Protable growth

and value creation in

the soft drink industry
A view from Deloitte and SAP
Consumer Business

Table of Contents
1. Introduction and objectives .......................................................................................... 1
2. Industry background and overview ............................................................................ 1
The business environment for the soft drink industry ............................................ 1
Business performance improvement priorities the path to value ....................... 2
3. Market trends and industry challenges ...................................................................... 2
Consumers turn to wellness and healthy drink ........................................................ 2
Beverage companies and bottlers are conflicting ..................................................... 3
Retailers power continuously increases .................................................................... 4
Competition is becoming more and more difficult ................................................. 4
Distribution system and sales channels are very complex ......................................... 5
Statutory regulation is increasing ............................................................................... 6
4. Soft drink industry process improvement opportunities ....................................... 6
Improve customer relationship with direct store delivery ..................................... 6
Enhance relationship with indirect partners ............................................................ 7
Increase sales force effectiveness through incentives management ...................... 8
Manage safety requirements through tracking and traceability ............................ 8
Optimize the extended supply chain.......................................................................... 9
Reduce time to market for new products ................................................................ 10
Increase customer retention through effective trade promotions ........................ 11
Improve margins by optimizing telesales channel .................................................. 12
5. Solutions for the soft drink industry.......................................................................... 13
6. Conclusion ..................................................................................................................... 14

1
1. Introduction
Soft drinks are gradually overtaking hot drinks as the
biggest beverage sector in the world, with consumption
rising by around 5 percent a year according to a recent
report from Zenith International. But while the US
remains the biggest market for now, Asia is likely to be
the main driver of sales growth in the future.
This paper provides insights on the market trends facing
the soft drink industry. It outlines the specic challenges
confronting the companies operating in this arena,
such as ever-changing consumer tastes, a growing
emphasis on product safety, and the increasing power
of global retailers. This paper explores opportunities for
process improvement and cites specic solutions that
can empower soft drink companies to meet industry
challenges, both today and tomorrow, and drive
protability and growth.
2. Industry background and overview
The business environment for the soft drink
industry
To understand the soft drink industry, one must rst
look at the beverage industry as a whole. In recent
years, the beverage industry has been faced with new
opportunities and challenges. Changing consumer
demands and preferences require new ways of
maintaining current customers and attracting new ones.
Amid ever-increasing competition, beverage companies
must intensely court customers, offer high-quality
products, efciently distribute them, ensure safety, and
keep prices low all while staying nimble enough to
exploit new markets by launching new products. In this
environment, success depends on a companys ability to
quickly capitalize on emerging opportunities.
The beverage industry is extremely competitive, with
private labels greatly inuencing the environment. A
few global beverage giants produce many brands, but
those brands fall into self-contained categories as well.
Thus, the beverage market is not really one market;
it is a collection of markets with many different types
of products, processes and requirements. The beverage
market includes several different products that can be
grouped into two main categories: alcoholic (beer, wine,
spirits) and non-alcoholic (carbonated soft drinks, juice,
water, sports drinks, etc.). Each category, and often
each type, of beverage has its unique issues and needs.
Within the beverage industry, the soft drink market has
been showing signicant growth in most countries in
the recent years, particularly in the emerging markets.
While the U.S. represents the largest overall soft drink
market and has the highest per capita consumption
level, most markets are showing double-digit growth
both in terms of volume and value. For instance, Mexico
and Poland are two markets in particular that stand out.
Within the soft drink sector, carbonated soft drinks
(CSD) continue to dominate the market, encompassing
traditional avored beverages as well as sugar- and
caffeine-free drinks, which have soared in popularity.
Simultaneously, manufacturers are focusing on
innovation in order to maintain growth. New product
categories are emerging swiftly and many are already
consolidating, as consumer demand continues to shift
toward healthier products, such as bottled water, juices
and juice drinks, sport drinks, ready-to-drink teas, and
functional beverages.
Recent trends in the food and beverage market center
on product safety, quality, consumer demand, and
channel complexity (including the growing inuence
of retailers on the supply chain). These trends have
impacted the beverage industry in general and the soft-
drink sector in particular.
In this paper, we will focus on the issues relevant for
middle-market soft drink companies, dened as soft
drink producers or bottlers with an annual turnover of
$500 million to $2 billion USD. Nonetheless, the majority
of the points raised in the paper will be applicable to all
soft drink companies, regardless of size.

