of scale by focusing on cola, NBC can gain

through economies of scope. They are pursuing a corporate strategy of horizontal integration by
buying more small, regional brands. They can share sales staff and distribution channels with

existing brands. Gaining more brands and growing as a company will not cause price increases.

Given National Beverage Corporation’s strengths and weaknesses, there are many

environmental opportunities and threats that may affect the company. As already discussed, the

trends towards consolidation of the grocery store industry and consumers increasingly seeking a

one stop shopping experience is the largest threat to NBC. Other threats include demographic

trends such as the aging of the population. This is a possible problem because the elderly do not

usually drink as much pop as youth and young adults. However, the fact that NBC is diversified

in its product offerings will allow it to triumph over this threat. The company produces diet soda

that appeals to the older soda drinker. Additionally, NBC has such a large variety of flavors that

they are able to satisfy the tastes of almost anyone. Its most recently added flavors are Diet Key

Lime Pie and Diet Coconut Cream Pie. These flavors show that NBC is trying to appeal both to

the older consumer that may not choose to drink very sweet beverages and also to the increasing

number of consumers who are trying to eat healthier.

Opportunities for National Beverage Corporations’ lower priced sodas are increased by

economic conditions. The recent downturn in the economy means people have less disposable

income and thus may buy more of NBC’s products as a cheaper alternative to other brands.

However, NBC may not be able to capitalize on this opportunity given its weakness in

mainstream distribution channels. Another consumer trend that may be an opportunity is the fact

that the US market is consuming soda at a higher rate than other countries worldwide. The

average US citizen consumes more then two 8oz servings of soda everyday, while worldwide

individuals only average less then one 8oz serving each day. NBC is unable to capitalize on this

opportunity as much as a larger competitor such as Coca-Cola would. Due to Coke’s brand
appeal, its annual report estimates that the average consumer in North America has one serving

of Coke products everyday. The National Beverage Corporation does not have the financial

resources to engage in large scale event sponsorships and advertising to compete with Coca-Cola

in this respect.

Overall, in terms of environmental threats and opportunities, National Beverage

Corporation comes out at a slight disadvantage. It will not be able to capitalize on opportunities

in a way that will gain market share from its competitors in a mature industry. Although it has

strengths that will allow it to overcome most threats, the most important threat that is due to the

consolidation of grocery store chains is a big concern.