Group Summary

Business Strategy MM-6056

COMPETITION IN ENERGY DRINKS, SPORT DRINKS AND VITAMIN-

ENHANCED BEVERAGES

Lecturer :

Dr. Mohammad Hamsal

Developed by :

Deru R. Indika 29110301

Nisham Fiksriyoso 29110309

Erika Paraminda 29110310

Josia Pranata T. 291103

Master of Business and Administration

Bandung Institute of Technology

Bandung

2012

1. Case Synopsis

At this time, in the global beverages industry, carbonated soft drink market has reached a

mature stage. This occurs because the demand shift from carbonated soft drink to alternative

beverages. Since the mid 2000s alternative beverages product became product/brand line that

important for beverages company because its market grow rapidly and give high profit

margins due to the premium price. This is not only affect to existing beverages

manufacturers, but also encourage the emergence of new sellers that focus solely on

alternative beverages.

Alternative beverages segment is divided over several segments of the energy drinks,

sports drinks, vitamin-enhanced beverages, two-once concentrated energy shots and

relaxation drinks. Each segmen has different consumer types and different distribution

channel. In term of market, global beverages company also began to shift to consumers in

developing countries than develop country where the market began to decline, exacerbated by

worse economic condition in US which is the largest market of beverages industry.

2. Issues and Problem

There are several Issues and problem that appear on alternative beverage Industry such as:

a. Several alternative beverage Industry begin to mature that could be seen from this graph

below that show the growth of global alternative beverage become slower every years.

b. There are several research that show the negative effect from the alternative beverage

products.

c. Global economical crisis that make customer became more price sensitive.

4.00%

9.00%

14.00%

19.00%

2006 2007 2008 2009 2010 2011 2012 2013 2014

Global Alternative Beverage

Value

growth

3. Analysis

General Environtment dari Alternative Beverages (PEST Analysis)

1. Politic Factor

- US government policy about suprime mortgage

- Citigroup relieve act that allow bank to merger (bank merger)

- The Commodity Futures Modernization Act desember 2000

- Economic Stimulus Act of 2008

- Housing and Economy Recovery Act of 2008

- Emergency Economic Stabilization Act of 2008 ($700 Bailout)

- Regulation about content of alternative beverage from US Food and Drug Administration

(FDA) and similar body in other country

2. Economic Factor

- The global beverage industry projected to grow from $1.58 trillion in 2009 to early $1.78

trillion

- Steady growth in purchasing power of consumer in developing countries

- Market maturity in the carbonated soft drink

- Poor economic condition in US because there is a global economic crisis that makes the

consumer becomes more price sensitive.

- Increasing demand in alternative beverage, with US contributed demand for 42.3 percent

in 2009 worldwide

3. Social Factor

- Consumer preference shifted from carbonated soft drink to alternative beverages

- Health concern from physician, health proffesional, and member of law enforcement

about content and effect of consumed alternative beverages

- Demografic of consumer is different in every alternative beverages segment (age, job, life

style)

4. Technology factor

- Internet and social media era

- Fast technologi development will effect production and distribution system

- Medical research

According to PEST analysis over industry alternative beverages concluded:

Factors Impact Reason

Politic Low There are few Government regulation that really control

about alternative beverage.

Economy Moderate The premium price of alternative beverage make it

sensitif toward economic condition because it will affect

consumer’s purchasing power where their disposible

income will decrease or increase depends on their

economic condition.

Social High The reason of consumer consumed alternative beverage

is complex, not only to fulfill their thirst but also the

image, benefit, lifestyle, health, and others factors that

they get from the products. So, company that have

innovation and can meet consumer want, will be success

in this industry (Sustainable Competitive Advantage)

Technology Low The technology in alternative beverage industry do not

change too much in recent year.

Competitive Environtment (Porter’s Competitive Advantage)

1. Competitive rivalry

The number of sellers in the alternative beverage industry until the year 2009 is quite

a lot but can be grouped into two groups. Companies that operating globally, such as

PepsiCo, The CocaCola Company, Red Bull GmbH, Hansen Natural Corporation and

company that operate regionally or use a speciality brand of alternative beverages such

as; GlaxoSmithKline, Rockstar, Otsuka Pharmaceutical and hundreds of other sellers.

Some company in this industry go into all segments of alternative beverages and some

focus their product only on a particular segment, as well as the different distribution

system of each company. Although the worldwide market share dominated by large

companies such as Pepsi, CocaCola and Redbull but when seen on a regional basis, per

segment, or channel distribution, the level of competition among company are thight

enough cause the consumen buy the product base on flavour, content, image and benefit

offered by the product/brand or their purpose to consume alternative beverages.

Top Brand in each segment of alternative beverages

Energy Drink Energy Shot Sport Drink Vitamin-

Enhanced

Relaxation

Drink (Niche)

- Red Bull

- Monster

- Rockstar

- NOS

- Amp

- DoubleShot

- Full throttle

- 5-Hour Energy

- Stacker2 6-hour

Power

- Red Bull Energy

Shot

- Monster Hitman

- NOS Energy Shot

- Gatorade

- Powerade

- Pocari

Sweat

- Fuze

- Sobe

- Bloodshot

- Vidration

- Vacation in

Bottle

- Dream

Water

In alternative beverage, product innovation is an important thing that became the

differentiation in competition. As an example, for energy drink brand, innovation in

flavour, the energy-boosting properties, and image. Efficient distribution system also

became key differentiation in competition.