2
Business performance improvement priorities
the path to value
Against the backdrop of these market challenges, how
can soft drink companies drive protable growth and
create value for their owners or shareholders?
In practical terms, there are four areas on which
companies in the soft drink business need to focus:
Revenue protection and enhancement for
example, as driven by product and packaging
innovation, differentiated quality, improved product
availability, and better management of customer
relationships
Cost reduction/margin improvement for example,
through improved operational efciency, lower labor
costs, reduced waste and the capture of operational
synergies from acquisitions
Improved asset utilization for example, through
reduced inventory levels of soft drinks held in cold
storage and faster turnaround of re-usable transit
packaging in the supply chain
Regulatory/assurance for example, through
demonstrating quality by participating in retailer
assurance schemes and assisting trade customers
in achieving full compliance with new traceability
legislation.
3. Market trends and industry challenges
In order to survive in this environment, companies
must consider the market trends that will likely shape
the industry over the next few years. This will help soft
drink companies to understand the challenges they
will encounter and to turn them into opportunities
for process improvement, enhanced exibility and,
ultimately, greater protability.

Market trends for the soft drink industry can be

summarized by six fundamental themes:
Changing consumer beverage preferences,
featuring a shift toward health-oriented wellness
drinks
Growing friction between bottlers and
manufacturers in the distribution system
Continually increasing retailer strength
Fierce competition
Complex distribution system composed of multiple
sales channels
Beverage safety concerns and more-stringent
regulations

Consumers turn to wellness and healthy drinks
In much of the developed world, a signicant portion
of the population is overweight or obese. This includes
two-thirds of Americans and an increasing number of
Europeans. Consequently, many people have started to
actively manage their weight and change their lifestyles,
a shift that is reected in their choices in the beverage
aisles:
Demand has increased for beverages that are
perceived to be healthy
Energy drink consumption has also climbed, due to
the increasingly active lifestyles of teenagers
1.
2.
3.
4.
5.
6.

3
This trend towards healthier drinks has created a number
of new categories, and changed the consumption trends
of the beverage industry as a whole. While previously
dominated by carbonated soft drinks, the industry is
now more evenly balanced between carbonates, and
product categories with a healthier image, such as
bottled water, energy drinks and juice:
While carbonates are still the largest soft drink segment,
bottled water is catching up fast, with an average
of 58 liters consumed annually per capita. Among
individual countries, Italy ranks number one in bottled
water consumption, with the average Italian drinking
177 liters per year. Overall, bottled water represents
the fastest growing soft drink segment, expanding at 9
percent annually. This growth is being partially driven by
increasing awareness of the health benets of proper
hydration.
The industry has responded to consumers desire for
healthier beverages by creating new categories, such
as energy drinks, and by diversifying within existing
ones. For example, the leading carbonated soft drink
companies have recently introduced products with 50%
less sugar that fall mid-way between regular and diet
classications. Similarly, a South African juice company
has recently released a fruit-based drink that contains a
full complement of vitamins and nutrients.
Beverage companies and bottlers are
conflicting
In the soft drink markets of Europe and the US,
beverage companies use bottlers to package and
distribute products. This structure often causes conicts
of interest between manufacturers and bottlers.
Nevertheless, the supply chain must consistently deliver
value to the market in order for the segment to prosper.
Despite any dissonance, the concept of one face to the
customer must be maintained.
Many factors are contributing to the friction between
bottlers and beverage companies:

Beverage companies often profit from increased
concentrate sales at the expense of bottlers
margins
Beverage companies have historically
had higher returns and lower capital
requirements
Bottlers have historically had lower returns
and higher capital requirements for building
and maintaining production and distribution
networks
Bottlers continue to consolidate in an attempt to
offset margin pressure through cost reduction.
Specifically, size helps them to:
Spread fixed costs over greater volume
Make larger investments in automated
production lines
Contain the costs of acquiring new
customers
Increase customer loyalty
Declining prices have further reduced bottlers
margins

4
Soft drink manufacturers continue to develop
new products and packaging, which increases
operational complexity and, therefore, expenses for
bottlers.
More new soft drinks have been introduced
in the last two years by the top beverage
companies than were introduced in the
entire decade of the 1990s. Examples
include: Coke with Lemon, Vanilla Coke,
Dr. Pepper Red Fusion, Pepsi Blue, DnL,
Fanta Berry, SoBe Mr.Green, Sierra Mist,
and Mountain Dew Code Red.
While manufacturers view these new
products as a way to build a portfolio of
options to hedge against product successes
or failures, bottlers see them as a burden
since they often require additional capital
expenditures.

