FACTORS AFFECTING THE DEMAND FOR INPUTS OF SOFT DRINKS INDUSTRIES
A CASE STUDY OF CENTURY BOTTLING CO. LTD
CHAPTER ONE: INTRODUCTION
1.1. Background to the study
The beverage industry producing; carbonated, non-carbonated and nonalcoholic soft drinks, relies on retail businesses to provide end distribution points for customers, (Kyamutetera, April 2009; Ohairwe, 2008). These retailers, constituting over 80% of Uganda’s businesses, practice arm’s length vertical collaboration without optimizing information sharing, decision synchronization and incentive alignment, (Simatupang and Sridharan, 2004). This could explain their lucking performance in the Physical Distribution Service Quality (PDSQ) of their demand chains. Considering the necessity of soft drinks to the healthcare sector, the general community and the industry’s contribution to the economy as a source of revenue and employment, the manufacturers and distributors have failed to take advantage of their collaborations to ensure timely delivery, availability of products and development of a reliable physical distribution system. The demand chains are characterized with long delivery cycle times, non availability of products in certain parts of the country and increased customer complaints, (Durgavich, Nabirumbi and Ochaka, 2008; Rabinovich and Bailey, 2004; Ntayi. et al, 2009). These indicators of inefficiency in the distribution system were also confirmed by the CEO – Century Bottling Ltd, Mr. Basil Gadios during an interview with the CEO Magazine, (Kyamutetera, April 2009) where he revealed that there was an actual need to improve the PDSQ of soft drinks to the far corners of the country.
Manufacturing is the use of equipments, tools and human resource to produce goods for sale and use purpose. Normally, the manufacturing industry can be divided into three classifications, high technology manufacturing which includes electronic equipments, communication machines and computers. Manufacturing industry includes clothing, metals processing, chemical, furniture, food and transportation equipments manufacturing.
In puts are resources such as people, raw materials, energy, information, or finance that are put into a system manufacturing plant to obtain a desired output. They are resources that a company requires in an attempt to generate an economic profit by producing goods and services.
Coca-Cola, the product that has given the world its best-known taste was born in Atlanta, Georgia, on May 8, 1886. Coca-Cola Company is the world’s leading manufacturer, marketer and distributor of non-alcoholic beverage concentrates and syrups, used to produce nearly 400 beverage brands. It sells beverage concentrates and syrups to bottling and canning operators, distributors, fountain retailers and fountain wholesalers. The Company’s beverage products comprises of bottled and canned soft drinks as well as concentrates, syrups and not-ready-to-drink powder products. In addition to this, it also produces and markets sports drinks, tea and coffee. The Coca- Cola Company began building its global network in the 1920s. Now operating in more than 200 countries and producing nearly 400 brands, the Coca-Cola system has successfully applied a simple formula on a global scale: “Provide a moment of refreshment for a small amount of money- a billion times a day.”
In order for soft drink companies to continue to grow and increase profits they will need to diversify their product offerings. So in order to compete with the substitutes industry, Coca-Cola has diversified from just carbonated drink industry to other substitute and so have other brands like Pepsi, Dr pepper/Snapple. Although processing is still considered low due to limited extraction of juice and packing, the positive strides witnessed in the last two years signal improvement as both juice production and farmers’ involvement has grown.
On the other hand, Century Bottling Company (CBC), manufacturers of Coca Cola products introduced Minute Maid juice brand after investing about Shs39 billion ($15 million) in a juice processing line at its Namanve plant. According to Mr Norton Kingwill, the CBC country manager, Minute maid was introduced as a result of a steady growth in fruit juice consumption and the need to widen the variety of soft drinks. “Coca Cola has been manufacturing Minute Maid in other countries.
1.2 Problem statement
Century bottling company is making huge investments in increasing manufacturing capacity while steadily increasing its marketing and advertising focus. Despite, the company registering an increase in profits over the years amidst challenges in various areas, the level of production in the industry has reduced which may be attributed to availability of inputs. Thus, the study seeks to determine the factors affecting the demand for inputs of soft drinks industries.
1.3 Purpose of the study
The purpose is to determine the factors affecting the demand for inputs of soft drinks industries. A case study of century bottling co. ltd.
