Energy Drink and Alternative Beverages Essay

1. What are the strategically relevant components of the global and U. S. beverage industry macro-environment? How do the economic characteristics of the alternative beverage segment of the industry differ from that of other beverage categories? Explain. SEGMENTATION: The global market for alternative beverages was divided by product type (sports drinks, energy drinks, and vitamin-enhanced beverages) with different demands for each group. Sports drinks accounted for nearly 60% of alternative beverage sales in 2009, while vitamin-enhanced drinks and energy drinks got about 23% and 18% of 2009 alternative beverage sales, respectively, in the US. RIVALRY: The worldwide competition between three major producers (PepsiCo, Coca-Cola and Red Bull) made the industry rivalry become global. In U. S. , Pepsico has engulfed almost half or 47. 8% of the market shares last 2009. The only region where Coca-Cola beats Pepsico is in Asia-Pacific. Coca-cola has 13. 7% of the market shares while Pepsico has 12. 4%. Worldwide, Pepsico is still leading among the three with 26. 5% of market shares while Coca-Cola and Red Bull had 11. 5% and 7%, respectively. MARKET SIZE: The global beverage industry’s dollar value for beverages in 2009 was $1,581. 7 billion (458. 4 billion liters); with 48. 2% of industry sales was from carbonated soft drinks, 29. 2% from bottle water, 4. 0% from sports drinks, 1. 6% flavored or enhanced water, and 1. 2% from energy drinks. The dollar value of global market for alternative beverages in the same year was $40. 2 billion (12. 7 billion liters), while the dollar value of the U. S. market for alternative beverages stood at $17 billion (4. 2 billion liters). Meanwhile, in Asia-Pacific region, the dollar value for alternative beverages in 2009 was $12. 7 billion (6. 2 billion liters) and it was $9. 1 billion (1. 6 billion liters) in the European market. MARKET GROWTH: The dollar value of the global beverage industry had grown approximately 2. 6% annually from 2005 to 2009 and was forecasted to grow approximately 2. 3% annually from 2010 to 2014. However, this indicator for the alternative beverage industry was much higher. For example, the dollar value of the global market for alternative beverages grew at a 9. 8% annually from 2005 to 2009, but was expected to slow down to 5. 7% annually from 2010 to 2014. Based on the geographic share of the alternative beverages market, U. S. largely covers 42. 3% of it; while Asia-Pacific, Europe and Americas (excluding U. S. ) only cover 31. 5%, 22. 2% and 4% respectively. US is the country that has strongest growth internationally in terms of alternative beverage sales with a 84. 78% growth between 2005 and 2009; while Europe and Asia-Pacific are 22. 97% and 24. 51%, respectively. However, poor economic conditions in the US in 2008 and 2009 led to a 12. 3% decline in sports drink sales and a 12. 5% decline in flavored and vitamin-enhanced waters sales. It was also the reason why energy drinks sales increased just a little of 0. 2% between those years. 2. What is competition like in the alternative beverage industry? Which of the five competitive forces is strongest? Which is weakest? What competitive forces seem to have the greatest effect on industry attractiveness and the potential profitability of new entrants? In the beverage industry, competition can be extensive (large scale). There are many substitute beverages from tea,soft drinks,fruit juices, and bottled water. Provided that there is a wide range of substitute beverages, this weakens the competitive power of substitute beverages when there comes a change to consumer preference. Because there is a large purchase for wholesale clubs, grocery stores, and convenience stores ; consumers have significant influence in negotiations for pricing and slotting fees with the producers. Wholesale clubs and the likes find it difficult to represent new brands due to limited shelf space. When products become a household name such as coca cola, red bull, etc already offer the demands of consumers. Coca Cola and PepsiCo are the least vulnerable when it comes to substitute products since they offer a wide range of variety beverages. The strongest competitive force is competitive rivalry within the industry, competition grows stronger by the year. The primary focus on brand image is key to becoming a household name in the industry, Attractive packaging should be developed, New research and product development, Increase of distribution capabilities, Better taste and more variety. The Bargaining power and leverage of suppliers is the weakest competitive force, Consumers tend to buy more alternative products. The threat of new brands varies by market maturity of each alternative beverage category. Competition is strong and will continue on growing every year in the product line. Competition among all brands center mostly on brand image, attractive packaging, new product and research development, sales promotion, better access to shelf space, and strengthening distribution capabilities. Rivals expands their numbers and types of alternative beverages in their product line, the opportunity for low switch cost for consumers gets introduced and sales efforts to establish consumers brand loyalty. 