Retailers power continuously increases
With Wal-Mart leading the charge, the worlds
dominant retailers are demanding better service
and shorter order-to-delivery cycles from soft drink
companies. This is dramatically reshaping the industry,
forcing soft drink companies to become more efcient,
while taking pricing power out of their hands. The
dual need for improved supply chain agility and cost-
efciency is challenging suppliers to reevaluate the ways
in which they plan and manage their supply chains, as
they constantly search for approaches that will help
them achieve the rock-bottom prices and operational
excellence now expected in the industry.
Furthermore, the growth of private-label products is
encouraging manufacturers to take a number of steps
to compete more effectively. Increasingly, they are
turning to innovation and new product introduction as a
means to achieve real differentiation as well as growth.
Branded manufacturers are also looking to get closer
to the consumer, with many of the larger ones piloting
direct-to-consumer marketing approaches. They are
also trying to better understand the in-store consumer

experience by monitoring the execution of in-store

activities.
Nevertheless, many suppliers are losing brand equity.
In recent years, a couple of factors have been fueling
the growing competition between manufacturers and
retailers:
Retailers are using their power to set higher
standards for marketing and operational excellence,
including escalating demands for improved service
quality and shorter order-to-delivery cycles from
manufacturers and distributors. Many of these
demands, such as RFID, not only squeeze margins
but also require significant capital investments.
Because of their direct relationships with consumers,
retailers have a deeper knowledge of consumer
behavior.

Competition is becoming more and more
difficult
In the beverage manufacturing industry, competition is
growing due to the following factors:
Constant demand for new niche products related
to consumer preferences for healthier and more-
diversified offerings
Industry consolidation, which has significantly raised
the bar for the scale needed to compete
The growth of private-label products.

These competitive pressures have led to:
SKU proliferation - number of SKUs in a typical
beverage company has doubled from 1991 to 2001
A plethora of new product failures:
Only 20% are effective
Only 10% generate significant revenue
Most fail within the first two years

5
Further consolidation and rationalization to
capture cost savings by improving operations and
eliminating redundancy:
Industry leaders are acquiring small, high-
growth companies
Mid-market players are vertically integrating
Declining soft drink prices:
Profitability can only be improved through
greater efficiency in the supply chain or
through more-effective trade promotions,
which usually require considerable
expenditures.
Sales channels are very complex
The macro environment in which soft drink
manufacturers operate has several unique
characteristics:
Market to consumers/sell to retailers through
wholesalers
Must have the ability to communicate directly with
retailers
Multiple distribution channels
Seasonal demands

The beverage industry is a multi-channel industry.

Therefore, soft drink companies have several types of
customers with diverse characteristics:

Modern Trade/Large Chain Retailers
Greater power in negotiating purchases of
concentrations and merges
Direct access to the consumer and a
tendency to protect this relationship from
manufacturer intrusion
Request contributions and discounts from
brand companies
Small Individual Retailers
Huge number of small point sales
Sometimes buy products directly through
cash and carry or modern trade
Indirect Channel (wholesalers)
Medium-sized organizations as a
consequence of aggregation through
consortia and merging
Playing a fundamental role in beverage
distribution
Possess critical information regarding
individual points of sale in terms of volume,
assortment, presence of competitors
beverages, etc.
Due to the complexity of the marketplace, the entire
logistical chain must be able to sustain brands, products
and services coherently within the various channels,
taking into account differing points of sale and
diverse customer needs. Additionally, each beverage
manufacturer must provide customers with an extensive
set of packaging options, including:
Tracking product in various package sizes
Special labeling requirements for customers
International/domestic packaging
Tracing/recall capabilities.

