Beverage Industry Analysis
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Beverage Industry Analysis
Background
Food and Beverage is a vast sector in the global market that relies on agricultural
products and natural resources to manufacture its products. The industry is classified by product
type, nature, and distribution channels. In view of product type, it consists of the alcoholic and
non-alcoholic segments (IBISWorld, 2023). The non-alcoholic industry deals in drinks with less
than 0.5% alcohol content and sells soft drinks, liquors, health drinks, beers, and coffees.
Therefore, the report will majorly view the alcoholic and non-alcoholic segmentation despite
divisions in terms of regions and distribution channels.
Recent developments in the non-alcoholic market, like Bar None cocktail and different
brands of fresh fruit juices by Coca-Cola, pose stiff competition as well as growth for the
company (Fortune Business Insights, 2023). While Nestle SA leads the entire food and beverage
sector, Coca-Cola and PepsiCo occupy the apex of the soft-drink and bottled water segment
(Reif, 2023). PepsiCo's recent deal with Starbucks has heightened competition in the industry,
thus an indication of market disruption soon due to the fast growth expected in the non-alcoholic
beverage industry.
Industry at Glance
The food and beverage industry is a significant contributor to global GDP. From the last
year's GDP of USD 25.437 trillion, this industry accounted for USD 6.729 trillion (BEA, 2023).
In 2023, the alcoholic section revenue amounts to USD 1.609 trillion, while the non-alcoholic
side has USD 1.45 trillion (Statista, 2023). The largest segment of non-alcoholic beverages is
soft drinks and bottled water, which had a revenue of USD 0.967.3 trillion in 2022 and has so far
generated a revenue of USD 0.85 trillion in 2023. Currently, eCommerce attributes 6.6% of
alcoholic and 3.8% of non-alcoholic beverages revenue. This year, the projections expect the
beverage industry to grow at a compound annual growth rate (CAGR) of 4.56%.
Coca-Cola Company occupies the soft and bottled water industry under Food and
Beverages sector. As of the year ended 2022, the sector contributed USD 1.278 trillion to the
USD 25.437 trillion global GDP (BEA, 2023). The entire food and beverage sector continues to
grow, with a market worth of USD 7.223 trillion in 2023 from USD 6.729 trillion in 2022.
IBISWorld's 2023 report indicates that the soft drink and bottled water segment has significantly
grown in the last decade to a market size of USD 217 billion in the U.S. alone. Despite the harsh
economic environment, the market prospects an annual profit growth of 5.1% in 2023
(IBISWorld, 2023). The emergence of nutritious beverages, the evolution of e-commerce, and
increased competition shall impact the achievement of the goal.
Industry Performance
Generally, the food and beverage industry has shown resilience against the economic
difficulties from the Covid-19 situation and the Russia-Ukrainian war. As of 2023 Q1, the entire
industry performance rose from USD 6.729 trillion in 2022 to USD 7.221 trillion. The market is
expected to grow annually at an estimated rate of 6.3% to 9.225 trillion in 2027 (Research and
Markets, 2023). However, there are concerns over the achievement of these projections due to
the Russia-Ukrainian war that has forced major market players like Coca-Cola and PepsiCo to
suspend their operations in the region due to economic sanctions, prices hike, supply chain
interruptions, and loss of revenue.
In product type industry performance, alcoholic beverages generated a revenue of USD
1.609 trillion, while the non-alcoholic side had USD 1.45 trillion in 2023, representing a 12.3%
change from 2022 (Statista, 2023). The largest segment of non-alcoholic beverages is soft drinks
and bottled water, which had a revenue of USD 0.967.3 trillion in 2022 and has so far generated
a revenue of USD 1.192 trillion in 2023. Currently, eCommerce attributes 6.6% of alcoholic and
3.8% of non-alcoholic beverages revenue. This year, the projections expect the beverage industry
to grow at a compound annual growth rate (CAGR) of 4.56%.
Regionally, North America contributed the largest revenue share, over 24.55%. In 2023,
the non-alcoholic sector generated a revenue of USD 555.5B, with soft drinks accounting for
USD 362.2 B. The CAGR in 2023 over to 2027 is expected to be at 4.56% (IBISWorld, 2023).
On the other hand, the alcoholic market garnered USD 351.70B in revenues with a growth
projection of 5.56% CAGR from 2023 to 2027. The beer segment accounted for the most
significant revenue contributor of USD 155.10B (Statista, 2023).