1.4 Specific objectives
- To identify the inputs required in soft drinks industry.
- To determine the factors influencing the demand of inputs
- To examine the challenges faced by century bottling co. ltd in acquiring inputs for soft drinks
1.5 Research questions
- What inputs are required in soft drinks industry?
- What factors influence the demand of inputs in soft drinks industries?
- What challenges are faced by century bottling co. ltd in acquiring inputs for soft drinks?
1.6 Scope of the study
Content scope
The study will investigate the factors affecting the demand for inputs of soft drinks industries. More emphasis will be put on identifying the inputs required in soft drinks industries, the factors that affect the demand for inputs and the challenges faced in acquiring inputs for soft drinks.
Geographical scope
The study will be carried out at century bottling company. This is because it is a soft drink industry.
Time scope
The study will be carried out for a period of three month from March to May, 2017.
1.7 Significance of the study
To the government, the findings will help them identify areas that need improvement as regards to inputs.
The study will help other researchers carrying out the research on other related problems as references.
CHAPTER TWO
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. Datamonitor (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 (see Table 2). 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. Datamonitor (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, 2006c). 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 (2006c), “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, 2006c).
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, 2006a).
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, 2006a). 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, 2006a).
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.
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.
A descriptive research design will be used. A quantitative design, combined with qualitative method will be 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.
The study will be carried out at century bottling company. This is because it is a soft drink industry. This area will be chosen because it will be accessible; it will be also convenient for easy and cheap data collection.
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 will be comprised of 100 respondents both male and female. It will include 40 staff and 60 clients.
3.4 The Sample Size
The sample refers to a few items selected from the universe or population for study purposes, (Baron, 2011). The study will use a total of 50 respondents and will be regarded representative of the study population and will provide a manageable volume of data and allow the researcher to make accurate estimates of thoughts and behavior of a larger population.
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 will be 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 will choose the sample based on who she thinks will be appropriate for the study.
The data to be collected will be primary and secondary in nature. Primary data will be collected from respondents through the use of questionnaires and interview sessions. The secondary data will be 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 will involve the following instruments;
The researcher will strive to get first-hand information by making appointments with individual respondents to answer questions related to the study topic. Semi-structured interviews will be used to generate additional information from the respondents. This will involve a more interactive interface with staff. The interview guide will be 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 will be 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 will be constructed in simple English that can easily be interpreted. They will be taken to respondents by the researcher and picked at an appointed date.
3.8 Procedures of Data Collection
The researcher will be 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) will be presented to the administration to clarify that the researcher is a student of Kyambogo University. With the help of a lecturer, the student will design research tools which include; interview guides and questionnaire. They will be discussed with the colleagues to verify their validity for the case of staff members and clients, the researcher will meet with the respondents at their places of work, the researcher will meet them between 4:00 – 5:00 pm because this will be the time when most of the respondents will be available after their work. Some clients will be visited during working hours with the help of a staff member. After data will be collected, it will be analyzed.
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 will administer 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 will be posed using pilot testing methods to test for validity. Adjustments and corrections will be to be made by the supervisor before the questionnaires and interview guides are 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 will try to act as neutral as possible in order to avoid being bias. The researcher will be also conscious about the type of questions to ask.
3.10 Data Processing, Presentation and Analysis
The data will be qualitatively analysed. It will involve 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 will be analyzed to give percentages, and statistical figures. For the analysis, Microsoft Excel statistical packages will be used. The researcher developed the data entry templates supervised by the researcher. Once the questionnaires are checked for completeness and correct recording, it will be then entered into the developed database for subsequent analyses. The researcher will validate entries through regular checks to ensure data will be recorded accurately.
The researcher will collect 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 will maintain confidentiality of respondents’ information; and will report the true findings of the study without any bias.
The study will involve the following constraints;
The time allowed to do this research will be not enough to allow exhaustive study and obtain all the essential information for much more suitable conclusions.
The researcher will be limited by financial resources such as transport costs and stationery to carry out his research effectively.
3.13 Delimitations of the study
The study limitations will be overcome as follows;
The problem of limited time will be 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 will source for funds from a friends, relatives and parents.