6
Statutory regulation is increasing
Governments around the world are concerned about
food safety and quality. Periodically, safety failures
make big news in the global press. Amid this growing
concern, regulators are cracking down on sanitation and
a variety of other food-safety requirements.
While food safety is the major focus in Europe, the
emphasis in the US is more on bio-terrorism and
food security. However, the provisions in the 2005
traceability legislation in the US, which stemmed from
the Bioterrorism Act of 2002, and those in the EU
Directive 178, Articles 18 and 19, are very similar. The
U.S. Food and Drug Administration (FDA) is proposing
the registration and tracking of almost all domestic and
imported food articles, but some are concerned that the
complexity of the rules will overwhelm both the food
industry and the FDA.
Each soft drink company must take these industry
challenges into consideration, as well as its own
strengths and market position, when looking for ways
to drive innovation, accelerate growth and increase
margins. The next section outlines where some of the
most promising opportunities for accomplishing these
objectives can be found.
4. Soft drink industry process
improvement opportunities
Improve customer relationships with Direct
Store Delivery
Branded beverage manufacturers are attempting to get
closer to the consumer, with many larger manufacturers
piloting direct-to-consumer marketing approaches.
These include active monitoring of in-store activity and,
in some markets, a signicant move back to direct store
delivery (DSD).
Direct Store Delivery is a business process used in the
beverage industry to sell and distribute goods directly to
the customers point-of-sale. With DSD, the soft drink
company gets in direct contact with retailers, restaurants
and pubs and other outlets where consumers can obtain
the product. Manufacturers can use DSD to:
Make beverage goods available to stores and
customers quickly
Optimize process settlement in sales and distribution
through complete coverage of the supply chain
Improve customer retention and build customer
relationships through personal service
Realize additional sales opportunities
Obtain first-hand information about the market
Better position brands against competitors
Ensure product quality up to the point of sale
Best in class DSD companies couple the process of direct
delivery with a cultural change in how they view their
employees and how their delivery personnel operate:
They are not just drivers but they have sales skills,
communication skills and a global view of the companys
offerings, commercial priorities, and initiatives.
Direct Store Delivery is characterized by variable orders
and deliveries. Consequently, the process should involve
more than just bringing goods to the point of sale. It
should eventually encompass taking additional orders,
picking up empties, collecting money, and more. Best-
in-class DSD operations typically include many value-
added activities, such as:
Merchandising activities - Enables the company to
leverage frequent delivery visits to the point of sale.
These activities include tracking merchandising of
other entities (suppliers, wholesalers, etc.); reporting
on in-store merchandising activities; carrying out
competitive intelligence (competitive products,
product mixes, prices, displays, etc.); and monitoring
store/account execution. May also include some
preventive maintenance.

7
Additional sales opportunities - Allows a company
to sell goods off the truck without any preceding
order. The mix of products on the truck is
dependent on what is most likely to be sold on a
certain trip. Support provided by handheld devices
enables drivers to skip back-end paperwork and to
close the process through printed invoices.
Enhance relationship with indirect partners
Indirect sales is the process of selling to an end customer
through a third party and tracking that sale as such.
Due to the complexity of the beverage supply chain,
conicts of interest frequently arise between beverage
manufacturers and beverage distributors:
Soft drink manufacturers profit from increased sales
at the expense of distributors margins
Soft drink distributors profit from positive local
pricing environments, which, if exploited, reduce
volume sales
Soft drink distributors continue to consolidate in
an attempt to offset margin pressure through cost
reduction
Despite these conicting interests, it is crucial that
beverage manufacturers and beverage distributors
maintain one face to the customer. These companies
jointly market and sell the product in the marketplace,
and close co-operation yields benets for both parties.
The indirect relationship is a partnership that must be
nurtured by both the supplier and the distributor. The
stakes are high for everyone. For the manufacturer,

a poor relationship with a distributor may cause it to

give a competitor greater share of mind in the local
marketplace. For the distributor, a negative relationship
with a supplier means constant threats of contract
termination and reduced marketing dollars spent in the
local market.
A strong manufacturer/distributor relationship is also
important because consumers are becoming more
difcult to capture and classify. It is not only about
sales; it is also about information. But how can strategic
information ow freely between partners? Although
sharing is implied in the word partnership, the reality
is that companies are still uncomfortable about
exchanging strategic information. Nevertheless, it is
critical for companies to share information regarding
sales volume and market intelligence on both the
microscopic and macroscopic levels.
The importance of the distributors role in the indirect
channel for beverage distribution suggests that it would
be benecial to establish a common understanding
between distributors and manufacturers regarding:
Coding (products, channels, customers)
Technology
Data interpretation
Marketing and sales actions.
In some cases, distributors are small- to medium-sized
companies that only dedicate a few people full-time to
operational activities. As a result of this structure, they
are rarely open to implementing a truly collaborative
environment. Recently, however, mergers between
distributing companies, and acquisitions of distributing
companies by manufacturers, have signicantly
modied many operating and ownership structures.
Consequently, a few well-structured and managed
distributors have emerged that possess a better
understanding of the value of collaboration. These
distributors have been at the forefront of facilitating
partnership initiatives.

