Coca Cola Company (CCCL) was established in the year 1892 in the Atlanta state of USA. The company offers a range of beverages as the world’s largest beverage provider having around 500 variants being served to its customers. Coca Cola is a global company with its foot prints across 200 countries of the world in given below proportion:
Some prominent players of the Coca Cola portfolio are as follows:
The share of Minute Maid in the revenue of the Coca Cola was 7.27% in 2009 which grew to 7.88% in the year 2013 (Trefis, a). According to the Report Linker’s analysis, Minute Maid is one of the leading players in the market of organic fruit drinks. This position of Minute Maid is important as the Global Industry Analytics foresee the growth of fruit and vegetable juices to reach 65 billion liter by the year 2015 (Report Linker, a). Furthermore, according to IBIS report the global fruit juices along with precut vegetables and ready-salads accounts for around 11% of the total fruits and vegetable processing industry as follows (IBIS, 11):
This growth and future potential of Minute Maid makes is considerably important to understand the forces that affect the overall demand and supply of Minute Maid along with pricing factors.
FACTORS DRIVING DEMAND
The demand of the product in the long term is driven by large number of factors. Among many factors, some of them include change in customer taste and preferences, information, and market saturation etc (Arnold, 53-66). The overall demand of the fruit juices in the New Zealand has shown constantly varying trend in terms of growth. The highest growth was reported in the year 2006 with 5% (Citrus BR) followed by impact received from:
- Change in the consumer preferences regarding the health is expected to increase the demand for the organic food and juices in all by 15.5% from 2013 to 2019 (Food Manufacturing). Importantly the market of orange juices is increasing by 35% of the global juices (Report Linker, b). Also, the impact of climate is extremely considerable in defining the demand of the product. For example, Coca Cola Amatil which is an operating subsidiary in the New Zealand stated that business in NZ did not provide a good start for the year 2012 as the climate turned out to be cool and wet summers which affected the demand of such products (CCA, 2).
- Increase in awareness is another factor that has positively contributed to the demand of Minute Maid. Coca Cola increased awareness about Minute Maid as the fresh juice that even has fruit pulp in it (Haffner). The researches reveal that the pulpy juices have perception of higher freshness as compared to other juices (Rega, Barbara, et al, 4204-4212).
- The change in disposable income has positively driven the market for organic fruit juices. For example, Ganesh (119-121) states that rise in disposable income has enabled the customers to meet the nutritional value by spending more on organic food and this factor is increasing the demand of Minute Maid in India. Affected by the economic crises, the demand of the fruit juices reduced during the recent recession and is now recovering (Sky People). New Zealand is considered as high income category country which implies that customers have high disposable income (IFC).
- Innovation is another factor that leads to the positive growth in demand. Globally, the fruit juices, are considered health on the basis of the only sugar content in it. Minute made innovated the perception by adding a pulp to the juice. Minute Maid juice has 20% pure orange juice with around 3% of the orange pulp in it. This innovation positively contributed towards its demand (Haffner).
FACTORS DRIVING SUPPLY
Supply of a product refers to the quantity that organization wants to supply at given price during a particular time. The supply of the product is mainly affected by cost of production and other related costs, the government regulation, the price and demand factors.
Most important factors affecting the supply of the Minute Maid in the long term is the cost of raw material. The Main raw material for the fruits for Minute Maid is orange juice and orange juice concentrate. The fruits juices are considerably affected by the weather and climatic conditions. For example, the Hurricane, floods in the regions of raw material supply affect the input prices which in turn affect the profitability to be generated from Minute Maid. Importantly considerable supply of the Orange juices and concentrate, around 90%, is facilitated by Brazil (AIJN, 10). The annual report of Coca Cola states that the company maintains the adequate supply of the orange juices and orange juice concentrate to ensure the adequate supply of the raw material. Coca Cola has also developed partnership with the range of suppliers for the plastic bottles, cans, caps and other packaging material so that supply is not affected due to the power of a single supplier (Coca Cola (a), 6-7). The contribution of the gross profit sold from Minute in the total revenue of Coca Cola has been 7% -8%. More importantly, it is projected to continue in the same trend over 2020 (Trefis, a).
Over long terms, the increasing demand of the fruit juices in general and the increasing market of the Minute Maid results in a positive impact in terms of economies of scale. The supply of the Minute Maid is being increased on various channels such as from refrigerated cartons the more convenient serving with increased shelf space on convenience stores and gas stations were added. Also, the various partnerships were developed to support the supply side. The extended supply of the Minute Maid is also leveraging the distribution system of Coca Cola developed across the world (Coca Cola (b), 30).
