Case 3 Kel 1 SM

COMPETITION IN ENERGY DRINKS, SPORT DRINKS, AND VITAMIN-ENHANCED

BEVERAGES

Dhiani DyahjatmayantiNadia KarinaR. Susetyo Fajar Kusumo

MAGISTER MANAJEMENFAKULTAS EKONOMIKA DAN BISNIS

UNIVERSITAS GADJAH MADA

CASE OVERVIEW

Alternative beverages (energy

drinks, sport drinks, and vitamin-

enhanced beverages)

industries were the stars of the

beverage industry during the mid-

2000s.

Alternative beverages become an important part

of beverage companies’s lineup of brands as a result

of rapidly growth along with premium price & high profit

margin.

Beverage producers had made various

attempts to increasing the market size for

alternative beverages by

extending exist product lines and developing new

one.

CASE OVERVIEW

Some others also moved to capture demand for new relaxation drinks.

Beverage producers even

have to face with the criticism that

their products contain health

risks for consumers.

The most primary concern of many

beverage companies was to

improve their competitive

standing in the marketplace to

the best.

THE COMPONENTS OF A COMPANY’S MACRO-ENVIRONMENT

MARKET SIZE

$1,581.7 billion

458.3 billion

of liters

Worldwide U.S

2009

Total Market

Total Sale

48.2% carbonated soft drinks29.2% bottle water4.0% sport drinks

1.6% flavored water1.2% energy drinks

Market Dollar Value($ billions)

Volume Sales (billions of liters)

Global 40.2 12.7U.S 17 4.2Asia-Pacific 12.7 6.2European 9.1 1.6

GENERAL ECONOMIC CONDITIONS

• Between 2008-2009, the premium-priced alternative beverage market had been hit especially hard by the lingering economic downturn in the U.S.

• Market maturity & poor economic conditions caused the U.S beverage industry to decline by 2.1% (2008) & by 3.1% (2009)

Energy drink 0.2%

Sport drinks 12.3%Flavored & vitamin-enhanced waters 12.5%

GENERAL ECONOMIC CONDITIONS

Industry Conditions in 2010• The global beverage industry was projected to grow

from $1.58 trillion in 2009 to nearly $1.78 trillion in 2014.

• A great deal of industry growth was expected to result from steady growth in the purchasing power of consumers in developing countries, since the saturation rate for all types of beverages was high in developed countries.

POLITICAL, LEGAL, AND REGULATORY FACTORS

•Health, safety, competition, consumer rights and individual laws.

Regulations

•Ingredients : the caffeine content, not use kava & valerian root as a food additive•Advertising & distribution policies

U.S. FDA

TECHNOLOGICAL FACTORS

Innovation in brands, flavors,

and formulations was expected to be necessary for

supporting premium pricing

and volume increases.

Industry analysts believed that such

exotic flavors as

cardamon, hibiscus,

and cupuacu

might prove to be hits in 2011 and 2012.

THE FIVE-FORCES MODEL OF COMPETITION

RIVALRY IS STRONGER

Rivalry Among Competing Sellers• Beverage producers had made various attempts at increasing the

size of the market for alternative beverages by extending existing product lines and developing altogether new products.

• Low switching costs on the part of consumers.

• Active and aggressive efforts on the part of sellers to establish consumer brand loyalty & strong emphasis on advertising, sales promotions & endorsements

NEW ENTRANTS IS WEAKER

Potential New Entrants• There are many global brands (Coca Cola, PepsiCo, Red Bull, Hansens

Natural) with strong product differentiation & brand loyalty.• Restrictive government policies (FDA Regulatory).• Alternative beverage sellers also needed to have efficient

distribution systems to supermarket and convenience store channels to be succesful in the industry

SUBTITUTE IS STRONGER

Competition From Subtitute

• There were many substitutes to alternative beverages such as tea, soft drinks, fruit juices, bottled water and tap water.

