BEVERAGE INDUSTRY IN U.S. & JAPAN.   Term Paper ID:24425 Click to get this paper

Essay Subject: Competition, consumer behavior, products, diversification strategies, marketing implications for doing business in Japan.... More...

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Paper Abstract: Competition, consumer behavior, products, diversification strategies, marketing implications for doing business in Japan. Paper Introduction: Introduction With its strong economy, Japan has long been an attractive market for international companies, but most have found entrance difficult. Aside from formal trade restrictions, the business environment in Japan includes long-standing relationships and interrelationships which can be difficult for foreign companies to understand and even more difficult for them to exploit. Nonetheless, Japanese consumers are delighted with American goods and American style, and so some Western goods have found popularity in Japan that continues to encourage other manufacturers. Disney is one example of an American company whose product (Tokyo Disneyland) has successfully been adopted by Japanese consumers; soft drinks are another area in which American companies in general, and Coca-Cola in particular, have found success. This resea Text of the Paper: The entire text of the paper is shown below. However, the text is somewhat scrambled. We want to give you as much information as we possibly can about our papers and essays, but we cannot give them away for free. In the text below you will find that while disordered, many of the phrases are essentially intact. From this text you will be able to get a solid sense of the writing style, the concepts addressed, and the sources used in the research paper. This offers companies such as Coca-Cola andCadbury strong overseas marketing opportunities if they are able tocomplete the requisite research and marketing efforts necessary to bringsuch products to market (Khermouch 16). Background The soft drink industry is one of the strongest and largest industriesboth within the United States and abroad. This area of research is important and relevant because soft drinksales in many parts of the world, and in the United States in particular,have plateaued. In a dominant businessstrategy, between 7 and 94 percent of annual sales come from one endproduct business, while in a related business strategy, less than 7 percent of annual sales come from any one end-product business, butdiversified products are related. "Beverage Makers Struggle to Stir China Market." Nikkei Weekly (Mar 18, 1996): 21.Khermouch, Gerry. This compares with operatingprofits for Coca-Cola (for the same year) that were comprised of 78.7percent from international beverages, 17.7 percent from domestic beverages,and only 3.6 percent from its foods sector (Sellers 72). & Eli Ofek. The international segment of the beverage industry has grownsignificantly during the early 199 s, with Coca Cola reaping the majorbenefit of this growth. Cadbury Schweppes is a holding company for a group of internationalcompanies which engage in both confectionery and soft drink products. "For Coca-Cola in Japan, Things go Better with Milk." Wall Street Journal (Jan 2 , 1997): B1, B7).Ward, Sandra. Cadbury Schweppes produces the Schweppes and Canada Dry lines ofcarbonated and fruit-flavored beverages as well as A & W Brands ofcarbonated products, Sunkist products, Crush products, Hires Root Beer andMott's apple juice and apple sauce. Other areas for research include the best method of distribution andwhether products would be most efficiently distributed by currentdistributors or whether new networks should be formed with new partners.Another area of research includes the best manufacturing location(including whether to manufacture locally or to import goods fromelsewhere) and organization for manufacturing. As the market recoveredin late 1993 and 1994, Seagram saw increased volume and profit which ledother companies, including Snapple, to increase their marketing efforts todeveloping and emerging markets as well as to more established markets suchas Japan (McMillan & Sawch 23). Companies which are undergoing a high degree of successare less likely to consider diversification than those companies which arestruggling and which may be experience a decline in their market share.These companies are likely to consider additional opportunities throughdiversification (Bruton, Oviatt & White 975). Works CitedBerger, Philip G. & Christopher J. Some companies choose to diversify in such a way that they offer acompletely unrelated product or service, while other companies work withinthe same general category. This strategy would help companies recoup theinvestment they put into selling new products in Japan. The Japaneseconsumer is used to purchasing