As a research analyst for PepsiCo (parent corporation for brands including Pepsi

Question

As a research analyst for PepsiCo (parent corporation for brands including Pepsi, Tropicana, Mountain Dew, Aquafina and more), you have been asked to assess the size of the global soft drink manufacturing industry. Specifically, you need to determine the number and revenues of soft drink manufacturers operating in the US and in major markets around the world.
How would you characterize the non-alcoholic beverage industry in the U.S., compared to the U.S. automobile industry? Please comment on issues such as concentration and intensity of competition.

Explanation / Answer

A measure of competitive intensity in an industry is the Herfindahl-Hirschman Index (HHI). It is a commonly accepted measure of market concentration. Prof. Andrew Chin, of The University of North Carolina School of Law, has an online calculator for calculating HHI. The smaller the HHI number the more competitive an industry is. Conversely, the larger the number the more concentrated the industry. An industry with HHI below 1000 is considered unconcentrated, 1000-1800 moderately concentrated, over 1800 highly concentratedDifferentiation is about securing a unique position in your customers’ mind; it is about owning and occupying valuable “real-estate” in your customers’ minds. The strategic value is that differentiation provides insulation against competitive threat and long term sustainable competitve advantage (and hence profitability).

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