A Microeconomic Analysis of the Current State of the Soft Drink Market in the U.S
The soft drink industry in the U.S is among the major contributors of revenue into the national economy. Adachi (2017) states that the business encompasses the manufacturing, marketing, and distribution of nonalcoholic beverages. The history of soft drinks in the U.S demonstrates critical business revolutions, including new product development strategies that seek to capitalize on the growth of technology in the country. According to Adachi (2017), the U.S. soft drink market is valued at $370.5 billion and is expected to grow by a margin of 6% over the next five years. The soft drink industry's market valuation is based on the retail selling price, which encompasses applicable taxes as well. The below diagram illustrates the market size of soft drinks in the United States.
Figure 1: The U.S Soft Drinks Market Size, by Product Type, 2014-2020 (USD Billion)
Source: Adachi, 2017.
While this industry is likely to experience moderate growth facilitated by the adoption of technology and the changes in demographic patterns, substantial growth of the soft drink market is projected to be minimal (Adachi, 2017). Many economists claim that growth will likely slow as companies are still adjusting from the effects of the financial meltdown in 2008 (Adachi, 2017). Presently, there are several participants in the soft drink business, including both middle-level companies and multinationals. However, three major players are setting new standards in this industry. According to Adachi (2017), Coca-Cola is the leading manufacturer of carbonated beverages in the United States as it operates more than 500 brands in all categories of soft drinks. The company occupies a market share of 43.7 percent, underlining its popularity in the domestic market ( Adachi, 2017). PepsiCo, Inc. is another major player in this competitive industry. The acquisition of Pepsi Bottling Group and PepsiAmericas by this market leader has ensured that PepsiCo Inc. continues to enjoy sustainable success in the U.S. ( Adachi, 2017). The Dr. Pepper Snapple Group also boasts of a sizable market share through its bottling and distribution of soft drinks domestically and in international economies.
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Consumer behavior in the soft drink industry is shifting in favor of its products and services. According to Adachi (2017), soft drink products have received a positive response by consumers and steadily surpassing hot drinks as the largest beverage sector globally. Due to the easy access of information regarding various brands and their product offerings, consumers are now more aware about the value propositions of the different players in the market.
Patterns and Trends in the U.S Soft Drinks Market That May Affect the Demand of the Product
Various existing and emerging trends will inevitably impact the demand for the new beverage and its profitability in the U.S market. One of the factors that the startup should consider when seeking to penetrate new markets is the dynamic retail environment. According to Brutto (2010) , the retail landscape is rapidly transforming in tandem with changes in lifestyles and tech-savviness among consumers. Today, smaller households and busier lives affect customer preferences and purchasing habits while fostering rapid growth in e-commerce platforms ( Elson, 2019). Consumers in the United States are also increasingly becoming sensitive to price, which influences the demand for soft drinks. Adachi (2017) observes that the diminishing focus on family meals and the growing appeal for convenience may increase the demand for soft drinks, especially the ready-to-drink (RTD) products. Whereas this represents a lucrative prospect, it is not expected to offset the other factors that are adversely affecting the demand for soft drinks at this time.
American consumers increasingly prefer healthy product options, signaling an obvious shift towards organic offerings that contain natural ingredients, less sugar, and are sourced locally. Adachi (2017) remarks that product labels are even more scrutinized, with clients looking for proof of natural ingredients. Given that health problems are a hot topic with most consumers, this mindfulness drives demand in both ways. Soft drinks produced to be low-calorie and preservative-free are informed by customers' growing health consciousness, a factor that is driving the demand for these commodities ( Adachi, 2017). Therefore, there is a need for creativity and differentiation for emerging brands to profit from this opportunity. Consumers are ready to pay for premium prices on healthier product options, instigating greater incentives to design authentic brand images that boost consumer trust and loyalty.
With access to internet becoming cheaper and easier, more consumers are utilizing digital technology to shop online and interact with different brands. Given the growing popularity of social media in business, retailers are required to invest in these platforms. According to Elson (2019) , digital devices have ensured that potential customers are more aware of different price points, and seeking to have value for their money. Similarly, e-commerce is rapidly evolving to offer consumers more options. Among the fastest growing aspects of online shopping is the food and beverage segment.
A Macroeconomic Analysis of the State of the U.S. Economy and the Impact This May Have On the Demand for This New Product
Even with various constraints in the United States, its economy remains the largest in the world. According to Elson (2019), this economy accounts for nearly 21% of the total global output. The economy is characterized by a highly-industrialized and technologically-driven services sector which represents roughly 80% of its output (Elson, 2019). In the U.S, innovation is a key driver for economic growth due to various government policies that support the integration of technology in core business processes. Elson (2019) states that the incorporation of technology in key sectors is the primary reason for America’s economic superiority. Economists have estimated that the 50% U.S. annual GDP growth is due to increase in the marketplace's innovation ( MacNeil-Lehrer Productions, 2010). Such macroeconomic factors will likely influence the product's demand as the company will be compelled to adopt a tech-driven business approach. Brutto (2010) indicates that there is a positive correlation between digital strategies and operational efficiency . Consequently, the company will have to integrate technology into its core processes, such as manufacturing and marketing, to expand and compete in the market effectively.