The long term supply of the business is also affected by the capacity to producing, packaging, and warehousing and distribution capacity of the business. The Minute Maid under the umbrella of the Coca Cola is also benefitting the growth in the new markets for the supply. For instance, Coca Cola Amatil that offers around 29% ownership interest to Coca Cola parent company has bottling and distribution rights in many countries including New Zealand. Through partnerships and direct ownership, Coca Cola expands it distributions in different regions. For instance, Coca Cola has partnership with the Cutrale, the global company that procures and processes oranges mainly for its buyer Coca Cola (Standford). 1.2-mile pipeline is build underground to transmit the output from Cutrale to the Coca Cola packaging departments. This investment reduced the cost of the 70 tanker truck trips between the two partners daily. Similarly, Cutrale has also developed pulp facilitation center in China to provide pulp to the Coca Cola mainly for Minute Maid (Standford).
In order to, successfully, deal with the commodity prices of risk, Coca Cola Amatil also takes into account the financial technique of hedging, swaps, option contracts and futures in order to, effectively, deal with the future arising commodity risk (CCA, 55). Importantly, the Coca Cola Amatil has initiated a three year program for generating the cost and gains in terms of efficiency generation for around $30-40 million mainly for the New Zealand beverage operations along with another business (CCA, 2). These cost efficiencies enable the business to increase profitability as well as increase market penetration with competitive pricing. For the entry and expanding of Minute Maid in Sri Lanka, Coca Cola, relied on the already developed supply chain and distribution network (Business Today). Hence, all these factors play an important role in the opening supply line for Minute Maid in the New Zealand market.
ROLE OF SUBSTITUTES
The substitute refers to the products that satisfy the same need with different product. The main substitutes of the products are soft drinks which have gained considerable acceptance and market share almost across the world. The pressures of substitutes mainly arise for the comparative low prices of the soft drink as compared to the fruit juices (Citrus BR). On the other hand, the energy drinks are also creeping the market. Importantly, New Zealand has fourth largest energy drink market and Coca Cola has a considerable share in this segment also (Rogers).
ROLE OF COMPETITORS
The competition is an important factor that plays defining role in the demand, supply, and the price determination. The growing market of fruit juices has started to face competition. Different markets have different competitors. Major competitors include Del Monte Foods, Ocean Spray, Tropicana and Cadbury etc (Report Linker, a). In America, the competition is posed competition by the Tropicana where Minute Maid is attempting to increase its market share in the premium market (CS Monitor). Also, Minute Maid is striving for the penetration with the competitive pricing close to the Tropicana (Trefis, b). This is despite fact that the commodity prices and the inflationary factors constantly pressure Minute Maid to increase prices like other Coca Cola brands (Coca Cola, a).
The leading player of the fresh juice in the New Zealand market has been Frucor Beverages Ltd’s brand stevia-sweetened Just Juice in has sustained its leadership position with the value market share of 63%. The New Zealand’s brand is the preferred choice of the people of New Zealand for its taste and affordability with options best for the customer (Euromonitor).
Price of the product is an equilibrium value at which the demand and supply side agree to enter the exchange the value or product or service for monetary compensation. It is also important to understand that price of a product receives considerable impact from the substitute effect and competitive landscape.
Globally the demand of fruit juices like Minute Maid has shown an increase at a limited pace. This slow paced growth in demand is mainly affected by the high prices. The prices of the fruit juices are considered higher as compared to market dominant soft drink substitute. The supply side receives greater pressure from the cost of raw materials which is considerably affected by the climatic change. However, the competition among the fruit juice suppliers does not allow the brand to increase the price at premium. Hence, Minute Maid has also controlled the prices at competitive level. For example, the premium serving of the Minute Maid is priced 40 cents more than the orange juice of Tropicana while price of value brand is charged unit dollar less than the competitors (Trefis, b). Hence, all these factors will pressure the prices of Minute Maid strongly controlled.
CONCLUSION AND FUTURE PROSPECTS
Minute Maid has gained considerable market in almost 100 countries of the world. Furthermore, the growing health consciousness and awareness with increasing disposable income is expected to increase the demand of the fruit juices. Therefore, with the supply line of Coca Cola developed across the additional 100 countries has much potential to offer with economic viability.
New Zealand is an important market with increasing health consciousness and increased demand for the energy drink. Also, the developed supply line for the other products of Coca Cola offers much to leverage to the Minute Maid to enter the market. The pricing of the Minute Maid, despite NZ being high income group, will remain under pressure as the fruit juices market is centrally dominated by a single supplier with around 63% market share and the competitor is popular for its reasonable prices.