3. How is the market for energy drinks, sports drinks and vitamin-enhanced beverages changing? What are the underlying drivers of change and how might those forces individually or collectively make the industry more or less attractive? The market for energy drinks, sports drinks and vitamin-enhanced beverages is now changing due to the change in the long-term industry growth rate. Because of the US recession on the entire beverage industry the demand for the alternative beverages was expected to grow worldwide as the purchasing power of the consumers increased. The volume of the alternative beverages offered higher profit margin than those of other beverages. Product innovation, in terms of flavors and formulation, was the most important competitive feature of the alternative beverages. They competed on the basis of differentiation from traditional drinks. This made the industry attractive because of the enhanced look and flavors that the company made. The modernization in marketing and distribution system changed the industry in the way that the beverages may be bought from convenience stores, restaurants, sporting events, delis, concerts, festivals, carnivals and vending machines. The industry was made more attractive because of the famous artists that the companies hire for advertisements. There was also an expansion of target markets, and an increase in new entrants, which made the industry seem appealing to others. The regulations and policies that the government implemented made the industry less attractive due to the products’ faults being exposed to the public. The growing concern of people about health associated with their consumption also made the industry less attractive. For example, caffeine in energy drinks, mixture of alcohol and energy drinks, melatonine hormone in relaxation drinks, and use of Kava and unapproved valerian roots as food additives. The drivers of change, however, will unlikely alter the attractiveness of the alternative beverages for the next years because large producers of this industry would rely on product innovations and acquisitions to increase sales and market shares. But individual and collective effect of industry drivers of change will likely affect the attractiveness of the industry. 4. What does your strategic group map of the energy drinks, sports drink, and vitamin-enhanced beverage industry look like? Which strategic groups do you think are in the best positions? The worst positions? PepsiCo, Coca-Cola, Red Bull GmbH, and Hansen Natural Corporation are strategic groups that are in the best positions because they have already established a market position and they hold most of the market share in the alternative beverage industry. They also account for most of the sales in the industry and they have conquered not just US but also Europe and some parts of Asia and America. Living Essentials, Vacation in a Bottle, Dream Water or Drank are strategic groups that are in the worst positions. This is due to the small number of consumers that they have and policies implemented by the government hinder their expansion. Though Living Essentials lead the development of energy drinks, they did not expanded their market thus other companies took advantage of the opportunity. 5. What key factors determine the success of alternative beverage producers? The four key factors that determine the success of alternative beverage producers: (1) access to distribution, (2) innovating product skills, (3) image, and (4) sufficient sales volume. The first one is access to distribution, which is regarded as the most important industry success factor due to the fact that most brands of energy drinks/alternative beverages cannot achieve good sales volumes and market shares unless they are widely available in stores, and there are also far too many brands for all to be included on store shelves. Popular brands that enjoyed first mover advantages such as Red Bull and 5-Hour Energy and brands offered by Coca-Cola and PepsiCo were assured of consistent access to distribution. The second factor is innovating product skills. By definition, alternative beverages were different from traditional beverages based upon product innovation. Moreover, continuing product innovations were essential to developing additional volume gains from line extensions and the entry into new categories like energy shots. The third one is image, which was also a critical factor in choosing a brand of customers. The image presented by the product’s name and emphasized in advertisements, endorsements, and promotions created demand for one brand over another. Brand image was also a result of labels and packaging that alternative beverage consumer found appealing. Small producers with poor image building capabilities found it difficult to compete in the industry unless the product enjoyed a first-mover advantage similar to that achieved by 5-Hour Energy. Finally, sufficient sales volume to achieve scale economies in marketing expenditures is also an important driver. Successful alternative beverage producers were required to have sufficient sales volumes to keep marketing expenses at an acceptable cost per unit basis. 6. What recommendations would you make to Coca-Cola to improve its competitiveness in the global alternative beverage industry? to PepsiCo? to Red Bull GmbH? Coca Cola * Increase alternative beverage drink brand awareness in Europe and capture its market * Grow infrastructure in Africa * Continue to budget and implement their â€Å"2020 vision† corporate strategy * Enhance product line and innovation PepsiCo * Focus on current energy drink line * Continue to promote their tea and juice-energy lines * Offer different sized cans for current energy drink lines of No fear and Amp * Proceed to distribute Rockstar energy drinks and strengthen their alliance with them RedBull * Expand product line while focusing on market penetration in South America * Branch out with additional lines of alternative beverages * Continue to promote brand