These are several descriptions about four major players on alternative beverage industry:

Pepsi Co

Pepsi is the world fourth-largest food and beverage company in 2010 and the largest

seller of beverage in US (2009). The reason why Pepsi become leading in food and

beverage industry isn’t because selling carbonated soft drinks but by leading in most

other beverage categories such as Aquafina as the best brand water in US, Frappucino as

the best ready to drink cofee, Tropicana as the best orange juice sales and Gatorade as the

best sport drinks. To expand their market share in 2009 Pepsi expand their product line in

alternative drinks by launch Charge, Rebuild, Defend and Bloodshot.

The Coca-Cola Company

The Coca-Cola Company was the world’s leading manufacturer, marketer, and

distributor of non-alcoholic beverage concerates by selling Coca-Cola, Diet Coke, Fanta

and Sprite. The biggest strength from Coca-Cola is from the strong distribution channel as

an example, multilayer distribution agreement with Hansen Natural Corporation.

Red Bull GmbH

Red Bull was the world’s number one seller of energy drinks. To increase their brand

value Red Bull sponsored not only athletes and teams competing in sports such as auto

racing, free style biking, wakeboarding, snowboarding and golf but also support several

music event.

Hansen Natural Corporation

Hansen Natural Coproration (HNC) is a company that sell variety of alternative

beverages such as natural sodas, blended fruit juices, energy drinks, sport drinks, fruit

juice smoothies, ready to drink teas and vitamin enhanced drinks. The strongest brand

from HNC is Monster, energy drinks that launched in 2002. Monster is the the biggest

revenue maker for HNC which contribute 90% of HNC revenue to increase their sales

Hansen imitated Red Bull strategy by support both sports and music events especially

rock music.

2. Threat of new entry

The high profit margins will make alternative beverage market attract more new

entrants both globally and regionally, it is also supported by rising demand for the

alternative beverage. Sports drink and vitamin-enhanced beverage carry 50 – 70% of the

retail price than traditional drinks, while in energy drinks pricing is 400% higher than

carbonated soft drinks. In other hand to create an alternative beverage business need

medium-high capital investment and it’s an unfair competition if the new competitor

should compete with the major player.

3. Buyer power

Although it is worldwide sales volume of beverage alternatives continous to rise every

year but with poor global economic conditions create a demand for the premium beverage

price decreased. Consumers will be more price sensitive and will switch to other product

or even other segment. The currencies in one country also affect the buying power from

one to other country.

4. Threat of substitution

Nearly the same benefits offered by each type of alternative beverages to make each

product, can substitute each other as in sports drinks and vitamin-enhanced beverages.

5. Supplier power

The number of suppliers in the alternative beverage industry is large. These supplier

consist of an ingredient makers, manufacturers of alumunium cans, plastic bottles and

caps, label printers and secondary packaging material except for unique supplements like

taurine which only a few suppliers. Therefore, suppliers are more aggresive in offering

partnership in providing business to alternative beverages company, especially secondary

packaging material suppliers.

Base on Porter’s Five Competitive Force, we found that key competitiveness in alternative

beverages industry is:

Product innovation

In this factor, the key competitiveness of company product is form by how innovative

company create the product. Innovation can be done by customizing product ingredient,

flavour, packaging, or the benefit that product offer to consumer. Research from industry

analyst show that exotic flavour like cardamon, hibiscus, and cupuacu might prove to be

hits in 2011 and 2012. Costumize product ingredient that can give greater benefit without

break the rule of country regulator ex: FDA (Food and Drugs Administration) prove to be

success in the competition, like what happen in energy shot segment. Product innovation

also can create a new type of market that is relaxation drink market.

Segment

One of the key competitiveness in this industry is related to the decision that company

make related to the broad and the right segment to serve. This factor is determined by the

resource that company have. For big company, they can compete in all segments with the

resource that they have, this happen to company like PepsiCo and The CocaCola

Company. In other hand, focus in one segment can be the best strategy, such as RedBull

strategy to focus only in energy drinks segment make them became the market leader in

energy drink market

The use of channel distribution

Channel distribution that the companies choose is depends on the company resource.

PepsiCo and CocaCola were dominating convenience store and special event channel.

There are many type of channel distributor, like supermarkets, natural foods store,

wholesale clubs, convenience store, restaurant and delis. For company with limited

resource, it is wise to use third parties channel distribution, by choosing the production

plant that has lowest cost in both transportation and labor. In market of alternative

beverage product, Coca-Cola Company uses their private carbonate distribution channel

around the world to reduce cost and increase market penetration.

Use the Right Supplier

Although there are many suppliers in this industry, the largest sellers tend to have

exclusive contract that can reduce production cost.

Brand image

One of the key to win the competition, the sellers needs to communicate about their

product image to the consumer. The right promotion that really connect with the product

image will make the brand/product can penetrate the market. Each company has different

way to create their brand image when Red bull becoming the sponsor for various sport

events, Monster prefers to support rock music event.

Conclusion and Recommendation

Alternative beverage industry already mature, the competition on this industry is very

tight with so many major players that compete in several segments. Each player has their own

strategy to compete in this industry but the common strategies to compete in this industry are

price, taste, ingredients, volume and product diversification. From this case we recommend

that each company should be aware about changes that occurs in general and competitive

environment by using PEST, Porter five competitive forces, and try to create a scenario

planning to face both best and worst situation.

Lesson Learn

a. Social factors are the strongest factor that determines the successful from one product

because it determines consumer demand especially: Demographic factor and Social

Issue factor (health Issues).

b. Each product should choose the right brand endorsement according their target market

to support the product sales.

c. Usually we only analyze the internal factor from the industry but now we learn to

analyze the external factor that consist of general and competitive environment