many different products through vendingmachines; in addition to canned beverages, a variety of items, includingunderwear, is also sold through this method. As theJapanese market becomes saturated with traditional beverage offerings, thismarket segment offers potential to solidify brand identification andawareness (Kanno 21). Coca-Cola has already introduced health juices in Japandesigned to augment its market share and all three of the major beveragemanufacturers are said to be pursuing this market as having strong futurepotential. Mountain Dew (Pepsi), Sprite (Coca Cola), Dr. Pepperand 7Up (both Cadbury Schweppes) have all posted recent growth levels thatmeet or exceed the leading colas (Coke and Pepsi) (Sanborn 1541). Because of this, industry analysts arenow encouraging companies to diversify into related rather unrelated areaswhere current corporate resources, including management, human resourcesand equipment, can be effectively utilized. There are several economic factors which help determine what type ofdiversification is appropriate for a company, and even whether a companyshould diversify. Severalcompanies other than Coca-Cola have also been successful at marketingcanned tea, indicating that there is some market demand for the item ("Landof the Rising Snap" 18). Three international companies, Coca-Cola, PepsiCo and CadburySchweppes dominate the industry with nearly 9 percent of the marketcontrolled by these three companies (Levy 3388E). In some areas in Japan, for example, Coca-Cola has already added canned teas and milk to its vending machines(Shirouzu B1). In the beverage industry, Cadbury has followeda strategy of diversifying into related product areas while PepsiCo has avast array of companies, including fast food companies, which areapparently unrelated (other than serving food products) to the manufactureand distribution of beverages and soft drinks (Ward 12). This is the least diversified strategy. Participating in this market, however, posesconsiderable risks since tea is not a beverage typically associated with acanned delivery system, and there are already successful companies in thismarket segment. This research examines the beverage industry in theUnited States and Japan, and considers the marketing implications forbeverage manufacturers seeking to enter or expand their presence in Japan. The proliferation of vendingmachines makes this distribution channel ideal for beverages such as cannedtea ("Land of the Rising Snap" 18). Seagram increased its marketingefforts to Japan during the early 199 s, but suffered because of arecessionary market there and in Western Europe. Domestic growth in the industryis expected to be in the three to four percent range for both 1995 and 1996with the international market posting strong performance, as well (Sanborn1541). Itsproducts are sold in more than 17 countries, with confectionery andbeverage segments accounting for approximately the same contribution tosales and profits in 1993 (confectionery contributed 45 and 46 percent tosales and profits, respectively; beverages contributed 55 and 54 percent tosales and profits, respectively) (Levy 3388E). Many companies, including Coca-Cola realize a higherpercentage of their profits from their foreign operations than theirdomestic operations, and these companies are seeking ways to expand theirmarket share and maintain their profitability as the potential for newmarkets apparently declines. "Pepsi Opens a Second Front." Fortune (Aug 8, 1994): 72.Shirouzu, Norihiko. Tea is more than just abeverage in Japan; it has social aspects to its consumption which cannot beignored and which are difficult to capitalize on in the canned form. "Consumer Spending is Shifting from Durable Goods." Beverage Industry (July 1994): 23.Sanborn, Stephen. It already hasa distribution system in place in the country, and the canned tea would usenearly the same distribution strategy as the beverages already offered bythe company. Thereare well-established companies already competing in this market, and theymay have created a situation where the product lifecycle has moved from thegrowth stage, where profits would be easy to come by, to the mature phase,where new participants would gain market share at the expense of others inthe segment. Coca-Cola is an example of a companyfollowing a dominant business strategy since it sells both beverages andmerchandise carrying its logo. Companies such as PepsiCo, which operate similar but not identicalbusiness units in various parts of the world, have led analysts to examinethe concept of relatedness, which is the degree of commonality andinterdependence among the various units of a company. Sawch. "Risky Business." Beverage World (Sep 1996): 1 .Kanno, Hiroya. Both domestically and in the international market, Coca-Cola's