Cola Vs Coffee

The following appeared as part of the business plan of an investment and financial consulting firm:

"Studies suggest that an average coffee drinker’s consumption of coffee increases with age, from age 10 through age 60. Even after age 60, coffee consumption remains high. The average cola drinker’s consumption of cola, however, declines with increasing age. Both of these trends have remained stable for the past 40 years. Given that the number of older adults will significantly increase as the population ages over the next 20 years, it follows that the demand for coffee will increase and the demand for cola will decrease during this period. We should, therefore, consider transferring our investments from Cola Loca to Early Bird Coffee."

Discuss how well reasoned . . . etc.

The presented business plan is unconvincing and logically flawed on many counts.

The first doubt that comes to mind is about the "studies" referred to assert that while a coffee drinker's consumption of coffee increases with age, that of a cola drinker declines over time. The  accuracy and reliability of the study depends on the neutrality of the organization that conducted it and the quality of methods employed to collect data. Until the plan does not specify the source explicitly, taking the data on face value is not advisable.

The second doubt is cast by the assertion that the number of older adults will significantly increase as the population ages over the next 20 years. This may or may not be true and will be determined by the birth-rate. The plan does not mention the basis of this assertion. It is not clear if it is simply the writer's hunch or based upon some concrete demographic statistics.

Thirdly, the plan does not take into consideration if cola may be popular in other age groups and the quantity of cola consumed. If the birth-rate of the country is high or cola is consumed in more quantity than coffee even when fewer people drink it, the demand of coffee will not necessarily increase. Again. without concrete and reliable demographic statistics and without taking into consideration the relative quantity consumed by each user, it is difficult to ascertain demand for which beverage would fall in the coming 20 years.

Finally, the projection assumes that people's drinking patterns will remain consistent over the next 20 years. It is possible that people may switch to some third beverage like green tea or fruit juices. That would make investment in either cola or coffee equally useless. It seems that the writer assumes that people would always have either coffee or cola to choose from.

Concluding, the business plan is quite narrow in scope and based on questionable data. It would be ill-advised to follow and act on it without chalking out the details and plugging the evident gaps in reasoning.