Breaking Through

Depending on the industry one focuses on, becoming a relatively major player is extremely difficult. However, there are some industries in which becoming a player at all are near impossible while others have relatively easier barriers to entry. I will focus on two subsets of the Food, Beverage, and Tobacco industry in which most of our example companies fall. I will be focusing on the Soda production sector which houses Pepsi and Coke and the Cookie, Cracker, and Pasta production sector which incorporates Kraft and Nestlé.

First, I will describe the factors that influence a potential emerging company in the Soda production sector. Entry into this market may be difficult because of market saturation by older and established companies. New entrants must find a way to significantly differentiate themselves from other products because who would choose some knock off dark soda over a good old fashion Coca-Cola. Another possibility for these companies would be to find specific niches or market sectors to operate in but it seems apparent that the major brands like Coke and Pepsi and Dr. Pepper are not defined by a specific geographic area or income level but that all different types of people enjoy these brands. In addition, many of the more established brands have access to distribution channels that would not be accessible by a newcomer to the sector. This allows the established companies to keep prices low because establishment of new distribution channels is costly. Also, some capital is necessary in the production of soft drinks. Producers that are established are going to have lower average costs of production because they have reached economies of scale. Established producers keep their costs low by merging bottling plants and using whole sale retailers. Because these companies see high profits on their products, much is spent on branding and marketing of their already extremely established products. Additionally, established companies like Coke have exclusive agreements between themselves and factors of production such as syrup producers which makes it extremely difficult for new companies to even start up. Due to the multitude of reasons, barriers of entry into the soda production market are high and steady.

Now, I will describe the factors that influence the potential emerging companies in the cookies, cracker, and pasta production sector. In contrast to the soda industry, barriers to entry in this industry are relatively low. Besides an initial capital investment, there is little to stop an emerging company. The biggest threat facing potential new companies is the established position of older companies which includes strong brand awareness and customer loyalty. However, loyalty differs among products. For example, people are much more likely to exhibit brand loyalty to their favorite cookie than to dry pasta. Also, enormous advertising budgets allow them to pursue product promotion through media outlets that are simply inaccessible to new emerging companies. Also, as we saw before, lower average costs of production, diversified product lines, and better technology allow the established companies huge advantages. However, because raw materials are easily accessible and training knowledge and skills are available, companies can be successful with low-priced, non-branded goods and small regional markets. The barriers to entry in this sector are medium but increasing.

In conclusion, the markets in this industry vary in terms of barriers to entry. The most common thread throughout has been that it is much easier for established companies to produce and advertise their goods because of the advantages they have in production costs and exclusive deals, but it is possible for emerging companies to succeed.

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