Distributor
Store


8
Increase sales force effectiveness through
incentives management
In the beverage industry, the critical path to a companys
success is the effectiveness of its sales force. No matter
how efciently the company runs its manufacturing
processes, or how well it markets its products, a
beverage company cannot succeed without an effective
sales force that ensures product placement on the store
shelves.

A beverage manufacturers sales force typically
comprises 17%-25% of the companys cost basis.
Beverage distributors have an even higher percentage
of their total costs allocated to their sales forces. Yet,
how can beverage companies get the most out of
their investments and ensure that their sales forces are
operating optimally?
Properly managed commission programs allow beverage
companies to effectively motivate their sales forces
to increase or maintain volume by brand or package.
A commission could be a rebate, discount, or other
payment to a third party or in-house employee. In
order to actively manage sales behavior, it should be
paid when the internal or external sales representative
meets a pre-established benchmark for a tracked metric.
The commission could take the form of either a cash
payment or an item.
While commissions are usually paid based on sales
volume, best-in-class companies take a more holistic
view of commission metrics. Some other important
measures include:
Account revenue growth
Profit results
Number of new accounts
Customer service metrics
Account retention.

Manage safety requirements through tracking

and traceability
As recent history has shown, the ability to track
inventory accurately and to perform a timely and
cost-effective product recall is critical in the beverage
industry. Inventory items need to be tracked, monitored,
and controlled in different ways and at very detailed
levels. In each individual plant or warehouse, each
resource requires a different level of control/analysis.
Food safety legislation, such as EU Directive 178, impacts
the whole process ow. Traceability is a goal that must
be achieved over the entire value chain, requiring a
batch control system that is able to track and document
all related characteristics.

Activity Type of Questions
Answered
Track and inquire on inventory
by characteristics
How many kilos of syrup do
I have?
Record inventory activities
(receipts, shipments,
adjustments, etc.)
How many different batches
of diet soda do I have in my
inventory?
Recall products What batches will I have to
recall from the retailer?
Inventory traceability
information
What went into a specic
batch?
At the batch level, it is now possible to assign different
product attributes when searching for the product
including:
Manufacturing Expiration Dates
Shelf Life Dates
Classifying production lots into batches allows
companies to identify specic inventory and
automatically record its history, including the history of

9
the raw materials (and their associated batch numbers)
used in its production. In other words, it allows full recall
of the materials that have been involved in the overall
manufacturing process. These improvements reduce the
companys exposure to litigation and regulatory nes.
In addition, track and trace improvements help
companies to maintain high quality standards, which is
often a selling point that differentiates one brand from
another and that can command a price premium with
the consumer. Recording and tracking that quality is
critical. In the nal analysis, soft drink companies must
strive for the highest quality standards they can achieve
ones that are superior to those of their competitors.

Optimize the extended supply chain
In a business environment characterized by strong
competition, changing consumer preferences, a complex
distribution channel, and conicting relationships
between soft drink manufacturers and distributors, the
beverage supply chain is under signicant pressure.
Moreover, the worlds dominant grocery retailers
(with Wal-Mart paving the way) continue to demand
increasingly better service quality and shorter order-
to-delivery cycles from manufacturers. This conuence
of factors is forcing manufacturers to become more
efcient, while taking pricing power out of their hands.
The need for both improved supply chain agility and
cost-efciency is challenging suppliers to re-assess how
they plan and manage their supply chains.
The logistic chain must be able to sustain brands,
products and services cohesively, while taking into
account different channels, customers, points of sale
and customer needs. Accordingly, companies should
consider taking the following steps to improve their
supply chains:
Ensure product availability on-shelf On-shelf
availability is becoming a critical issue for both
manufacturers and retailers. A system that avoids
out-of-stocks improves consumer value, builds