largestcompetitor is PepsiCo, which has a large interest in snack foods as well asa significant presence in the beverage market. In addition to boosting revenue through thelicensing fees, the agreement also increases the level of brand awarenessassociated with Coca-Cola products and thus can help boost sales. This boosts Cadbury's American soft drink market share toapproximately 17 percent (Levy 3388E). Thisagreement also demonstrates that Coca-Cola has recognized that one of thekey ways for foreign companies to enjoy success in Japan is to partner witha Japanese company in order to produce or distribute goods ("Loopholes"1C). There remain additional areas of research which should be consideredbefore any company commits to a marketing strategy which includes bothhealth juices and canned tea. During the mid-199 s, consumer spending shifted from durable goodsthroughout the world as beverage manufacturers saw an upsurge in demand onan international level for their products. Another topic which shouldbe considered by companies such as Coca-Cola is whether products whichachieve a high rate of success in Japan could successfully be marketed inother parts of the world. "Overseas Players Juice Move into Bottling Health." Brandweek (Feb 21, 1994): 16."Land of the Rising Snap?" Beverage World (May 1994): 18.Levy, Efraim. Sports drinks such as Gatorade have long been successful niche marketswithin the United States; the 199 s saw an increase in the number of healthfood and beverages that are also marketed in the United States, with aspecial emphasis on "nutraceutical" beverages which are supposed to havedisease-prevention or other health benefits. Pricing would be in keeping with the brands already on themarket, with maintaining an eye toward the value of the Coca-Cola brand,which offers greater pricing flexibility (Dawson 1 ). "Diversification's Effect on Firm Value." Journal of Financial Economics (Jan 1995): 39-73.Bruton, Garry D., Benjamin Oviatt & Margaret White. There are essentially four types of business strategies related todiversification: single business, dominant business, related business, andunrelated business (Berger & Ofek p. In Japan, Coca-Cola hascapitalized on the nation's hunger for American goods by entering into apartnership with a Japanese company to sell Coca-Cola emblazoned itemsthroughout the country. "Cadbury Schweppes." Standard & Poor's NYSE Stock Reports (May 27, 1995): 3388E."Loopholes and Red Tape." Journal of Commerce and Commercial (Aug 21, 1996): 1C, 7C.McMillan, Harold D. Nutraceutical juices have a particular appeal to the Japanese where"natural" healing methods are perceived as having greater value than inWestern societies. Such juices are heavilyregulated in the United States where therapeutic benefits are challenged bythe Nutrition Labeling and Education Act, but overseas regulations areoften much more relaxed. The single business is one where95 percent or more of annual sales come from one end-product or servicebusiness. In addition, Pepsi operatesa number of restaurants and restaurant chains (including KFC), whichcontributes to its overall marketing strategy, but which the company isplanning to divest. "Splitsville for ITT." Barron's (Jun 19, 1995): 12-13. For example, Coca-Cola has established a close relationshipwith its various bottlers and distributors in Japan as it has gained areputation as being a "complete" marketer of its products. The marketing strategy associated with the canned tea and juice marketis critical to any company's success if it pursues this option.Determining which flavors to sell, at what price, how to distribute it andhow to promote it are central issues surrounding the decision to enter thismarket. Coca-Cola and PepsiCo are American companies and aretraded on the New York Stock Exchange; Cadbury Schweppes is located inEngland but has ADR shares traded on the NASDAQ system in the UnitedStates. Asidefrom formal trade restrictions, the business environment in Japan includeslong-standing relationships and interrelationships which can be difficultfor foreign companies to understand and even more difficult for them toexploit. 