Group Summary
Business Strategy MM-6056 COMPETITION IN ENERGY DRINKS, SPORT DRINKS AND VITAMINENHANCED BEVERAGES
Lecturer : Dr. Mohammad Hamsal
Developed by : Deru R. Indika Nisham Fiksriyoso Erika Paraminda Josia Pranata T.
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Master of Business and Administration Ad ministration 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.
Global Alternative Beverage 19.00% 14.00% Value growth
9.00% 4.00% 2006 2007 2008 2009 2010 2011 2012 2013 2014
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.
3. Analysis General Environtment dari Alternative Beverages (PEST Analysis)
1. Politic Factor -
US government policy about suprime mortgage
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Citigroup relieve act that allow bank to merger (bank merger)
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The Commodity Futures Modernization Act desember 2000
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Economic Stimulus Act of 2008
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Housing and Economy Recovery Act of 2008
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Emergency Economic Stabilization Act of 2008 ($700 Bailout)
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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
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Steady growth in purchasing power of consumer in developing countries
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Market maturity in the carbonated soft drink
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Poor economic condition in US because there is a global economic crisis that makes the consumer becomes more price sensitive.
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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
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Health concern from physician, health proffesional, and member of law enforcement about content and effect of consumed alternative beverages
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Demografic of consumer is different in every alternative beverages segment (age, job, life style)
4. Technology factor -
Internet and social media era
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Fast technologi development will effect production and distribution system
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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
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- 5-Hour Energy - Stacker2 6-hour Power - Red Bull Energy Shot - Monster Hitman - NOS Energy Shot
- Gatorade - Powerade - Pocari Sweat
Red Bull Monster Rockstar NOS Amp DoubleShot Full throttle
VitaminEnhanced - Fuze - Sobe - Bloodshot - Vidration
Relaxation Drink (Niche) - 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