brand and store loyalty, increases sales and most

importantly boosts category profitability. The
traditional practice of filling out-of-stocks with other
products is no longer sufficient particularly from
the manufacturers point of view. If consumers
cannot find the brand they want, their loyalty to
that brand suffers. A 2002 GMA study found that
out-of-stocks jeopardize $6 billion in retail sales
every year. Less conservative estimates put this
figure as high as $20 billion.
Flexible ordering; flexible delivering Most
retailers are demanding increased flexibility in order
lead-times and delivery methods, putting additional
pressures on the supply chains of manufacturers
and distributors. To withstand these pressures,
companies need to streamline product movement
through programs such as store-specific shipments.
They must also meet the strategies of progressive
retailers, which require flow-through distribution
and cross-docking.
Accurately forecast demand Properly forecasted
demand drives two of the primary metrics used to
measure the efficiency of a beverage companys
supply chain: customer service and inventory.
Accurate forecasts are essential to achieving
improved customer service and lower inventory
levels. Even with recent success in developing
and maintaining efficient supply chain processes,
forecasting inaccuracy remains a significant industry
problem. According to the 2003 GMA Logistics
Study, more than one-third of all forecasts are
inaccurate at the national level. This figure jumps
to almost one out of every two at the regional
(distribution-center) level. Meanwhile, at the
store level, differences in store formats and sizes
hamper the forecasting process, and few have
the tools to accurately manage the sheer volume
of data generated by forecasting. Furthermore,
many manufacturers do not have the technology
to properly support their planning and forecasting
efforts. Many manufacturers are still forecasting
sales in months, although their plants run on weekly
plans. That means they have to squeeze weekly
totals out of monthly boxes.

10
Implement a fully integrated empties
management process Empties management
is the process of managing returnable containers,
including kegs, CO2 tanks, bottles and crates
(an essential part of direct store delivery). A
successful empties management system gives
the manufacturer a detailed picture of the entire
empties lifecycle, including the location and status
of a companys assets. This process:
Lowers costs by controlling high-value
empties assets
Increases control by managing empties at
customer locations
Decreases manufacturing issues by tracking
empties.

Reduce time-to-market for new products
An efcient new product development system is
essential in the beverage industry. New products need
to be brought to market quickly in order to capitalize on
changing consumer preferences and competitive threats.
However, new products must be developed tactically,
and the products potential must be understood and
analyzed before it hits the market. Currently, success
rates for new products are astonishingly low dropping
from 75% to 25% in the last decade according to
AMR and most fail within the rst two years after
introduction.

The companies that are best able to execute the
whole product development cycle will clearly have an
advantage. This requires reducing time-to-market as well
as making effective use of scarce internal resources and
improving collaboration with partners. In addition, great
attention must be paid to aligning the related marketing
initiatives (e.g. advertising, sales promotions, etc.) with
the new product introductions.
Innovation is one of the primary growth drivers for
beverage companies, and it can involve changes to the
product itself or to the products packaging:

Product innovation Focuses on providing new

tastes and flavors to demanding consumers.
Packaging innovation - Emphasizes developing
differentiated packaging according to the
consumption situation. Often, beverage
manufacturers use packaging innovation to increase
product shelf life.
To ensure new product success, beverage companies
must oversee the integration, consolidation and re-
use of knowledge from all involved parties (including
beverage manufacturers and bottlers), from R & D
through production, and down to sales, marketing, and
nancials.
By emphasizing greater collaboration and implementing
Web-based workow, beverage companies can reduce
lead-time from concept to shelf by 25 - 40% and, at
the same time, better integrate safety controls into the
development process.
Increase customer retention through effective
trade promotions
In an environment characterized by strong retailers and
discriminating consumers, beverage companies must
utilize processes and tools to protect their market shares.
To do this, they must make a favorable impact at the
point of sale through promotional activity.
Trade promotions have become a necessary and
expensive cost of doing business. With a sizable
percentage of volume being driven through a smaller
base of retailers, the competition for shelf space has
never been higher. If a beverage company fails to
execute a trade promotion at Wal-Mart, a competitor
will. Furthermore, as trade promotions have proliferated
over the past few years, they have also become more
targeted. In response, beverage companies must create
promotions for specic demographics, channels, and
retailers, which make the sales process more costly and
complex.

