PEST Analysis of Beverage Industry

Political/Legal Factors

Food and Drug Administration (FDA) Regulation

All the food products manufacturers and producers are under the control of FDA. For instance, the food and drug administration certifies and tests new ingredients such as high concentration sweeteners prior to they are permitted to be used in beverages and soft drink production.

Human Rights Issue

Multinational corporations are facing different human rights issues, rules, regulations, laws and policies of different governments in operating countries.   

 

Waste management and public concerns

Increasing environmental consciousness is most important to growing legislation. The firm’s operation is exaggerated by federal legislative applications that concentrate on the four objectives. 

• Decrease the quantity of packaging material inflowing the nation’s solid waste management system

• Diminish the consumption of natural scarce resources

• Increase the reuse and recycling packaging materials

To shelter the natural environment and human health from undesirable effects related with the dumping of packaging materials. For instance, Connecticut has now passed a law that controls packaging to enlarge its recyclability.

Economic Factors

The main factors taken into deliberation are the market risks, which a Pepsi company is bared to commodity prices, foreign exchange rate and interest rate. These elements are described as follows.

Commodity prices

Commodity prices distress the raw material cost, Pepsi Company is opened to market risk due to the commodities prices, because in competitive environment where Pepsi is operating, would limited its capability from improving costs during higher pricing.

Foreign exchange & global economic conditions

Operating in global environment is not as easy as operating in local market, because it involve the exposure to currency exchange rates variations. This generally affects the interest rate, economic growth, government actions inflation and other economic factors. These changes could affect the Pepsi and Coke to adjust their operating and financing strategies. Variations in global currency exchanging rates and macro-economic conditions could affect the international operating profits and business of the Pepsi and Coke.      

Interest rate

Pepsi and Coca Cola could control their general financing in term of harmonizing risks and investment opportunities. To minimize overall borrowing costs firms in beverage industry are using currency swaps and interest rate to significantly adapt the rates in order to minimize the borrowing cost.      

Socio-cultural factors

Now-a-days consumers are not brand loyal as they were previously, now they can easily switch to another product. Consumer choice for beverages and soft drinks is affected by two major characteristics such as ethnicity and age. Due to health reason, age factor plays very important role when choosing a soft drink or beverage. Some studies have been conducted and found that soft drinks and cola products in general may result health problems specially, kidney stones. In compare to adults, younger consumers specially teens and twenties have fewer interest spans for products and have a preference of products that seems different and to be fun. Now players in beverages industry changes to non cola products for instance bottled water, sports drinks, tea etc.               

Technological factors

Technological advancement in manufacturing and new quality improvement concepts such JIT, Six Sigma, MRP-II etc are the significant providers to improve efficiency of bottling operations and quality of products. Advancement in technology also helps to introduce new product lines for example new flavors, sugar-free or diet sweeteners, caffeine free goods facilitates Pepsi and Coke to launch brands that meet changing customer style, preferences and taste. In beverage industry distribution process is a big challenge because process can be able to place the right products at right time. In soft drink industry technology can provide a competitive advantage, if it is applied in area such as logistic products into stores less extravagantly and costs beyond the distribution pipeline while increasing sales information availability.