Regarding industry players, Nestle S.A., which offers various drinks and snacks, took the
apex position with a net income of USD 17.97B in the non-alcoholic segment. Coca-Cola
Company and PepsiCo followed it closely with a net income of USD 9.54B and USD 8.91B
(IBISWorld, 2023; Coca-Cola Company, 2023; PepsiCo, 2023). On the alcoholic section, the top
performer was the Chinese Kweichow Moutai, which had a net income of USD 7.63B, followed
by A.B. InBev with USD 5.09B, then Diageo and Heineken with USD 4.26B and USD 3.99,
respectively ([Link], 2023). In a nutshell, the overall industry expects annual growth
despite the drop in revenue by top players like Coca-Cola in the first quarter.
Competitive Landscape
From Porter's five analysis perspective, the presence of 386 players, as revealed by
IBISWorld 2023, indicates a stiffly competitive sphere. Among these companies, Nestle SA tops
the non-alcoholic sector with a market cap of USD 317.7B and a net profit of USD 17.97B as of
December 2022 ([Link], 2023). The Coca-Cola Company follows it with a market cap of
USD 275.99B and a net profit of USD 9.54 B, PepsiCo at third with a market cap of USD
251.1B, and a net income of USD 8.91B. In the fourth and fifth ranks is McDonalds having a
market cap of USD 195.97B with a net profit of USD 6.17B, and Starbucks, holding USD
112.79B and a net income of USD 3.28B (IBISWorld, 2023). The competition continues to
tighten amidst the rise in consumer purchasing power, better living standards, and quick
urbanization in different parts of the world.
Although the industry has a threat of new rivals due to difficulty in mastering the market
drifts, the economic, technological, legal, social, and political factors play a significant role in
shaping each company's competitive landscape (Momin, 2023). The increased awareness and
shift towards healthy consumption have seen the healthy brands companies quickly rise. Most of
the top players possess adequate resources that enable them to consistently innovate new
products that appeal to millennial and health-conscious consumers. For that matter, every
company has been quick to innovate and develop new products and to seek alternative raw
materials and more efficient supply chains and distribution channels.
Operating Conditions
The beverage industry requires an intense capital base to start up and break even. It uses a
wide range of raw materials and involves a long supply chain network to reach a broader market
which requires solid financial muscle (IBISWorld, 2023). However, revenue volatility in the
current environment due to a paradigm shift in beverage consumption trends and global
economic slowdown threatens the operating environment since the giants like Coca-Cola have
seen a decline in revenue in 2023 Q1.
Besides, the industry operates in a stringent regulatory landscape that keeps changing in
different geographical operation areas (Mordor Intelligence, 2023). Recently, various
jurisdictions have enacted strict regulations regarding raw materials usage, waste disposal and
use of plastic packaging, data protection, documentation, and tax requirements, to mention a few
(Industry Arc, 2022). For instance, different jurisdictions are keen on water usage and wastage
and strategies that the operators in this market employ in cleaning, purifying, and recycling
water.
Technological advancement and the rise of the tech-savvy generation have also
transformed the nature of consumption, supply, and distribution networks. The industry has not
satisfactorily explored the opportunity that comes with it to become more agile, efficient, and
profitable (Khoury, 2022). Nonetheless, automation, big data analytics, and robotics have
enabled the industry to significantly reduce wastage and human error, optimize service delivery
and penetrate a vast market audience.
Finally, the increasing energy costs recently have increased operating costs, thus cutting
down the operating income. As of March 2022, 60% of the companies reported the impact of the
increased energy prices compared to 38% across other sectors (Koss, 2023). It is paramount for
the industry to explore alternative energy sources to minimize the cost for a sustainable future.
Key Statistics: Industry Financial Ratios
Gross Profit Margin
As of 2023 Q1, the non-alcoholic industry recorded a net profit margin of 13.58% TTM
from 14.83%, while the alcoholic registered a gross margin of 7.44% YTD compared to 6.16%
in 2022 Q1 (CSIMarket, 2023). Coca-Cola Company reported a net profit margin of 28.29%
from 26.50% TTM, while PepsiCo had a margin of 10.83% compared to 26.30% in 2022 Q1
(IBISWorld, 2023). Therefore, Coca-Cola's performed above the industry ratio in 2023 Q as
opposed to PepsiCo's, which slumped.
