Microeconomic analysis of the beverage industry
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Published: Mon, 5 Dec 2016
Objective : The main objective of this essay is to study and analyse the economic setup the beverage companies have managed to establish in two different markets like India and UK. This will be done mainly on the basis of Structure-Conduct-Performance (SCP) Paradigm. The study will concentrate more on the leading soft-drink manufacturer The Coca-Cola Company which is regarded as the leader in that particular segment of market all over the globe. The study also includes deeply looking into the anomalies or the problems that the company might have faced to be in the competition in the two economies , if any, which may be based on the structure of the market – population, standard of living, overall spending capacity of the people in the country etc and also looking into the steps taken by the company to overcome the issues which constitutes the conduct of the company. Analytical research and explanation on the sales graph of the company for the past decade in the above said economies which shows the performance of the company is also included in the study.
To start with the essay and to get a better understanding , light has to be thrown on the history of the company and the roots of the company in the two countries .
Coca-Cola was invented in May, 1886, by Dr John S Pemberton in Atlanta, Georgia. The name “Coca-Cola” was suggested by Pemberton’s bookkeeper, Frank Robinson. He penned the name Coca-Cola in the flowing script that is famous today. Coca-Cola first sold for five cents a glass at a soda fountain in Jacob’s Pharmacy. During its first year, sales of Coca-Cola averaged six drinks a day.
INDIA AND UK AS MARKETS : The Basic Conditions of the market –
India as a developing country with 8.5 % GDP, is regarded as one of the fastest growing economies in the globe. But poverty has always been a critical problem for India. With more than half of its population living under poverty line who cannot afford luxuries, major investors has to concentrate on the rest of the population and mainly on the big cities. But , against the backdrop of an ageing world, India has the biggest advantage of having a huge young population. Around 570 million people of the total population of India are under 25 years of age#6. The working age group (15-60) is estimated to constitute more than 60 % of the total population till 2050.This large proportion of the working age group which is considered as the main consumers in any economy makes India a dream destination for the retail market giants whole across the globe. India is home of 20% of the global population under 25 years of age, and as part of the IT/ITeS boom from the recent past ,this proportion of the population equipped with a good salary and who are considered to be the Brand conscious minds , has made the Indian market a well promising ground for the investors. And for a global brand like Coca-cola, the demand factor in India is in a higher level with the above said new generation.
On the other hand , UK a well developed and powerful G8 economy with a comparatively much lesser proportion of poverty population ,is having a much better standard of living when compared to that of India. But, contradicting to the situation in India , UK has a large proportion of ageing population. According to recent estimates , in a period of 30 years, 40% of the total population in UK will be more than 60 years of age# 10. And the fall in the fertility rate is also a major concern for the future market. Though the future is unclear, the present market scenario is very pleasant with strong development policies by the government and the comparatively high standard of living .
Coca-Cola in both the Markets : The STRUCTURE –
In India , the economy with a population of 1.1 billion , 55 % of the total population lives below the poverty line. Using a newly developed index, a recent Oxford University study states that one-third of the world s poor lives in India#4. And the expense for a soft drink from their budget would be more than a luxury for that category of population. So the company has to look for the remaining portion of the consumers. Thanks to the quickly growing metropolitan urban cities of the country which has maximum number of brand conscious youth generation, from where the company has managed to raise most of its profit. And as the organised retail system became so popular in India from the recent past, company was able to push the sales figures to a much higher level.
THE CONDUCT and the PERFORMANCE:
The journey of the company was not so smooth in the Indian market. After the company withdrew from the country on 1977 because of the Foreign Exchange Regulation Act (FERA) that regulated the operations of foreign companies in the country , they came back in 1993 ,as Coca-Cola India (CCI) by acquiring the then famous soft drink brands in India Thumps up, Limca, maaza ,Gold spot and Citra. But their main rival ,PEPSI ,had already entered the market in 1990 and had been holding most of the market share#5. But, acquiring the domestic brands helped coca-cola to establish themselves in the country more easier and to bring in the global brand value that they had. And by 2000 , the company launched their new product Kinley ,bottled drinking water. But ,on 26th Jan 2000 ,the company had stated a loss of $45 Million on their fourth quarter results due to heavy investments in India and Japan, and by that time the company had invested $800 million in the Indian market. Considering the loss in the market regarded as developing economy ,the US Head quarters of the company had sent a warning message to CCI.
The year 2002 saw a remarkable turn around in the sales of the companies product in India. The company adopted a marketing strategy of reducing the size of the bottle with a substantial lowering of price. The company brought in 200 ml bottles with a price of Rs 8 ( 11 pence ) which created some excitement in the crowd resulting the sales to go up by 15 20 % #7
But the sales graph raised even more when the company slashed the price of the 200ml bottle to Rs 5 ( 7 pence ) which helped the company to push the target population from 164 million to 250 million. The Coke India was awarded with Woodruff Award ,which is considered as a prestigious award within the company. The products were further more popularised as the advertisements of the product was done through highly paid Movie actors such as Aamir Khan and Aishwarya Rai. In 2003 , the companies plant in Bidadi ,near Bangalore, was given ISO certification# 1. This was a big achievement and the company was achieving enormous popularity and revenues.
The ANTI-COLA STRIKE
In 2003 ,when the graph was on the peak , the company faced the most devastating challenge. The centre for Science and Environment (CSE) , a non-governmental company in Delhi , accused that the aerated soft drinks in India had high level of pesticides which may cause cancer and many birth deceases. Tests proved that Soft drinks from Coca-cola consisted of 30 times the permitted level of pesticide residues allowed under European Union Regulations. Where as tests done in other countries ,including UK ,had not proved positive for the residues. This started of a huge number of protests against the cola items all over the country which resulted in a remarkable fall in the sales figure of the product by 11 % #8
In the following years, more protests came up as one whole village in Kerala ,a southern state of India protested for the company plant located in their village to be shut down accusing that the company was exhausting the under ground water resources leaving the whole village in water scarcity. This caused the state government to ban the company plant in the year 2006 ,though the ban was reversed by the Kerala High Court after a month. Five other Indian state governments also partially banned the soft drink from colleges, schools and hospitals. #9 .
The COMPANIES REPLY :
3.Basu, Indrajit. “Coke bubbles after a decade in India,” www.atimes.com, 26th April 2003.
7.Basu, Indrajit. “Coke bubbles after a decade in India,” www.atimes.com, 26th April 2003.
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