Beverage Industry

The beverage industry can be analyzed through the use of Porter’s 5 Forces. The forces are competitive rivalry within an industry, bargaining power of suppliers, bargaining power of customers, threat of new entrants, and threat of substitute products. All of these can be applied to the beverage industry the same way they apply to any other industry.

Competitive rivalry within an industry refers to the relationships one brand has with another. This rivalry may occur within the same parent company, where two brands are competing with one another for the resources of the company, or it may happen between two unrelated brands parented by their own companies, which is typically the way consumers see rivalry. This kind of competitive rivalry sets up a situation in which the most capable, sound, and “fit” brand comes out on top. It keeps brands on their feet & hopefully receptive to changes in the industry or their target audience.

Bargaining power of suppliers and customers is an incredibly important force when considering a brand or business. For all businesses, it comes down to the bottom line - the profit. When their main suppliers demand a certain price, the business will have to make a decision on whether or not to continue that product at that price. Likewise, when a consumer only willing to pay a certain range for a certain product, the business must respond with either an acceptance of that range, or a refusal of it - another difficult decision that must be made at the margin. 

The threat of new entrants is an omnipresent threat that exists in all industries. However, certain industries are more difficult to enter than others. For example, it is very easy to enter the online e-commerce market with any given product. It is much more difficult to enter a die cast model car industry where precision, reputation, and specialization is key. Although there are differences in the levels of difficulty in joining a new field, the threat of new entrants looms large over all industries.

Lastly: the threat of substitute products. This may be the single most potent factor in your success, or your demise, as a business. Especially in the beverage industry, there are oftentimes dozens of substitutes that are readily available for your purchase. There are many different kinds of soft drinks, water, coffee, tea, etc. that a consumer may choose from when making a purchase.

Together, these five forces have strong determining power on the way a business runs itself.