CHAPTER TWO
LITERATURE REVIEW
2.0 Introduction
This chapter presents related literature and it is presented in themes according to the research objectives.
2.1 Factors influencing the demand of inputs
Market size, growth rate and overall profitability are three economic indicators that can be used to evaluate the soft drink industry. The market size of this industry has been changing. Soft drink consumption has a market share of 46.8% within the non-alcoholic drink industry. Data monitor (2005) also found that the total market value of soft drinks reached $307.2 billion in 2004 with a market value forecast of $367.1 billion in 2009. Further, the 2004 soft drink volume was 325,367.2 million liters. Clearly, the soft drink industry is lucrative with a potential for high profits, but there are several obstacles to overcome in order to capture the market share.
The growth rate has been recently criticized due to the U.S. market saturation of soft drinks. Data monitor (2005) stated, “Looking ahead, despite solid growth in consumption, the global soft drinks market is expected to slightly decelerate, reflecting stagnation of market prices.” The change is attributed to the other growing sector s of the non-alcoholic industry including tea and coffee (11.8%) and bottled water (9.3%). Sports drinks and energy drinks are also expected to increase in growth as competitors start adopting new product lines.
Profitability in the soft drink industry will remain rather solid, but market saturation especially in the U.S. has caused analysts to suspect a slight deceleration of growth in the industry (2005). Because of this, soft drink leaders are establishing themselves in alternative markets such as the snack, confections, bottled water, and sports drinks industries (Barbara Murray, 2011c). In order for soft drink companies to continue to grow and increase profits they will need to diversify their product offerings.
The geographic scope of the competitive rivalry explains some of the economic features found in the soft drink industry. According to Barbara Murray (2011c), “The sector is dominated by three major players…Coca-Cola is king of the soft drink-empire and boasts a global market share of around 50%, followed by PepsiCo at about 21%, and Cadbury Schweppes at 7%.” Aside from these major players, smaller companies such as Cott Corporation and National Beverage Company make up the remaining market share. All five of these companies make a portion of their profits outside of the United States.
The Brand Keys’ Customer Loyalty Leaders Survey (2004) shows the brands with the greatest customer loyalty in all industries. Diet Pepsi ranked 17th and Diet Coke ranked 36th as having the most loyal customers to their brands. The new competition between rival sellers is to create new varieties of soft drinks, such as vanilla and cherry, in order to keep increasing sales and enticing new customers (Murray, 2011c).
The buyers of the Coca-Cola and other soft drinks are mainly large grocers, discount stores, and restaurants. The soft drink companies distribute the beverages to these stores, for resale to the consumer. The bargaining power of the buyers is very evident and strong. Large grocers and discount stores buy large volumes of the soft drinks, allowing them to buy at lower prices. Restaurants have less bargaining power because they do not order a large volume. However, with the number of people are drinking less soft drinks, the bargaining power of buyers could start increasing due to decreasing buyer demand (Murray, 2011a).
Suppliers for the soft drink industry do not hold much competitive pressure. Suppliers to Coca-Cola are bottling equipment manufacturers and secondary packaging suppliers. Although Coca-Cola does not do any bottling, the company owns about 36% of Coca-Cola Enterprises which is the largest Coke bottler in the world (Murray, 2011a). Since Coca-Cola owns the majority of the bottler, that particular supplier does not hold much bargaining power. In terms of equipment manufacturers, the suppliers are generally providing the same products. The number of equipment suppliers is not in short supply, so it is fairly easy for a company to switch suppliers. This takes away much of suppliers’ bargaining power.
The buyers of the Coca-Cola and other soft drinks are mainly large grocers, discount stores, and restaurants. The soft drink companies distribute the beverages to these stores, for resale to the consumer. The bargaining power of the buyers is very evident and strong. Large grocers and discount stores buy large volumes of the soft drinks, allowing them to buy at lower prices. Restaurants have less bargaining power because they do not order a large volume. However, with the number of people are drinking less soft drinks, the bargaining power of buyers could start increasing due to decreasing buyer demand (Murray, 2011a).
2.2 Challenges faced by soft drinks industries
Despite the heavy growth indicators of Soft Drink Industry, condition is very grim in carbonated soft drink sub segment. It has lost sales to healthier beverage options such as flavored waters, juices and health drinks. Carbonated Soft drink consumption is on a decline in developed countries as consumers switch to healthier alternatives such as juices, Ready-to-Drink (RTD) teas, RTD coffee, water mixers etc.
