Launching a new product in the soft drink industry is possible but it is difficult. Florida was receptive but who’s to say other places will be receptive. It is a big competition with all the other types of drinks that are already out. Within the report, a microeconomic analysis of the current state of the soft drink market in the U.S. was explored and what is currently going on that is affecting demand. The macroeconomic analysis of the state of the U.S. economy and the impact this may have on the demand for this new product was presented. Finally, a list of key management accounting practices was listed with explanations for each. Though it is a great idea to expand, at the moment the way the economy is going, it may not be the right choice. Consumers are now in demand of healthier products compared to before when people drank any and everything. The figure below shows the decline of soda consumption in the U.S.
4. Trust: Decisions should be more objective because of accountability and scrutiny. There should be a balance between the short-term and long-term interests to value for stakeholders. The accountants are to be professional, ethical, mindful of the values the organization holds, etc. Trust and credibility is enhanced through feedback from the organizations performance (Bramwell, 2014).
3. Value: A thorough understanding of the macroeconomic environment on a wider scale must be understood. Information along with value-generation path, evaluating opportunities, and focusing on the risks, costs, and value-generation potential of opportunities must be explored. Other scenarios should be looked at to determine the end result to help determine whether or not engaging in the expansion is worth the risks that may come along (Bramwell, 2014).
2. Relevance: Information that is passed must be relevant to the what the company is working on. The best and available resources are scanned to help those who make the big decisions. Once the information is understood, it is identified, collected, and will be analyzed. There must be a balance between past, present, and future-related information, internal and external information financial and nonfinancial information, including environmental and social issues (Bramwell, 2014).
1. Influence: Communication is key to everything. It can either make the transition smooth if everything is going the right way or it can make things difficult if the wrong information is passed around. Accounting begins and ends with conversations. No communication means no decision making taking place. The lines of communication must be open between all departments, so everyone is aware of what will/will not happen. Transparency and teamwork are the key to making sure projects are going as planned, new ideas forming, and bringing everything together before it goes to top management (Bramwell, 2014).
While planning on expanding, there are procedures that must be followed and practices that must be put in place to support the expansion plan. The key management accounting practices are:
Management and Accounting Practices
Due to the rise and fall of the economy, the value of the U.S. dollar is increasing, which is a positive thing for the economy. As the economy does well, jobs become available, the unemployment rate down and brings increased spending putting money back into the economy (Pokharna, 2011). Then when the economy is in a bad state, unemployment rates increase, while the dollar value begins to decrease. When there is an increase, spending increases as well so the flow of cash in and out of consumer pockets go into the economy. The decline can lead to recession depending on how bad the economy takes a hit (Pokharna, 2011). Federal Funds rate were increased by the FOMC (Federal Open Market Committee), which deals with financial loans increasing the federal funds rate currently at 1.5% (Amadeo, 2017). Federal fund rates are the most influential n the U.S. economy. Targets are set for the funds rate, and banks can’t be forced to use these rates. Inflation is controlled through the feds and how it deals with rates. The impact it may have on the new product is that as the U.S. improves, the soft drink industry will be positively affected through sales and revenue, and consumer purchases increasing (Amadeo, 2017).
Macroeconomic Analysis of The State of The U.S. Economy
Nevertheless, sales are decreasing because consumer interests are shifting towards water, coffee, and juices (Fry, Spector, Williams, & Mujeeb, 2012). For the tenth year in a row the carbonated soft drink market decline. 1.4 billion cases were lost in the beverage industry since 2004. Diet soda brands are also losing, reporting a decline of over 5% with Diet Coke, 4.8% with Diet Mountain Dew (Kell, 2016). The soda industry is struggling as consumers are turning to juices, flavored water, and other options that are healthy due to an increase in health consciousness, so the soda industry is struggling (Fry, Spector, Williams, & Mujeeb, 2012). The health alternatives don’t have as much calories, do not contain ingredients like sweetener aspartame, a sugar substitute that has a mixed reputation among consumer that those purchasing would worry about (Kell, 2015). In the figure below, it shows the demand drop for soft drinks in 2015.
o “Positioning: the customer’s perceptions of the place a product or brand occupies in a market segment. In some markets, a position is achieved by associating the benefits of a brand with the needs or lifestyle of the segments (Carbonated Soft Drinks…2020, 2017).”
o “Targeting: process of focusing on a particular segment of a total population, whereby the marketer utilizes its expertise to satisfy that submarket and accomplish its profit objectives (Carbonated Soft Drinks…2020, 2017).”
o “Market Segmentation: process of subdividing a market into distinct subsets of customers that behave in the same way or have similar needs. each subset may conceivably be chosen as a market target to be reached with a distinct marketing strategy (Carbonated Soft Drinks…2020, 2017).”
· The soft drink market used marketing strategies with a model called STP: a three-stage process examining segmentation, targeting, and positioning which can be used by specific companies or the industry.
· U.S. when it comes to carbonated soft drink still holds as the largest market both in growth and value (Report Explores… Industry, 2017).
· Compound annual growth rate (CAGR) of 0.1% was the market consumption increase between 2011 to 2015 and reached 183,791.5 million liters in 2015 (Report Explores… Industry, 2017).
· The soft drink market in the U.S. had a total revenue of $286,295.7m during the year 2015 with a compound annual growth (CAGR) of 6.0% between 2011 and 2015 (Report Explores… Industry, 2017).
Based on types of drinks whether it be Coke, flavored water, or more the data listed below analyzes the market.
(Fry, Spector, Williams, & Mujeeb, 2012).
Soft Drinks have been around for a long period of time and in the beverage market it represents almost half of the revenue in the U.S. (Fry, Spector, Williams, & Mujeeb, 2012). The industry accounts for about 25% of the beverage market. Stats show that soft drinks are the largest sugar source consumed in America. About 40% of children and 33% of adults drink these beverages (Fry, Spector, Williams, & Mujeeb, 2012). Back in 2014, the revenues of the soft drink market in the U.S. exceeded $158 billion. These numbers represent a growth rate in the soft drink industry regardless of a decline in sale at one point. The soft drink market is evolving with different choices of drinks, but the three major companies are Coca-Cola Company (28·6%), PepsiCo, Inc. (26·8%), and the Dr Pepper Snapple Group (8·6%) while the other 36% belongs to small soft drink manufacturers (Figure 1) (Fry, Spector, Williams, & Mujeeb, 2012).
Microeconomic Analysis of The Current State of The Soft Drink Market
Industries no matter what type must deal with the ebbs and flows of the economy in the nation they are located and sometimes the world. The soft drink industry as a multi-billion-dollar global industry with product lines in carbonated soft drinks, bottled water, juices, teas, coffee, and fruit beverages (Fry, Spector, Williams, & Mujeeb, 2012). For this paper, I will be assuming the role of a financial consultant for a start up company that plans to introduce a new beverage categorized as a soft drink, which will be a healthier alternative to soda. The product was first introduced in Florida, where there was a growth in sales and the company wants to explore the option of expanding to other markets in the U.S. Being that the company has no financial experience and has become highly profitable I will provide a general analysis of this project. I will start of by providing and discussing a microeconomic analysis of the current state of the soft drink market in the U.S. and how any recent developing trends may affect the demand for this product. Then, a macroeconomic analysis of the state of the U.S. economy and the impact this may have on the demand for this new product will be presented. Finally, a list of key management accounting practices that the company must put in place to support their planned expansion will be provided. Each practice will have a full explanation describing how and why the practice is necessary to manage the growth that will come with expansion of the product to different states. With each explanation, I must consider the fact that the company will need outside financing and may even consider the possibility of going public in order to sell its stock on an exchange.