Working Capital Ratio
The non-alcoholic industry obtained a working capital ratio of 1.05 in the 2023 Q1 on
TTM, which is below the industry average. The alcoholic segment witnessed an improved
performance from 0.88 to 0.89 TTM and above the industry average (CSIMarket, 2023). These
figures imply a rise in current liabilities in non-alcoholic beverages and a decline in the alcoholic
segment. Twelve months trailing to 2023 Q1, Coca-Cola and PepsiCo's working capital declined
from 0.76 to 0.66 and 0.89 to 0.88 hence falling below the industry's ratio of 1.05 despite
PepsiCo's improvement from 0.84 as of December 2022.
Inventory Turnover Ratio
The non-alcoholic inventory turnover ratio declined from 11.57 in 2022 Q1 to 8.64 in
2023 Q1 and from 12.68 to 7.58 in the alcoholic segment below the industry average
(IBISWorld, 2023). The decline was due to lower sales and inventory build-up hence lower
operational efficiency. However, the Coca-Cola and PepsiCo turnover ratios stood at 10.68 and
16.59, respectively, above the industry, sector, and S&P average (CSIMarket, 2023).
Management Effectiveness Ratios
In 2023 Q1, the ROA was 7.11% from 8.61% TTM, whereas the ROE was 22.07% from
27.59% in the non-alcoholic segment, below the industry average (IBISWorld, 2023). The
alcoholic Beverage saw a sharp deterioration of ROA from 4.18% to -3.58% and ROE from
8.35% to -7.08% TTM. Coca-Cola achieved an ROE of 38.81% and a ROA of 11.75% in Q1,
above the industry averages (CSIMarket, 2023). Similarly, PepsiCo had a 37.23% ROE and
7.11% ROA. The decline in the industry ROE is attributable to the fall in net profits,
consequently, lower industry returns compared to a similar period last year.
Conclusion
The beverage industry has shown consistent growth and prospects a further improvement
in the next five years. The presence of many players poizes a stiff rivalry landscape, especially
against giants like Coca-Cola and PepsiCo, which have enjoyed market leadership for time
immemorial. Despite the individual company performance decline, most ratios have stayed
above the industry's average, signifying a better overall performance in the year.
References
BEA. (2023). GDP by Industry. Bureau of Economic Analysis.
[Link]
CSIMarket. (2023). Alcoholic Beverages Industry Market Financial Strength Information.
[Link]
CSIMarket. (2023). Coca-Cola Co Financial Strength Comparisons. [Link].
[Link]
CSIMarket. (2023). Non-alcoholic Beverages Industry Market Financial Strength Information.
[Link] [Link]
ind=502
CSIMarket. (2023). PepsiCo Inc Financial Strength Comparisons. [Link].
[Link]
Fortune Business Insights (2023). The global non-alcoholic beverages market size, Share, and
Covid-19 Impact Analysis.
[Link]
market-101927
IBISWorld. (2023). Global Soft Drink & Bottled Water Manufacturing Industry- Market
Research Report. [Link]
drink-bottled-water-manufacturing-industry/
IBISWorld. (2023). The Retail Market for Alcoholic Beverages Industry in the U.S. - Market
Research Report. [Link]
retail-market-for-alcoholic-beverages-industry/
Industry Arc. (2023). Food & Beverages Market – Forecast (2023 - 2028).
[Link]
513301
Khoury, D. (2022). Analysis: The future of finance in the food industry. Octet.
[Link]
Koss, J. (2023). Operations Perspective: The conditions and applications impacting utilities in
beverage operations. Beverage Industry. [Link]
the-conditions-and-applications-impacting-utilities-in-beverage-operations
Macrotrends. (2023). Coca-Cola Financial Ratios for Analysis 2009-2023 | K.O. Macrotrends.
[Link]
Macrotrends. (2023). PepsiCo Financial Ratios for Analysis 2009-2023 | PEP. Macrotrends.
[Link]
Momin, A. (2022). Food and Beverage Industry Analysis: PESTLE, SWOT, Porter's Five
Forces. PESTLE Analysis. [Link]
analysis/
Mordor Intelligence (2023). Beverages Market Size & Share Analysis - Growth Trends &
Forecasts (2023 - 2028).
[Link]
Reif, N. (2023). 10 Largest Beverage Companie: PEP, BUD, and K.O. lead the list of the 10
largest beverage companies. [Link]
and-beverage-players-2017-nestle-pepsi-coke-topple-peers/
Research and Markets (2023). Global Beverage Market - Forecasts from 2023 to 2028.
[Link]
Statista. (2023). Alcoholic Drinks-Worldwide. Statista.