11
Trade promotions vary widely in terms of method,
approach, and structure. Many local promotions are run
ad-hoc with marginal capital investments by eld sales
associates, while others require signicant investment
and involve pre-scheduling in co-operation with national
chains.
Two of the most commonly used trade promotions in
the beverage industry are coupons and rebates. Coupon
and rebate management are critical to enhancing
relationships between the beverage manufacturer and
wholesalers, customers and, in the case of coupons,
consumers.
Coupon programs, which are in essence trade
promotions addressed to the nal consumer, are
mainly executed via discounts at large retailers. The
coupon, a certicate with a stated value, can be applied
immediately or reserved for the next purchase. A
properly executed coupon program enables beverage
companies to pass savings directly to the end consumer.
On the other hand, rebate programs are trade
promotions addressed to the retailer. Therefore,
contractual terms and conditions between the
manufacturer and the retailer must be monitored
and executed. Rebates are often part of special trade
promotions, and management of the rebates typically
follows one of the following ows:
Figure N - Rebate management in direct sales
Figure M- Rebate management in Indirect Sales
Improve margins by optimizing the telesales
channel
For a large number of companies in the beverage
industry, telephone sales is the primary method of
order taking and customer interaction. An effective
telesales process can increase revenues and complement
other sales processes, such as DSD and eld assets
management. This is accomplished by integrating
the phone sales function with the companys other
operations.
When correctly executed, inbound and outbound
telesales functionality enables companies to manage
effectively and efciently all contacts related to sales
and customer services. In addition, it helps build client
relationships, sell new business, and expand and retain
the current customer base.

Well-implemented telesales functionality also enables
business processes to be integrated and standardized.
This effectively closes the loop, creating a consistent
experience for customers within a multi-channel
environment.

12
Some of the key benets that a company can gain
through telesales include:

Revenue Enhancement
Improved sales effectiveness by
consolidating the customer relationship
Better up-selling
Improved cross-selling
Increased customer retention
Expanded customer base
Enhanced competitiveness via services that
match or surpass those of competitors
Margin Improvement
Reduced costs for order processing
Accelerated sales process
Lower sales costs in comparison to field sales
Increased flexibility and speed to market
Differentiated service levels according to
customer relevance and need.
Implementing closed-loop processes between the
telesales operations and other departments can provide
agents with a comprehensive view of all customer
interactions across the enterprise in real time. In
order to optimize the telesales channel, agents must
have tools to manage the entire sales process, from
generating leads, planning calls, and prioritizing sales
opportunities and activities, to managing contacts and
placing orders quickly.
5. Solutions for the soft drink industry
In order to respond effectively to changing market
trends and challenges, soft drink companies must
support their improvement efforts with industry-specic
solutions. These solutions should have the following
characteristics and provide the following capabilities:

Basic processes
Pre-congured processes with clearly
dened implementation scope A streamlined
implementation strategy is necessary to minimize
disruptions to the business while maximizing enterprise-
wide adoption. When a world-class solution tailored to
the specic needs of the soft drink industry is coupled
with a rapid implementation approach, it can deliver
immediate business value, generating a high overall
return on investment and a low total cost of ownership.
Manage nancials including cost management An
effective solution must provide an integrated nance
system capable of handling cost management, meeting
internal and external reporting requirements, providing
real-time data access, and drilling-down to greater levels
of detail.
Manage procurement process Necessary capabilities
for efcient procurement include supporting vendor
price comparisons and exible pricing processes for
the actual value of the raw ingredients. It should also
support quotation handling, contract management, and
batch handling.
Meet customer expectations for managing Their
Orders An effective solution should be able to
effectively manage the entire process for handling
customers orders, encompassing variable pricing,
delivery, invoicing and payment. It should support
beverage companies in shortening order cycle times,
making on-time and in-full deliveries, and providing
optimal payment methods for customers.
Optimize planning and manufacturing to suit
specic business requirements Solutions in this
arena should support a multi-step manufacturing
process. This includes the ability to perform automatic
batch determination based on expiration date during
production-order processing.


13
Provide efciencies in integrated inventory
management Integrated inventory management
capabilities are crucial. The system should be able to
automatically update all stock gures after material
movements have been posted. These gures should be
accessible in real-time for decision support.
Manage product safety As food safety requirements
become more advanced across the beverage industry,
track and trace capabilities are a prerequisite. An
effective solution should have the functionality to nd
a defective batch that has already been delivered to a
customer.
Beverage-specific processes
Plan deliveries Effective solutions feature powerful
tools that businesses can use to efciently load,
dispatch, and track any number of deliveries. An
emphasis should be placed on eliminating redundant
trips and matching the appropriate vehicles and drivers
to customers for each delivery. By extending route
management into the order management system,
companies could reap potential cost savings of 25% to
50%.
Monitor route business Beverage companies must
be able to account for every item delivered, and take
quick action to resolve item discrepancies. Best-in-class
solutions provide powerful check-in and check-out
functions that record all deliveries and returned goods.
They should also provide tools to monitor quickly and
accurately the entire transportation operation, or that of
a transportation supplier, from loading and delivery to
accounting and settlement of returned goods.