The U.S. economy maintains its global reputation as a vibrant market through readily available natural resources and a diverse workforce. As Elson (2019) comments, the U.S government and its workforce positively contribute to this mature economy. The political leadership facilitates a favorable business environment while the citizenry ensures that businesses have access to a solid labor force. Local, state and national governments have intervened in labor markets to ensure that the economy avoids market failure situations that often have wide-ranging consequences (Elson, 2019). For instance, labor regulations such as statutory minimum wages and maximum working weeks impact most businesses operating within the United States' domestic market. However, these market regulations will likely have a marginal negative effect on some businesses. Since the company seeks to expand in other markets, the prohibition against employing undocumented immigrants and the ratification of the minimum wage policy will have to be considered to ensure that the new soft drink production is not affected.
The U.S. economy is currently recovering from a period of significant turbulence. Elson (2019) notes that the financial crisis was caused by several factors, including considerably reduced interest rates, extensive mortgage lending, and excessive risk-taking among banks. Since the recession, the economy has been regaining gradually yet unevenly. In a deliberate attempt to reverse the effects of the financial crunch in 2008, the government sought to strengthen the economy through expansionary monetary and fiscal policies (Elson, 2019). From a fiscal aspect, the U.S government’s stimulus packages and tax cuts have ensured that the economy remains resilient and vibrant. The U.S economy is generally considered a free-market, a factor that will influence demand in the soft drink industry. In such an economy, consumers' views are considered in determining what products or services are in demand ( Elson, 2019). Because supply and demand generate market competition, the company will seek to capitalize on the increased competitiveness level to differentiate and acquire more customers.
Key Management Accounting Practices That the Company Must Put In Place to Support Their Planned Expansion
Good management accounting practices are essential in highly competitive business environments where agile decision-making is a key driver of success. The Financial Management and the Planning Cycle (2011) confers that the decisions are mostly concerned with sales strategies, budgeting, and investment capital management. Therefore, managerial accounting utilizes operational data to inform rapid decision-making in different business scenarios. Below are some of the management practices that will support the company's expansion efforts.
Forecasting
Examining market trends and patterns for certain costs is a vital management accounting practice. According to Lavia López and Hiebl (2015) , forecasting allows management to effectively predict future financial situations by utilizing historical and current market-related data. Because the company has decided to enter other markets in the U.S, this technique should be used during budgeting to enable the firm plan for expenses by estimating the expected demand for the new beverage. To have sustainable liquidity, the company will have to list its shares in the capital markets. The firm should endeavor to maintain its domestic and global capital markets to broaden its investor base. Thus, forecasting will be critical for the soft drink manufacturing company to retain a well-balanced cash-flow management profile.
Activity-Based Costing (ABC)
The ABC strategy is a superior management accounting practice that helps business executives proactively identify the profits generated by individual products ( Lavia López & Hiebl, 2015). Having introduced the new soft drink in the Florida market, the tool will be vital for the company to continuously rethink and enrich its core product offering and marketing strategies in the other states. When this accounting tact is implemented well, it will offer the company’s managers a far more flexible cost model addressing associated challenges in the soft drink business. Because introducing business operations into different domains requires proper resource management, the ABC practice will play a leading role in the expansion effort. Lavia López and Hiebl (2015) offer that the consideration of resource allocation in the context of decision-making facilitates financial prudence. Since it involves the alignment of costs, systems, and human capital to strategic objectives, the soft drink company's management will increase their understanding of opportunity costs.
Throughput Accounting
Another management accounting strategy the business should use is the throughput accounting (TA) approach. The approach does not assign cost but rather focuses on optimizing output from different business functions ( Lavia López & Hiebl, 2015). The practice is most suitable for businesses that seek to realize long-term success. Since the soft drink business seeks to replicate its initial success in Florida to other states, it should consider integrating this accounting strategy practice. The other reason why the firm should adopt TA is its ability to make growth-driven management and decision making easier and plausible even for individuals who have limited knowledge on accounting matters ( Lavia López & Hiebl, 2015). Besides, it will facilitate faster reporting and almost instantaneous decision-making.
Reference
Adachi, T. (2017). Vertical Integration and Common Agency: An Empirical Analysis of the US Carbonated Soft Drink Industry. Economic Research Center Discussion Paper , (17).
Brutto, D. (2010). How to grow your business globally. Bloomberg.Com, 5.
Elson, A. (2019). Current US Economic Policy and the Outlook for Globalization. The United States in the World Economy (pp. 151-171). Palgrave Macmillan, Cham.
Financial Management and the Planning Cycle (2011). [Motion Picture]. Films Media Group.
Lavia López, O., & Hiebl, M. R. (2015). Management accounting in small and medium-sized enterprises: current knowledge and avenues for further research. Journal of Management Accounting Research , 27 (1), 81-119.
MacNeil-Lehrer Productions (2010). Explaining globalization [Video file]. Retrieved from Academic Video Online: Premium database.