Report Linker. (a). Beverage industry: market research reports, statistics and analysis. 2013. Online. 9 Feb. 2014. http://www.reportlinker.com/ci02013/Beverage.html
IBIS. Global fruit and vegetable processing. UK: IBISWorld, 2013.
Arnold, Roger. Microeconomics. Mason, OH: Cengage Learning, 2010
Citrus BR. Orange juice consumption in 40 countries. 2013. Online. 9 Feb. 2014. http://www.citrusbr.com/en/citric-exporters/consumption/consumption-statistics-235206-1.asp
Food Manufacturing. Consumer trends: increasing health awareness boosts organic market. Oct. 2013. Online. 9 Feb. 2014. http://www.foodmanufacturing.com/news/2013/10/consumer-trends-increasing-health-awareness-boosts-organic-market
Report Linker. (b). Juice industry: market research report, statistics and analysis. Online. 9 Feb. 2014. http://www.reportlinker.com/ci02021/Juice.html
Rega, Barbara, et al. "Role of pulp in flavor release and sensory perception in orange juice." Journal of agricultural and food chemistry 52.13 (2004): 4204-4212.
Ganesh. Consumer perception and acceptance of minute maid pulpy orange in Puducherry. International Journal of Management and Business Studies, 3.2(2013): 119-121
Coca Cola. (b). Minute maid and the bottler: a fruitful relationship. 2001. Online. 9 Feb. 2014. http://cocacolaweb.online.fr/rapports_annuels/2001/5_2001_30_35.pdf
Standford, Duane. Coke engineers its orange juice – with an algorithm. Jan. 2013. Online. 9 Feb. 2014. http://www.businessweek.com/articles/2013-01-31/coke-engineers-its-orange-juice-with-an-algorithm#p2
Rogers, Claire. Firms fuelling the thirst for energy drinks. Jul. 2011. Online. 9 Feb. 2014. http://www.stuff.co.nz/business/5329023/Firms-fuelling-the-thirst-for-energy-drinks
CS Monitor. Hot battle in the orange juice cooler. Minute Maid puts Coke’s marketing muscle up against Tropicana. Online. 9 Feb. 2014. http://www.csmonitor.com/1988/0628/foran.html/(page)/2
Business Today. Minute maid a winning formula. Online. 9 Feb. 2014. http://www.businesstoday.lk/article.php?article=1846
Haffner, Richard. Innovative beverages find success. Jul. 2011. Online. 9 Feb. 2014. http://www.preparedfoods.com/articles/innovative-beverages-find-success
Coca Cola. Infographic: coca cola at a glance. Dec. 2012. Online. 9 Feb. 2014. http://www.coca-colacompany.com/our-company/infographic-coca-cola-at-a-glance
Trefis. (b). Pepsi’s Tropicana vs. Coke’s minute maid. Jan. 2013. Online. 9 Feb. 2014. http://money.msn.com/top-stocks/post.aspx?post=386f4fba-78df-4ee2-bf96-c7cfbc5809fa
Euromonitor. Fruit/Vegetable juice in New Zealand. Apr. 2013. Online. 9 Feb. 2014. http://www.euromonitor.com/fruit-vegetable-juice-in-new-zealand/report
Minute Maid. Our products: all the juicy details. Online. 9 Feb. 2014. http://www.minutemaid.com/products/
Trefis. (a). Coca Cola. 2014. Online. 9 Feb. 2014. http://www.trefis.com/company?hm=KO.trefis&driver=0973&from=search#/KO/n-1248/1215?from=rhs&c=top
CCA. Annual report 2012. 2012. Online. 9 Feb. 2014. http://ccamatil.com/InvestorRelations/AnnualReports/2012/CO27_CCA%20Annual%20Report%20-%20A4_220313_FIN_LR_single.pdf
Sky People. Industry and principal markets. 2014. Online. 9 Feb. 2014. http://www.skypeoplefruitjuice.com/sales-marketing/industry-and-principal-markets
IFC. Ease of doing business in New Zealand. 2014. Online. 9 Feb. 2014. http://www.doingbusiness.org/data/exploreeconomies/new-zealand
AIJN. 2012 liquid fruit market report. 2012. Online. 9 Feb. 2014. http://www.aijn.org/pages/main/file.handler?f=AIJNMarketReport2012.pdf
Coca Cola. (a). Form10-K Coca Cola Company. 2012. Online. 9 Feb. 2014. http://www.coca-colacompany.com/annual-review/2012/pdf/form_10K_2012.pdf