The system as a whole should ensure complete loads,
on-time deliveries, solid inventory control, and seamless
invoicing.
Keep track of empties Best-of-breed beverage
industry solutions paint a detailed picture of the entire
empties situation, showing the location and status of
crates, kegs, or pallets, and helping optimize return
logistics. It should also permit quick access of each
customers empties account as well as print delivery
notes or invoices recording the empties involved in a
delivery.
Manage rebates and bonus agreements Rebate
and bonus agreements are critical to enhancing
relationships among beverage manufacturers,
wholesalers and customers. Yet, the task of managing
rebate programs is becoming increasingly difcult
as current rebate arrangements often involve
numerous parties, including many that are not directly
involved in the initial transactions. Effective beverage
solutions provide companies with the tools needed to
manage easily and accurately large, complex partner
constellations with any number of bonus or rebate
arrangements. They should also provide coupon
management. These functions apply both to direct and
indirect customers.
Manage commissions In the beverage industry,
complex commission structures are needed to motivate
the sales force and to encourage them to push certain
brands and to develop specic markets. Best-in-class
solutions allow companies to complete commission-
based transactions, make payments both to internal and
external sales forces, and track the payment of these
commissions over time.

14
6. Conclusion
The relative market share of the soft drink sub-sectors
(carbonates, juices, bottled water, energy drinks) vary
widely across Europe, America and Asia due to the
differences in consumption habits, brand awareness
and lifestyles. On the aggregate, the total value of soft
drink consumption is expected to reach about $347
billion USD by 2006. Despite its size, annual growth is
often limited to increases in the worlds population base,
especially expansions in the middle-class. In mature
markets, such as North America and the European
Union, where population growth is limited, achieving
real protable growth requires specic strategies for
truly differentiated business performance.
While all beverage businesses start from different
baselines, there are common themes in their potential
paths to success:
Better understanding the consumer Beverage
and related businesses will need to keep an eye on
fast-moving changes in consumer requirements.
Growing consumer expectations for quality and
variety, more diverse populations, and rising
concerns over beverage safety will require firms
to introduce new products targeted to more
specialized markets and to rethink their production
processes and supply chains.
Effective innovation and new product introduction
The ability to respond with agility to changing
customer and consumer demands is essential, and it
must be accomplished via the introduction of new
products and formats that are successfully planned
and executed. This represents the largest single
opportunity to drive protable growth.
Closer customer relationships As retailers
rationalize their supply base across all product
categories, beverage companies will need to work
more closely with a smaller number of customers,
each of whom represent a growing portion of their
business.

Operations Excellence An agile, cost-effective

supply chain is vital to the success of a modern
beverage company. Requests from the trade for
outstanding service quality and reduced order-to-
delivery cycles are challenging suppliers to re-assess
their approaches to planning and managing their
supply chains. Ensured product availability, delivery
exibility, and improved forecasting are the most
important elements for success in the beverage
industry.
Actionable information to manage the business
Examining accurate and timely data about sales
and consumer behavior allows companies to gain a
true picture of product and customer protability.
This provides the foundation upon which to make
good management decisions and to take the proper
actions in the market.
Companies that can successfully address these issues
will be those that prosper. The key to managing these
challenges, and ultimately to driving protable growth,
lies in designing and implementing effective processes
and supporting them with a exible, integrated
information system capable of meeting the distinct, and
constantly evolving, needs of the soft drink industry.

15
For more information about the Deloitte and SAP
Food and Beverage Initiative please contact:
Deloitte
Lawrence Hutter
lhutter@deloitte.com
SAP
food@sap.com
beverage@sap.com
For more information about Deloittes global
Consumer Business practice:
Global Consumer Business Leader
Ed Carey
ecarey@deloitte.com
Asia Pacific
Yoshiaki Kitamura
ykitamura@deloitte.com
Europe, Middle East, and Africa (EMEA)
Gilles Goldenberg
ggoldenberg@deloitte.com
Latin America, Caribbean
Francisco Perez Cisneros
fperezcisneros@deloitte.com
North America
Brent Houlden (Canada)
bhoulden@deloitte.com
Tara Weiner (US)
tweiner@deloitte.com


Copyright 2005 Deloitte Touche Tohmatsu. All rights reserved
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