Moreover, soft drinks are prone to higher taxation due to their unhealthy nature. Hence, volume consumption is on a decline in the U.S. and Europe. Developing nations, on the other hand, offer tremendous potential in terms of volume growth. Soft drink consumption (per capita) in countries like China, India and Brazil is still only a fraction of what it is in the developed world. Consumers have been shifting to natural and healthier beverages with less sugar and calorie content due to the health risks associated with sugary drinks.
The diet counterparts have fared even worse, with the artificial sweetener aspartame being criticized for causing sugar cravings, dehydration, weight gain and even heart diseases. Health and wellness concerns have further caused a 7% decline in diet soda consumption in the domestic market in the first quarter of 2014.
The Coca-Cola Company calls its carbonated beverage category sparkling beverages. Over the past few years, sparkling beverages have come under severe criticism from health agencies and consumers. These drinks, better known as CSDs (carbonated soft drinks), have been criticized for their high sugar content and caffeine.
Health agencies have also accused the drinks of causing several diseases, including obesity, diabetes, and osteoporosis. Consumers are slowly moving away from CSDs to still beverages.
Coca-Cola’s still beverage portfolio includes noncarbonated beverages such as flavored water, juices, ready-to-drink tea, coffee, and sports drinks. “Sales of carbonated soft drinks slid for the tenth straight year in 2014 as Pepsi and Coca Cola each posted modest declines, according to a key industry report that showed volume has now settled to levels last seen in the mid-1990s.
2.2 Solutions to the challenges faced by soft drinks industries in acquiring inputs
The soft-drinks industry is fully saturated with competitors. Also, the industry is no longer expanding, and market share is actually decreasing as more consumers are looking to healthier options. By continually introducing new products, Coca-Cola was able to increase their profits and allow the company to continue to grow. Also, having a diverse product line will make the corporation very stable, which is appealing to investors and creditors.
According to Sicher (2009), strong growth in demand in emerging economies: soft drink industries are already well established in key geographic areas. The companies’ strong foothold in these markets, positions it perfectly for leveraging market level growth in these economies. The companies are also focusing on scaling up operations in emerging economies through wider collaborations with bottlers. Bottlers are making huge investments in increasing manufacturing capacity, while the companies are steadily increasing their marketing and advertising focus.
Kyamutetera (2009) advances that trying to sustain or increase the global market share. Companies should be well-established globally. This is very important to sustain because it is the source of the majority of their profits. If they lose global market share, their profits will decline dramatically.
According to (Ntayi, 2009) to maintain and try to increase their brand loyalty, companies should strive to obtain higher brand loyalty in all other brands. The brand loyalty is important because it will allow sustaining profits and maintaining their market share.
Companies are using different strategies to grab the bigger chunk of the market. They are following a two-fold strategy in this respect: Increased Marketing Spend by as much as 10% in 2011 in most companies. The companies are rolling out products flavored with stevia, a natural low-calorie sweetener (Nabirumbi and Ochaka, 2012).
CHAPTER THREE
RESEARCH METHODOLOGY
3.0 Introduction
This chapter presents the research design, area of the study, study population, sample size, sample techniques, the data collection instruments, the procedures of data collection, ethical considerations, and data analysis.
3.1 Research Design
A descriptive research design was used. A quantitative design, combined with qualitative method was used for this study. Qualitative approach involves an unstructured approach to inquiry and allows flexibility in all aspects of the research process. It is more appropriate to explore the nature of a problem, issue or phenomenon without quantifying it. Its main objective is to describe the variation in a phenomenon, situation or attitude like description of an observed situation, or opinions. Quantitative research is the systematic empirical investigation of observable phenomena through statistical, mathematical or computational techniques. The research used this method because it produces information only on the particular cases studied.
3.2 Area of study
The study was carried out at century bottling company. This is because it is a soft drink industry. This area was chosen because it was accessible; it was also convenient for easy and cheap data collection.
3.3 Population of the Study
According to Baron, (2011), this constitutes people-individuals, organizations, groups, communities or other units that provide information or to collect information about for the study. The target population was comprised of 60 respondents both male and female.
3.4 The Sample Size
The sample refers to a few items selected from the universe or population for study purposes, (Baron, 2011). The sample size would consist of 52 respondents from the study area. It is determine based on the Krejcie and Morgan’s sample size calculation which same as using the Krejcie and Morgan’s sample size determination table. The sample size determination Table 3.1 is derivative from the sample size calculation which expressed as below equation (Krejcie and Morgan, 1970). The Krejcie and Morgan’s sample size calculation was based on p = 0.05 where the probability of committing type I error is less than 5 % orp <0.05.
S=
Where,
s = required sample size.
X2=the table value of chi-square for 1 degree of freedom at the desired confidence level (0.05 = 3.841).