39). These areas include an careful competitiveanalysis of those companies which already participate in the market andwhat their market shares and strategies are. Revenues for 1992 acrossthe industry exceeded $45 billion, increasing to $5 billion in 1993 and$57 billion in 1994. Certainly Japanese companiessuch as Kirin and Suntory should be considered; these are also companieswith whom European and American companies compete in other parts of theworld. Health juices offers greater marketing potential sincethese are entirely new products, but still pose the problem of requiringthat consumers become used to purchasing such items in canned form. Moving into canned tea and juices represents diversification for thethree major beverage manufacturers, and should be considered in light ofwhat diversification presents companies in terms of costs and benefits. Japan has a strong market for soft drinks in which American companies(including Coca-Cola and PepsiCo) and European companies compete withJapanese companies. Introduction With its strong economy, Japan has long been an attractive market forinternational companies, but most have found entrance difficult. Canned tea and health juices may well represent a strongmarketing potential for beverage manufacturers intent on expanding theirshare of the lucrative Japanese market (Khermouch 16). In 1993, Pepsi's operating profits came much more froma balanced market portfolio than did Coca-Cola's, with domestic beveragesaccounting for 3 percent of profits, domestic snacks for 29.3 percent,restaurants for 25.3 percent, international snacks for 9.4 percent, andinternational beverages for 5.6 percent. This is a much more difficult phase of the product lifecycleto enter, but one where major beverage manufacturers could be successful. Nonetheless, Japanese consumers are delighted with American goodsand American style, and so some Western goods have found popularity inJapan that continues to encourage other manufacturers. PepsiCo is an example of a companyfollowing a related business strategy in that its various business unitsare all related to food and beverage operations. Fortunately, the major beverage manufacturers have histories ofbeing able to make decisions with regard to these areas which lead to long-term benefit. Conclusion and Marketing Implications At this point, major beverage manufacturers, including not onlyforeign companies but Japanese companies such as Kirin and Suntory, shouldexpand their product offerings to include not only traditional cannedbeverages such as sodas, but also canned teas and health juices. Soft drinks in Japan are sold through grocery storesand convenience stores much as they are in other markets, but the vendingmachine is a particularly strong avenue of distribution. Japanesecompanies already participate in the canned tea market (indeed, Kirin isexpanding its canned tea and coffee segment to China), but American andEuropean companies have been slow to enter this product area. "Soft Drink Industry." Value Line Investment Survey (22 May 1997): 1541.Sellers, Patricia. There is, however, the possibility that a saturation point has alreadybeen reached in the canned tea market in Japan. The acquisition of Dr. Pepper/Seven Up should prove a good move forCadbury Schweppes since non-colas are gaining market share in the Americansoft drink market. In March 1995, CADBY acquired theremaining shares of the American company Dr. Pepper/Seven Up for $1.7billion (the company had a 25 percent stake in Dr. Pepper prior to theacquisition). Unlike PepsiCo, which participates in widely diverse markets, Coca-Cola has remained close to its soft drink roots, although it markets anumber of products with the Coca-Cola logo and merchandises these throughlicensing agreements throughout the world. The Japanese consumer is also used to purchasing and consuming cannedbeverages; not only are traditional soft drinks such as colas and juicesconsumed from cans, but coffee has also proven a strong seller. "The Value of the Parent Company." California Management Review (Fall 1995): 79-98.Dawson, Havis. If companies such as PepsiCo refrain from participating in thismarket, they are likely to lose revenue and possible profit, and would alsopossibly see an erosion of their image as strong providers of cannedbeverages within Japan. The primary reason for diversification is to lower overall risk byreducing dependence on one or only a few product or service areas(Campbell, Goold, & Alexander 79). In undertaking diversification,companies seek to insulate themselves if demand for one of the products orservices falls significantly. Case volume for Coca Cola increased 11 percentduring 1994, and was up 12 percent during the first quarter of 1995(Sanborn 1541). Disney is oneexample of an American company whose product (Tokyo Disneyland) hassuccessfully been adopted by Japanese consumers; soft drinks are anotherarea in which American companies in general, and Coca-Cola in particular,have found success. The degree ofrelatedness appears to be a critical factor in the success of a diversifiedcompany with those companies having a high level of relatedness also likelyto have a high degree of success. "Performance of Acquisitions of Distressed Firms." Academy of Management Journal (Aug 1994): 972-989.Campbell, Andrew, Michael Goold & Marcus Alexander. If this paper is not what you are looking for, you can search again: Search for: or Click here to request an essay written just for you.