Sophie Paridon
QFinance, an online business dictionary, summarizes supply
and demand as the “quantity of available goods and the desire for them”. The
balance of supply and demand fluctuates with changes in external economic
factors, however, in theory supply and demand are dependent solely upon each
other. When one of these factors is disrupted, the other automatically is as
well. Demand is based on the consumption provided by the supply, and the supply
of a product creates the demand. When supply and demand are in balance with one
another, there is equilibrium between price and quantity.
Recently, the demand for soda has been falling and the new trend in beverages
is coconut water, which is advertised as a natural sports drink. Coconut water
has gained increasing popularity and interest since it is “pitched as a natural
rehydration tool rich in electrolytes, particularly potassium, which prevents
cramping” (Esterl). Not only is coconut water natural, but it is also a
low-calorie drink, especially in comparison to popular fruit drinks. In 2011,
Vita Coco, the most popular coconut-water brand in the United States, has more
than doubled its revenue to nearly $100 million. However, with the rise of
popularity in coconut water there has been a challenge since “U.S. importers
relied almost exclusively on Brazil and suffered shortfalls (in coconuts) as
demand grew” (Esterl).
The new popularity of coconut water has resulted in a rise in demand for the
product. As a result, the supply has been growing exponentially as well.
Coconut water companies have realized the new trend, and have accordingly
produced more coconut water to increase their sales and profits. With this
increasing demand, coconut water companies are also able to raise their prices.
However, as the demand for coconut water evens out as the product becomes more familiar
in the market, the supply will adjust itself as well, which will create
equilibrium in price and quantity. Also, because of competition in the market,
other drinks such as sodas and fruit juices will be affected. For example, the
sales of sodas were already in decline, however with the increase of sales in
another product (coconut water), their sales will most likely suffer even more.
Sources:
Esterl, Mike. "Vita Coco
vs. Zico: The Beverage Wars Move to Coconuts - WSJ.com."The Wall Street
Journal. Dow Jones & Company, 11 Feb. 2012. Web. 12
Feb. 2012
<http://online.wsj.com/article/SB10001424052970203315804577207313086829188.html
mod=WSJ_FoodAndTobacco_leftHeadlines>.
QFinance. Bloomsbury Information Ltd. Web. 12 Feb. 2012.
\
<http://www.qfinance.com/dictionary/supply-and-demand>.
This new popularity for the coconut water indeed does have a positive impact on the food and beverage industry. This might relate to the meat industry because of the increasing demand to consume on the behalf of customers. Consumers are spending more and more money on both this coconut water as well as meat and is an indication for positive results for the food and beverage industry.
ReplyDeletePersonally, I think coconut water takes gross, however it is a great example for the supply and demand of the industry. The only thing that stands out to me is I'm not sure that demand for soft drinks is falling. While the demand for natural and organic products are rising, I don't know if Coke and Pepsi have been severely impacted yet. It's up to you to find out for sure! (we'll get to all this in the finance section later on!)
ReplyDeleteWith the recent demand of coconut water, it begs the questions as to whether the decline of soda can be attributed to this new demand of water or to other factors. Such as, people could be cutting back their intake of soda for health reasons, to cut costs (it is not necessary, and in these economic times people tend to be watching their spending more and more), or for other reasons. As the beverage industry, is so profitable, and soda does play a major role in the industry, it is key to understand why soda is on the decline, if it is all soda in general or just particular types, etc.
ReplyDelete