The Fizzy Wars
The two major players in the Australian soft drink industry, Schweppes and Coca-Cola Amatil (CCA), have been competing for market share for some time, creating a ‘price-war’ between the firms. The article chosen for this Assignment, “Price Rises hit customers in the fizzy wars”, (Mitchell 2014) signals the end of this ‘price-war’ and details the following;
Last year Schweppes implemented aggressive discounting in an attempt to increase its volumes, market share and boost sales of its new product; Pepsi Next.
Cost of production for soft drink has increased due to higher costs in materials, utilities and distribution. Neither firm could raise prices due to the above-mentioned ‘price-war’.
Schweppes parent company Asahi has issued a mandate for the firm to increase margins to 10% by 2015 and so Schweppes have been forced to raise prices to meet this deadline. CCA have followed suit by raising prices, thus, ending the ‘price-war’.
In this assignment we briefly explain the background of the Australian soft drink industry’s decrease in demand and increase in production costs and provide an economic analysis of Schweppes decision to raise prices, focusing on the short run and long run costs in a competitive market versus an oligopoly. Finally predictions on what this will mean for the soft drink market in the future are discussed.
Economic Analysis
This economic analysis focuses on the Australian soft drink market and its current change in climate due to a decreased demand for caffeinated, sugary beverages. ("Drinks Slump Sees More Than $30m Wiped Off Coke 's Earnings" 2013) To make matters worse, in 2013 Australian Health organisations launched a marketing campaign, labelled “Rethink Sugary Drinks” aimed at reducing Australians consumption of soft drinks which will likely result in further decline in demand. ("Aussies Warned to Rethink Sugary Drinks" 2013)
The health organisations responsible for this campaign, Cancer Council, Diabetes Australia and
Last year Schweppes implemented aggressive discounting in an attempt to increase its volumes, market share and boost sales of its new product; Pepsi Next.
Cost of production for soft drink has increased due to higher costs in materials, utilities and distribution. Neither firm could raise prices due to the above-mentioned ‘price-war’.
Schweppes parent company Asahi has issued a mandate for the firm to increase margins to 10% by 2015 and so Schweppes have been forced to raise prices to meet this deadline. CCA have followed suit by raising prices, thus, ending the ‘price-war’.
In this assignment we briefly explain the background of the Australian soft drink industry’s decrease in demand and increase in production costs and provide an economic analysis of Schweppes decision to raise prices, focusing on the short run and long run costs in a competitive market versus an oligopoly. Finally predictions on what this will mean for the soft drink market in the future are discussed.
Economic Analysis
This economic analysis focuses on the Australian soft drink market and its current change in climate due to a decreased demand for caffeinated, sugary beverages. ("Drinks Slump Sees More Than $30m Wiped Off Coke 's Earnings" 2013) To make matters worse, in 2013 Australian Health organisations launched a marketing campaign, labelled “Rethink Sugary Drinks” aimed at reducing Australians consumption of soft drinks which will likely result in further decline in demand. ("Aussies Warned to Rethink Sugary Drinks" 2013)
The health organisations responsible for this campaign, Cancer Council, Diabetes Australia and
References: "Aussies Warned to Rethink Sugary Drinks." 2013. Aussies Warned to Rethink Sugary Drinks. Accessed 22 February 2014, www.bandt.com.au/news/advertising/aussies-warned-to-rethink-sugary-drinks. "Drinks Slump Sees More Than $30m Wiped Off Coke 's Earnings." 2013. Drinks Slump Sees More Than $30m Wiped Off Coke 's Earnings. Accessed 22 February 2014, http://www.foodmag.com.au/news/drinks-slump-sees-more-than-$30m-wiped-off-coke-s. Malik, Sarah. 2013. "Debate over Tax on Soft Drinks." The Australian, 17 January 2013. www.theaustralian.com.au/news/latest-news/tv-campaign-to-tackle-sugary-drinks/. Mitchell, Sue 2014. "Price Rises Hit Customers in the Fizzy Wars." Australian Financial Review, 11 February 2014.