SUPPLIERS IS WEAKER

Bargaining Power of Suppliers

•There are many supplier ingredients & they fight to sell the products.•Packaging is readily available from many suppliers and is commodity like. •Some rare ingredients providers had a moderate amount of leverage in negotiations with energy drink producers.•The producers are important customers of suppliers and buy in large quantities.

BUYERS IS STRONGER

Bargaining Power of

Buyers

• Consumers can obtain the products easily and well-informed

• High sizes of the regional markets for alternative beverages.

• Of all distributors, delis and restaurants had low switching costs from brand to brand, but had less ability to negotiate for deep pricing discounts because of volume limitations.

Country Percentage (2009)United States 42.3%Asia-Pacific 31.5%Europe 22.2%Americas (excluding U.S.) 4.0%

Total 100%

Which is weakest/strongest?

Suppliers Rivalry

INDUSTRY DYNAMIC ANALYSIS

THE CHANGE IN THE LONG-TERM INDUSTRY GROWTH RATE

A great deal of industry growth was expected to result from steady growth in the purchasing power of the consumers in the developing countries.

THE CHANGE IN THE LONG-TERM INDUSTRY GROWTH RATE

Industry analysts believed that while carbonated soft drinks would remain the most consumed beverage in the US for some time, annual sales would continue to decline.

THE CHANGE IN THE LONG-TERM INDUSTRY GROWTH RATE

• Product innovation had been among the most important competitive features of the alternative beverage industry.

• Alternative beverages competed on the basis of differentiation from traditional drinks (carbonated soft drinks or fruit juices).

Energy Drink

Taste, the energy-boosting of their ingredients, and image.

PRODUCT INNOVATION

PRODUCT INNOVATION

Vitamin-Enhanced Beverages

Brand name and packaging, advertising, unique flavors, and nutritional properties.

MARKETING INNOVATION

Alternative beverages were usually purchased for immediate consumption

Distribution

Convenience stores, delis, restaurants, vending machines, sporting events, concerts, outdoor festivals, carnivals

MARKETING INNOVATION

Japan’s Alinamin V Energy Drink

Energy Drinks Image

Brand name and packaging, clever ads, endorsements from celebrities and extreme sports athletes and sponsorships of extreme sports events and music concerts.

REGULATORY INFLUENCES & GOVERNMENT POLICY CHANGES

• Caffeine content of energy drinks were not regulated by the US FDA

• Melatonine hormone of relaxation drinks

• The FDA warned against the use of Kava and not approved valerian root as food additive

CHANGING SOCIETAL CONCERNS, ATTITUDES, AND

LIFESTYLES

Energy drinks, sports drinks, and vitamin-enhanced beverages contain ingredients that is not healthy (chemical

ingredients)

Growing concerns about health, associated with what they’ve consumed

INDUSTRY’S DRIVER OF CHANGE

• Drivers of change are unlikely to dramatically alter the attractiveness of the alternative beverage industry in the next 3-5 years.

• Even with a slowing economy, there is no indication that the larger producers such as Red Bull GmbH, Coca-Cola, or PepsiCo are prepared to compete aggressively on price for volume and market share gains.

• It is more likely that these larger producers will rely on product innovations and acquisitions to increase sales and market shares.

• However, the individual & collective effect of industry drivers of

change are likely to make the industry less attractive for lesser-known independent brands unless such companies gain a first mover advantage in the development of a new beverage category.

STRATEGIC GROUP

STRATEGIC GROUP MAPS

Key succes factors

The strategy element, product and service attributes, operasional approaches, resources, and competitive capabilities with the greatest impact on competitive success in the marketplaces.

Key succes factors

Key succes factors the industrial beverages

Access to distribution

Innovating product skills

Image

Consumer Knowledge

Research and Analysis

Having a Goal and Achieving

It

ANALYSIS

• Huge market in the healthy products & growing market for specialized foods for ethnic groups

• Distinctive name, product & packaging • Internet promotion (banner ads & keywords) can increase their sales &

more computerized manufacturing & ordering processes can increase their efficiency

• Consumer income is high, more tend to eat out, convenience is important to U.S.

