Breaking Down the Chain: A Guide to the soft drink industry

Breaking Down the Chain: A Guide to the soft drink Industry

Acknowledgments

This report was developed to provide a detailed understanding of how the soft drink industry works, outlining the steps involved in producing, distributing, and marketing soft drinks and exploring how the industry has responded to recent efforts to impose taxes on sugar-sweetened beverages in particular.

The report was prepared by Sierra Services, Inc., in collaboration with the Supply Chain Management Center (SCMC) at Rutgers University ? Newark and New Brunswick. The authors wish to thank Kristen Condrat for her outstanding support in all phases of preparing this report, including literature review and identifying source documents, writing, data analysis, editing, and final review. Special thanks also goes to Susanne Viscarra, who provided copyediting services.

Christine Fry, Carrie Spector, Kim Arroyo Williamson, and Ayela Mujeeb of Public Health Law & Policy prepared the report for publication. PHLP would like to thank Roberta Friedman of the Yale Rudd Center for Food Policy and Obesity for expert review.

For questions or comments regarding this report, please contact the supervising professors:

Jerome D. Williams, PhD Prudential Chair in Business and Research Director ? The Center for Urban Entrepreneurship & Economic Development (CUEED), Rutgers Business School ? Newark and New Brunswick, Management and Global Business Department 1 Washington Park ? Room 1040 Newark, NJ 07102 Phone: 973-353-3682 Fax: 973-353-5427 jeromew@business.rutgers.edu business.rutgers.edu/CUEED

Paul Goldsworthy Senior Industry Project Manager Department of Supply Chain Management & Marketing Sciences Rutgers Business School Phone: 908-798-0908 goldswpa@andromeda.rutgers.edu

Design: Karen Parry | Black Graphics The National Policy & Legal Analysis Network to Prevent Childhood Obesity (NPLAN) is a project of Public Health Law & Policy (PHLP). PHLP is a nonprofit organization that provides legal information on matters relating to public health. The legal information in this document does not constitute legal advice or legal representation. For legal advice, readers should consult a lawyer in their state.

Support for this document was provided by a grant from the Robert Wood Johnson Foundation.

? 2011 Public Health Law & Policy

Table of

Contents

Executive Summary

5

Market Leaders

7

Soft Drink Industry Overview

7

Earnings

8

Product Segments and Major Market Brands

8

Major Markets

9

Future Outlook

10

Demand Determinates

11

Overview of the Three Major Players

12

The Coca-Cola Company

12

PepsiCo, Inc.

12

Dr Pepper Snapple Group

13

Supply Chain Overview

15

Operating Model

15

Syrup Producers

18

Bottlers

19

Distribution Channels

20

Marketing Overview

21

2008 Federal Trade Commission Study

22

Children's Food and Beverage Advertising Initiative

28

Marketing Strategies

32

Policy and Legislative Actions in Response to the SSB Tax 73

Current Events Regarding SSB Taxes

73

Public Support for SSB Taxes

75

Soft Drink Industry's Internal and External Responses

to SSB Taxes

75

Conclusion

81

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Breaking Down the Chain: A Guide to the Soft Drink Industry

3

Appendix

81

Appendix 1: Coca-Cola North America's CBBB Pledge

82

Appendix 2: PepsiCo's CBBB Pledge

86

Appendix 3: Product and Brand List for the Soft Drink Industry

Leaders and Top Three Private-Label Brands

90

Appendix 4: Incidence of Purchasing Soft Drinks by

Promotion Type, by Age

92

Endnotes

93

4

Breaking Down the Chain: A Guide to the Soft Drink Industry

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Executive

Summary

This report was developed to give public health advocates a window into the soft drink industry and reveal opportunities for intervention at various points of the supply chain, from production and distribution to marketing and sales. The report covers the main product lines of the industry: carbonated soft drinks, fruit beverages, bottled water, so-called functional beverages (including energy drinks and ready-to-drink teas and coffees), and sports drinks, across such powerful brands as Coke, Pepsi, Gatorade, and Snapple. We focus much of the discussion on the products that contain caloric sweetener ? known as nondiet beverages in the industry ? as these products are of particular concern to the public health community.

The Soft Drink Supply Chain

Syrup Producer

The soft drink industry is actually made up of two major manufacturing systems that, taken together, bring soft drinks to the market. These two systems fall into distinct categories: (1) flavoring syrup and concentrate manufacturing and (2) soft drink manufacturing. The supply chain is largely dependent on the syrup producer, as this is the driver for most downstream operations. The majority of the bottled soft drinks follow a similar product life cycle, moving from syrup producer, to bottler, to distributor (if used), to merchant, to final consumer. The locations of the syrup manufacturers and the bottlers are closely linked to both the locations of strategic raw materials and major population centers in the United States and/or areas that see above-average temperatures, where demand for the soft drinks tends to be highest. Once soft drinks are bottled and ready for distribution, a variety of distribution channels are leveraged to get the final product to the end consumer.

Bottler Distributor

The industry as a whole faces challenges as a result of the slumping economy and changes in consumers' consumption patterns due to increased health consciousness. Marketing is an important component of the industry chain, used to generate demand and build consumer loyalty. It has undergone a number of changes over the last five years due to efforts to reduce advertising directed at children, to introduce new types of media, and to update marketing messages for consumers who are looking for more healthful alternatives.

Merchant

Areas of growing interest for all industry players are the African-American and Hispanic markets, which have been identified as key consumers and growth markets. While the industry adapts to changes in consumption

Consumer

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