Competition in Energy Drinks Essay Example for Free

Competition in Energy Drinks 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. The strategically relevant components of the global and U. S. beverage industry macro-environment are essentially the expansion of the market for alternative beverages by introducing energy drinks, sports drinks, and vitamin drinks in international markets, and increasing the market size of alternative beverages by extending current product lines and developing new products. Numerous factors affect the achievement of this strategy and they include: Size of the Market: It is without question that the global beverage industry is a large one, with the dollar value of the market being $1581. 7 billion in 2009 and volume sales (in billions of liters) being $458. 30. Regarding the distribution of sales in regards to beverage type, carbonated soft drinks came on top with 12,919. 3 (millions of gallons) being sold and leading to a market share of 48. 2%. Next in volume of sales was bottled water with a sales volume of 8,435. 3 and 29. 2% market share. Fruit beverage sales were 3,579. 2 and a market share of 12. 4%. In the alternative beverage category, sports drinks sales were 1,157. 8 and a market share of 4%, ready-to-drink tea sales were 901. 4 with a market share of 3. 1%, flavored or enhanced water sales were 460 with a market share of 1. 6%, energy drink sales volumes were 354. 5 with a market share of 1. 2%, and ready-to-drink coffee sales volume was 51. 5 with a market share of 0. 2%. In 2009, the industry worldwide sales of alternative beverages were 40. 2 billion, with sales in the US accounting for 42. 3% of the sales. Asia-Pacific accounted for 31. 5%, Europe 22. 2%, and the Americas (excluding the US) 4%. Growth Rate: There has been a steady growth in the value of the global beverage industry over the years. Between the years 2005 and 2009, there has been a constant increase in the dollar value of sales, and this increase has also been forecasted between the years 2010 and 2014. Regarding the alternate beverages, we see an increase in sales over the years that even surpasses that of the global beverage industry. Market Segmentation: The market for global alternative drinks has been in existence for a while, and beverages have been chosen and selected into groups based on the type of products. The different groups include sports drinks, energy drinks, vitamin-enhanced beverages, and relaxation drinks, with comfort and relaxation been of utmost importance to the consumer. In 2009, the alternative beverage drink with the most sales was sports drinks with sales of nearly 60%. Vitamin enhanced followed in sales by 23% and energy drinks came closely behind with sales of18% during that same year. Scope of Competition: The major worldwide producers of beverages are Coca-Cola, PepsiCo, and Red Bull. There are also smaller companies in the same industry, by their production do not compare to the three major companies. Among the most important competitive features of the alternative beverage industry include product innovation, efficient distribution systems, and distinct differentiation. 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? Competition in the alternative beverage industry is in favor of the three major producers, especially Coca-Cola and PepsiCo. Since their alternative beverage product offerings are numerous, and they supply to grocery stores, convenience stores etc. who have a high demand for their products, they avoid vulnerability to buyer leverage and always have shelve space in these channels. Of the five competitive forces, the intensity of competitive rivalry among the sellers of alternative beverages is the strongest. Bargaining power and buyer leverage are also among the strongest. Individuals who purchased the alternative beverages for convenience stores, grocery stores and wholesale clubs have the advantage of negotiating prices with the producers of the alternative beverages because of the fact that they are purchasing such large quantities of the products. Even though the majority of energy drinks were purchased in convenience stores, sports drinks and vitamin-enhanced beverages were also available in most delis and restaurants and were also sometimes sold at sporting events and in vending machines. The weakest competitive force in the alternative beverage industry appears to be the bargaining power and leverage of sellers. Due to the fact that there are many suppliers in this niche, the competition is quite intense it becomes important to have features such as ingredients, more attractive packaging etc.to differentiate them from other brands. The competitive force that seems to have the greatest effect on industry attractiveness and potential profitability of new entrants is the threat of new competition. Since the alternative beverage industry is a very lucrative one and tends to carry high price points, this profitability becomes very attractive to new entrants because of the possibility of being able to achieve success in the industry. 