[Link]
Statista. (2023). Non-Alcoholic Drinks-Worldwide. Statista.
[Link]
Market and Research (2023). Global Beverage Market- Forecasts from 2023 to 2028.
[Link]
SLP 2 Assignment
Target Industry Background
The beverage industry has evolved since the 1800s to become one of the significant
contributors to the global GDP. The industry is classified by product type, nature, and
distribution channels. Regarding product type, it consists of the alcoholic and non-alcoholic
segments (IBISWorld, 2023). The non-alcoholic industry deals in drinks with less than 0.5%
alcohol content and sells soft drinks, liquors, health drinks, beers, and coffees. Therefore, the
report will majorly view the alcoholic and non-alcoholic segmentation despite divisions in terms
of regions and distribution channels.
Technological transformation and changing market trends have necessitated
diversification and expansion, which has seen significant growth of top players like Nestle SA,
Coca-Cola, AB InBev, and Diageo. The rising production costs, healthy beverage concerns, and
enhanced regulations have influenced the operations landscape, leading to a high product and
process innovation rate. As a result, the industry expects various disruptions and growth in the
next five years.
Covid-19 Impact on Economy
Covid-19 shocked the global economy and strongly influenced the beverage industry.
The pandemic forced most governments to enforce movement and gathering restrictions that
interfered with supply chain and distribution channels. These measures lowered production and
sales due to the scarcity of raw materials and difficulty accessing the global market, leading to
wastages and inadequate cashflows (Memon et al., 2021). Consequently, consumption patterns
shifted from soft drinks to healthy and safe beverages, thirst-quenching to psychological
fulfilment.
Most players delved into research and development that saw the establishment of
innovative products with diverse tastes, functionality, and health impact that enhanced their
resiliency amidst the changing tastes and preferences. Besides, the supply chain and distribution
channel interruption prompted the industry manufacturers and retailers to adopt digital
technologies such as automation, big data analytics, robotics, and eCommerce (CloudLIMs,
2022). Such has enhanced transparency, beverage safety, and real-time monitoring of operational
processes for cost reduction and sales increase. Despite the impacts, the industry has been
recovering, expecting an increase in consumer disposable income to support the industry.
Current Industry Performance
Since the Covid-19 slowdown, the industry has become more resilient to market
turbulences and improved performance. The entire food and beverage industry contributed an
estimated USD 6.729 trillion to the Global GDP in 2022 (BEA, 2023). The 2023 first quarter
figures have indicated improvement in the sector, thus an indication of a better performance this
year. So far, the alcoholic section revenue is USD 1.609 trillion, while the non-alcoholic side has
USD 1.45 trillion (Statista, 2023).
The industry's performance rose from USD 6.729 trillion in 2022 to USD 7.221 trillion.
The market is expected to grow annually at an estimated rate of 6.3% to 9.225 trillion in 2027
(The Business Research Company, 2023). The Covid-19 impact enhanced eCommerce
operations that have seen the channel account for .6% of alcoholic and 3.8% of non-alcoholic
beverages revenue. The largest segment of non-alcoholic beverages is soft drinks and bottled
water, which had sales of USD 0.967.3 trillion in 2022 and has so far generated a revenue of
USD 0.85 trillion in 2023 (Statista, 2023). The North American region contributed the largest
revenue share, over 24.55%. In 2023, the non-alcoholic sector generated a revenue of USD
555.5B, with soft drinks accounting for USD 362.2 B. The CAGR in 2023 over to 2027 is
expected to be at 4.56% (IBISWorld, 2023). On the other hand, the alcoholic market garnered
USD 351.70B in revenues with a growth projection of 5.56% CAGR from 2023 to 2027.
In the non-alcoholic segment, Nestle SA tops with a net profit of USD 17.97B as of
December 2022, followed by Coca-Cola with a net profit of USD 9.54B, and PepsiCo at third
with a net income of USD 8.91B. In the fourth and fifth ranks is McDonalds having a net profit
of USD 6.17B, and Starbucks, a net income of USD 3.28B (IBISWorld, 2023). There has been
stiff competition among the companies in the industry, leading to increased innovation and
developments that shall enhance the industry's performance.
Industry Outlook
IBISWorld 2023 reveals that the industry is highly competitive, with 386 participants. It
also forecasts that the soda beverages' revenue will plummet at CAGR 0.5%, and profits at 5.0%
in 2023 due to emerging trends such as a shift in consumers' taste towards healthy drinks and
preference for digital purchase, adoption of technology in the supply chain channels, and focus
towards a sustainable world pose an opportunity for the industry's growth and expansion.