N = the population size.
P = the population proportion (assumed to be 0.50 since this would provide the maximum sample size.
d = the degree of accuracy expressed as proportion (0.05).
Table 3.1: Showing Sample size
| Category | Population | Sample size | Technique |
| Top Management | 5 | 4 | Purposive |
| Staff | 55 | 48 | |
| Total | 60 | 52 |
Adapted from Krejcie, R.V & Morgan, D.W (1970)
3.5 Sampling Procedures
According to Baron, (2011), sampling is a definite plan determined before data collection for obtaining a sample from a given population. It involves three decisions: who to be sampled, how many people to sample, and how to obtain the sample. The following sampling techniques were used. Purposive Sampling involves deliberate selection of particular units of the population for constituting a representative sample (Baron, 2011). It involves convenience and judgemental sampling. Judgmental sampling or purposive sampling – The researcher chose the sample based on who she thought was appropriate for the study.
3.6 Data source
The data collected was primary and secondary in nature. Primary data was collected from respondents through the use of questionnaires and interview sessions. The secondary data was collected from Library, research reports, journals, articles inform of literature review which provided information related to the study.
3.7 Data Collection Instruments
The study involved the following instruments;
The researcher strived to get first-hand information by making appointments with individual respondents to answer questions related to the study topic. Semi-structured interviews were used to generate additional information from the respondents. This involved a more interactive interface with staff. The interview guide was used as an instrument of data collection because it helps the researcher to acquire information which would have if using other methods and it saves time for the researcher and the respondents since only key questions are asked.
Questionnaires was used to collect data from key informants mainly because they can read and write, they may have busy schedules thus not interfering with them and can answer at their convenient time. Questions were constructed in simple English that can easily be interpreted. They was taken to respondents by the researcher and picked at an appointed date.
3.8 Procedures of Data Collection
The researcher was given a go ahead by the University Supervisor to go to the field to collect data. An introduction letter and a valid identity card (ID) were presented to the administration to clarify that the researcher is a student of Kyambogo University. With the help of a lecturer, the student designed research tools which include; interview guides and questionnaire. They was discussed with the colleagues to verify their validity for the case of staff members and clients, the researcher met with the respondents at their places of work, the researcher met them between 4:00 – 5:00 pm because this was the time when most of the respondents was available after their work. Some clients were visited during working hours with the help of a staff member. After data was collected, it was analyzed.
3.9 Quality Control
The quality of the research design that can be checked by considering the validity of the study, reliability of the data and instruments of data collection as well as the generalization ability of the study are described below.
3.9.1 Validity of research instruments
The researcher administered the questionnaire and interview guides on a small group of respondents to examine the effectiveness, relevance and appropriateness of the language to be used. The questions were posed using pilot testing methods to test for validity. Adjustments and corrections were made by the supervisor before the questionnaires and interview guides were finally administered to the rest of the respondents.
3.9.2 Reliability of the Study
Reliability is defined as the degree to which measures are free from error and therefore yield consistent results and applies to a measure when similar results obtained over time and across situations. When the outcome of a measuring process is reproducible, the measuring instrument is reliable. When conducting research, the researcher tried to act as neutral as possible in order to avoid being bias. The researcher was also conscious about the type of questions to ask.
3.10 Data Processing, Presentation and Analysis
The data was qualitatively analysed. It involved identifying the major themes arising from the respondents’ answers; assigning codes to these themes; classification of the major responses under the main theme; and integrating the responses into the report in a descriptive and analytical manner. Quantitative data was analyzed to give percentages, and statistical figures. For the analysis, Microsoft Excel statistical packages were used. The researcher developed the data entry templates supervised by the researcher. Once the questionnaires are checked for completeness and correct recording, it was then entered into the developed database for subsequent analyses. The researcher validated entries through regular checks to ensure data was recorded accurately.
3.11 Ethical Considerations
The researcher collected data upon seeking respondents’ consent after revealing the type of information needed and the purpose to avoid potential concealment of vital information.
The researcher also maintained confidentiality of respondents’ information; and reported the true findings of the study without any bias.
3.12 Limitations of the study
The study involved the following constraints;
The time allowed to do this research was not enough to allow exhaustive study and obtained all the essential information for much more suitable conclusions.
The researcher was limited by financial resources such as transport costs and stationery to carry out her research effectively.
3.13 Delimitations of the study
The study limitations were overcome as follows;
The problem of limited time was minimized by putting much effort on this research so as to meet the deadline.
Also in an effort to mitigate a challenge of limited financial resources, the researcher sourced for funds from a friends, relatives and parents.