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 has changed a lot over the years and will continue to see changes well into the future. The underlying drivers of change include changes in growth rate (decrease) and innovation. Worldwide dollar sales of alternative beverages grew by more that 13% annually between the year 2005 and 2007, however, it slowed down to about 6% between 2007 and 2009. One might argue that the reason for this decline is the impact the ongoing recession has on the beverage industry. Beverage producers continue to maintain their optimism for the industry regarding future prospects that will be brought to fruition by innovation in brands, flavors, and formulations. These are the facets that they believe will support their premium pricing and volume increases. 4. What does your strategic group map of the energy drink, sports drink, and vitamin-enhanced beverage industry look like? Which strategic groups do you think are in the best positions? The worst positions? The strategic group map shows the leading alternative drink producers competing both geographically and in regards to variety of drinks offered, there are therefore the strategic groups in the best positions. The alternative drink companies are not only competing domestically, but in an international scale as well. Hansen Natural, the producers of Monster energy drink, who splits distribution of it’s energy drinks between Anheuser-Busch and Coca-Cola is not only successful in the United States, but in Great Britain, France, Belgium, the Netherlands, Luxembourg, and Monaco. The company has also entered agreements to have its beverages available in Mexico and Australia. In a similar fashion, Rockstar has been able to venture internationally by having its products distributed by PepsiCo in foreign countries. The countries Rockstar is currently being distributed are Canada, Australia, New Zealand, Japan, Germany, Switzerland, Finland, Spin, the Netherlands, and the United Kingdom. In a similar fashion as the aforementioned alternative drink producers, Red Bull also has a brand presence both domestically and internationally, specifically in Europe and the Americas. The strategic groups in the worst positions appear to be those companies with a single brand e. g. , ViB, Dream Water, etc. operating solely domestically. With the amount of competition in the market currently, it does not appear that these company will fare well in the long-term. 5. What key factors determine the success of alternative beverage producers? There are three key factors that determine the success of alternative beverage producers and they include: Access to distribution In order for the alternative beverages to achieve the sales volumes that its producer desires, it first has to be widely available in stores on a consistent basis. With brand popularity comes the advantage of having a product readily available on store shelves. Innovation With competition being as tight as it is in the alternative beverage industry, innovation is of utmost importance because it sets a product or a company aside for its competitors. Innovation can be achieved by entering into different product lines or creating completely different categories of alternative beverages. Brand image A company’s image is very important when it pertains to competing in whatever industry it does business in. Choosing the right image to portray in advertisement, marketing, etc. could possibly be what retains customer loyalty, or sways a customer’s decision to purchase their product over that of a rival. 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? Since it is apparent that Coca-Cola is growing at a much slower pace that its competitors in the alternative beverage market, I recommend that it take building brand image and continual innovation and new product development into consideration. Portraying the right image in advertisement and marketing could lead to retention in customer loyalty and regaining lost market share. Since PepsiCo is ranked number one worldwide for the sale of alternative beverages, with it’s best-selling alternative beverages including Gatorade, which held a 75% share of it’s 1. 57 billion US sports drink market, Propel, SoBe Lifewater, Amp Energy drinks, and No Fear energy drinks, I would recommend that the company continue to build upon this ranking by taking the necessary steps to boost their brand image. I would also recommend that PepsiCo include energy shots to it’s product line-up to further boost sales. There is no doubt that Red Bull GmbH has found its niche in the alternative beverage market as the world’s number one seller of energy drinks, making it the third-largest producer of alternative beverages worldwide and the number two seller of alternative beverages in the US and Europe. To continue it’s growth in the US and Europe, I will recommend that the company continue to innovate and develop new products. I will also recommend that in order to further solidify the Red Bull brand, they should venture into production of he other types of alternative beverages. References Gamble, J. (2008). Competition in Energy Drinks, Sports Drinks, and Vitamin-Enhanced Beverages. Boston: Harvard Business Publishing.