• High U.S. FDA standards eliminate overnight competitors• Broadening of Product Base• Growing Savory Snack and Bottled Water market in USOpportunities

• More expensive products than Coke, such a high price may limit lower income families from buying a Pepsi product

• Not entirely patentable, constant replicability by competitors• Technological : Computer breakdowns, viruses & hackers can

reduce efficiency & must constantly update products or other competitors will be more advanced

• Very elastic demand, almost pure competition

Threats

PEPSICO

• The increasing number of consumer lifestyles will softdrink• The distribution of products that are easy to many regions

because of the extensive network• Cooperation with various parties for example: Mc.Donald, KFC

etc• Development of new types of food products• The growth of advertising on the internet because internet

usage has increased

Opportunities

• Many consumers are starting to leave the carbonated drinks• In some countries like India banned the sale of coca-cola• The U.S. invasion of Iraq that affect the sale of coca-cola• The high price of raw materials• Difficulty managing all subsidiaries worldwide• Sluggish growth of carbonated beverages

Threats

Coca Cola

• Diversification of retail outlets• Extension of product line this will help to retain market share• Geographical expansion, Continuation of its tradition of entering new

markets through the process of on-trade, has potential on an international level.

• Red Bull is still quite a new product in the growing functional drinks market, which leaves a lot of room for development in major markets

• Hardcore advertising and promotion• Costumer recognition through sponsorship of sport and music event• New ventures like partnership

Opportunities

• Health concern tougher rules from government on high caffeine content• Costumer awarenes of health and well being people my start to drink other

alternative as it associated with healthier life style• Drinks might be not accepted in the new market• Organic energy drinks might steal Red Bulls market share• Many ‘copycat’ energy drinks such as Mad Bull and Red Devil threaten to take brand

share from Red Bull.• Red Bull’s sales are threatened by the continued into the drinks market by key drink

players such as Coca-Cola with its Powerade brand• Many small operators also act as a threat because they have a high ‘cool’ value

amongst younger consumers with whom energy drinks are popularThreats

RED BULLS

• Disribution with major beverages companies create international opportunities

• Growing demand in the adult demographic• Increasing demand for energy shots

Opportunities

• Consumer health apprhensions• Price given economic down turn• Other more “ grown up “ offering from other

companies• Juice companies and “high end” drink may take the

away fringe and older consumer• Enegy drinks distributed through main competitors

distributor systemThreats

Hansen Natural Corp

CONCLUSION &

RECOMMENDATION

Coca-Cola

•Improving its product by innovating & building up good image to recapture the market share it lost in energy drinks category. •Trying to create more rapid growth in vitamin-enhanced beverages & energy product. •Building up its strength in term of alternative beverage sales in Asia & react quickly to solve the problem of lacking competitiveness in the European market for alternative beverages. •Using a combination of new flavors & formulations, brands, line extensions, improved image building & distribution capabilities to increase sales of alternative beverages internationally.

PepsiCo

• Launching a major image building campaign for the most promise product it have.

• Developing its own energy shot brand try to convince Rockstar to add an energy shot to its distribution agreement. Negotiating for distribution rights to European & Asia-Pacific market with Rockstar or launch its energy drink brands in attractive international markets.

Red Bull

•Improving the performance of its recently introduced energy shots & continue to expand into rapidly growing country markets for energy drinks.•Developing sports drinks or vitamin-enhanced beverages that can further exploit the appeal of the Red Bull brand.

Hansens Co

• Expanding the distribution of energy drinks & alternative beverages internationally.

• Building brand image of Monster energy drink with the right marketing strategy.

In order to compete, beverages companies should to expand the number and types of alternative

beverages in their product lines by improving and developing the formulas and flavors, establish

brand loyalty with strong marketing strategy, and have efficient distribution systems to get

distinctive adventages

THANK YOU

1ST GROUP