Beverage Manufacture and Bottling
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Industry Overview
The US beverage manufacture and bottling industry includes about 3,000 companies with combined annual revenue of $70 billion. Major companies include Coca-Cola, PepsiCo, and Dr Pepper Snapple Group.
The industry includes manufacturers and distributors of soft drinks and bottled water. Manufacturers and distributors of alcoholic beverages are covered in profiles for Breweries, Distillers, Wineries, and Beer, Wine, and Spirits Distributorships.
Competitive Landscape
Demand for nonalcoholic beverages is driven by consumer tastes and demographics. The profitability of individual companies depends on effective marketing. Large companies have economies of scale in production and distribution Small companies can compete by producing new products, catering to local tastes, or selling at lower prices. The industry is capital-intensive: average annual revenue per production worker is about $1 million.
Products, Operations & Technology
Nonalcoholic beverages include sodas (carbonated soft drinks, or CSD), bottled waters, juices, and a large variety of mixtures. Sodas account for about 60 percent of the market. The manufacture and distribution of most national soda brands, including Coke and Pepsi, is a two-tiered process. The primary manufacturer produces a flavored syrup called concentrate that is sold to local bottlers who manufacture and distribute the finished product. In a typical bottling operation, the flavored syrup, corn syrup (sugar), and filtered water are mixed in appropriate proportions, carbon dioxide gas is injected, and the finished soda product is poured into bottles or cans, which are capped, labeled, and packaged.
The two-tiered structure is most efficient for national companies with large volume, because the manufacturing process is simple and because water, the main ingredient of sodas, is expensive to ship and is available locally. Smaller companies combine the syrup production and bottling operations in one plant. For soft drink bottlers, the major raw materials, aside from the flavored syrup, are corn syrup and containers - glass bottles, aluminum cans, or plastic bottles made from polyethylene terephthalate (PET).
Bottlers frequently operate sizable distribution systems, including warehouses and fleets of specialized delivery trucks. Production and distribution volume is usually measured in cases of 192 ounces, although actual cases of 12-ounce cans now contain 288 ounces. Coca-Cola produces more than 4 billion cases of soft drinks per year; PepsiCo, over 3 billion. In addition to producing canned and bottled soft drinks, large manufacturers sell sweetened syrups to restaurants and other retailers that produce the finished product at the point of sale by mixing the syrup with carbonated water to produce fountain products. About 35 percent of Coca-Cola's US product is in the form of fountain sales and 60 percent in bottled sales.
The manufacturing process for most nonsoda beverages is usually more complicated than the mix-carbonate-and-bottle soda process and therefore isn't usually handled by local bottlers. In most cases, nonsoda products are bottled by the manufacturer and distributed through the same types of channels -- wholesalers, distributors, brokers -- used by food manufacturers, although bottlers may also participate. Bottled waters, a rapidly growing category of beverage, are either bottled at specific springs or made locally from filtered tap water.
Manufacturers and bottlers typically operate under contracts, called Bottler Agreements, that specify the territory within which the bottler has an exclusive right to make, sell, and distribute the manufacturer's brand in bottles or cans. Fountain products are often sold separately through wholesalers, under Distributor Agreements. Bottle and fountain territories may overlap and bottlers may also be fountain distributors. Coca-Cola sells products through about 80 local bottlers and 500 fountain wholesalers.
Bottler Agreements usually require that container and packaging materials be bought from suppliers that are approved by the manufacturer, and that the bottlers not handle competing products. Agreements also specify the price that the bottler must pay for concentrate. The manufacturer has no control over the prices the bottler charges customers, and usually isn't obligated to spend money for marketing or promotions in the bottler's territory. Often, however, the manufacturer will provide marketing and promotion support. In one year, for example, Coca-Cola provided about $600 million in marketing support to Coca-Cola Enterprises, its largest bottler. Many Coke and Pepsi bottlers hold perpetual contracts that can be terminated only for breach of contract.
The industry depends on technology for developing new products in the labs and packaging product at the plants. Most bottling plants are highly automated with a combination of mechanical automation and computerized robotics.