In the beverage industry, there is a growth expectation of a CAGR of 4.56% in the non-
alcoholic segment, while the alcoholic market will grow at 5.56% in the next five years (Statista,
2023). PepsiCo led the topline with the highest revenue, while Coca-Cola ultimately commanded
the bottom-line performance with a higher net profit. Notably, the soda segment GDP's
contribution has lagged since the market giants are in the maturity business life cycle. Therefore,
they often embrace acquisitions of small companies and partnerships with other large distribution
channels like supermarkets and grocery stores to enhance their performance (IBISWorld, 2023).
Conclusion
The Covid-19 pandemic impact presented a new dawn for the industry and catalyzed its
transformation, improving its performance against its peers. The paradigm shift towards
sustainable production and consumption, convenient solutions, and a strict regulatory
environment act as growth-driving and restraining factors depending on the actions of the market
players. The above analysis expects the market to grow and expand beyond its current position in
the next five years.
References
BEA. (2023). GDP by Industry. Bureau of Economic Analysis.
[Link]
CloudLIMS. (2022). How Has Covid-19 Impacted the Food and Beverage Industry?
[Link]
IBISWorld. (2023). Global Soft Drink & Bottled Water Manufacturing Industry- Market
Research Report. [Link]
drink-bottled-water-manufacturing-industry/
Memon, S. U. R., Pawase, V. R., Pavase, T. R., & Soomro, M. A. (2021). Investigation of
COVID-19 impact on the food and beverages industry: China and India
perspective. Foods, 10(5), 1069.
[Link]
The Business Research Company. (2023). Food and Beverages Global Market Report.
[Link]
report
Week 1 Discussion Post
Companies communicate their position and performance through financial statements to
various stakeholders with activities within and outside the U.S. Preparation of the reports adheres
to specific accounting standards and guidelines that ensure accuracy, comparability, quality, and
reliability for ease of analysis and decision-making (Levy, 2023; Mal, 2019). Despite GAAP
being the primary accounting and reporting guideline, the US SEC allows the convergence of the
standards since most of its companies and investors operate globally, thus promoting
transparency, comparability, consistency, credibility, and reliability. Such measures ensure
efficient operations of the capital markets in the U.S. and beyond, ultimately allowing sound
investment decisions and a stable economic environment.
Moreover, the standards give relevant information for cross-boarders investors that assist
them in allocating capital in their investments in the U.S. Non-standardized accounting
information would make it challenging to compare industry performance and consolidate
financial results from a single investment in different markets globally for American firms
(Financial Accounting Foundation, n.d.). Additionally, the standards offer a quality and risk
monitoring system that protects investors and other stakeholders from adverse accounting
practices and financial reporting (U.S. Securities and Exchange Commission, n.d.). Since the
U.S. controls international firms with over $ 15 trillion in assets, the standard ensures provision
and access to high-quality and reliable financial reports for decision-making.
References
Financial Accounting Foundation. (n.d.). Accounting Standards.
[Link]
standards/[Link]
Levy, A. (2023). What is GAAP? Motley Fool.
[Link]
principles/
Mal, A. (2019). The Purpose of Accounting Standards. Bizfluent. [Link]
[Link]
U.S. Securities and Exchange Commission. (n.d.). SEC Concept Release: International
Accounting Standards. [Link]
Week 2 Discussion Post: Analyzing Financial Data
A legal proceeding is one area that the management of Coca-Cola Company highlights in
Part II of its annual financial reports. The management discloses that the company has been
involved in a tax dispute with the IRS, demanding an estimated $ 3 million fed income tax. The
tax arose from transfer pricing between the parent company and its foreign subsidiaries that
occurred between 2007 to 2009 (The Coca-Cola Company, 2023, p. 39). The information notes
that such demand shall impact the firm's liquidity, hence a risk factor to the company. However,
the company remains optimistic that its appeal against such abrupt demand will succeed and
allow it to settle the dispute using a similar arm's length methodology they used in 1996. Besides
negatively impacting the firm's liquidity, the issue presents a reputational risk against the
company that has taken centuries to build its brand. Therefore, information on tax issues stood as
a necessary disclosure to enable stakeholders like investors and lending institutions in decision-
making.
References
The Coca-Cola Company. (2023). Form-10Q.
