A Research on Energy Drink Business

Strategic Solution for KKL’s Case — A Research on Energy Drink Business NA Jing LU Zhenquan KHUAT Duy Le Minh AlWADIA Samer

Brainstorming

Is the Energy Drink (ED) sector more profitable?

Does ED business fit KKL's portfolio, and contribute to its

revenue, profit and growth?

What are the right channels to enter into the ED industry and its

target markets?

What are relevant issues which have to be concerned after

entering into the ED industry?

Brainstorming EBIT Impacts Statistic Insights Competitive Analysis Possible Scenario Recommendations

Statistic Insight EBIT Impacts Statistic Insights Competitive Analysis Possible Scenario Recommendations Brainstorming

Red Bull sold 1.6 billion cans in 2004 (28%

of the whole market )

Price relationship btn. ED & CSD (4 times)

Revenue per unit case of CSD (KKL’s FS)

Australia ED market size 2004 =1.6*1.045/0.28 =5.97 b. (source: KKL financial statement 2001-2004, recent news reports) 12.38 10.32 8.60 7.16 5.97 ED Market Site ( with a growth 20%) 2008 2007 2006 2005 2004 Year

Statistic Insight (Contd.) Brainstorming EBIT Impacts Statistic Insights Competitive Analysis Possible Scenario Recommendations KKL’s Products Segmentation Estimated Energy Drinks Cost Structure

Statistic Method: Taking the average

Correlation between ED and CSD:

Sales Price - 4 times

Costs - only 50% more

The percentages in E.D. segmentation

are the mean percentage of 2005-2008

High Profit!

(source: KKL financial statement 2001-2004, recent news reports)

Competitive Analysis Brainstorming EBIT Impacts Statistic Insights Competitive Analysis Possible Scenario Recommendations Competitive Distantage Competitive Advantage Existing Portfolio YES - Three Key Issues Should KKL enter the ED market ?

Diversity:

Energy drinks will diversify KKL’s

Portfolio, thus enhancing and

maintaing its competitiveness

Compatibility:

KKL’s existing manufacturing

facilities & distribution systems

are close to the production and

distribution of energy drinks

Market power: Dominant beverage

company in Australia

Brand predominance: KKL, Push, MR

Distribution system: well-established,

i.e., convenient sites & sport centers

Acquisition experience: Deep Ridge

and Spring Rivers

New and growing market: 20%

Scope and Scale

Brand loyalty: V & Red Bull’s strong

brand influences

Worldwide reputation: Red Bull’s

power in the ED market.

Ad. cost: High ad. investment currently

Alliance: Btn Red Bull & Pepco Cola

Healthy concerns: scientific debate

and governmental regulations

EBIT IMPACTS Brainstorming EBIT Impacts Statistic Insights Competitive Analysis Possible Scenario Recommendations

CSD = 10%

Bottled water =10%

ED = 20%

EBIT margin increases

from 18.33% to 28.53%

CSD = 15%

Bottled water =15%

ED = 20%

EBIT Margin increases

from 18.33% to 27.62%

Possible Scenario Brainstorming EBIT Impacts Statistic Insights Competitive Analysis Possible Scenario Recommendations Scenario 1 Scenario 2 Scenario 3 R & D Alliance Acquisition Stay outside* Acquisition Red Eye VS. Lipovitan Scenario3 ： Acquire an ED brand name , Red Eye or Lipovitan? (Possible to acquire these brands due to their difficulties) Scenario 1 ： Develop KKL’s own ED product Advantages ---- Possible higher profit margin, Disadvantages ----Technology, time, starting a new brand, advertisement Scenario 2 ： Ally with current players, Frucor Advantages ---- enhance the competitiveness of the two companies; taking the advantage of Frucor leading position in ED market, Disadvantages ----- sharing the profits, challenges in management * When there is a threat of banning ED in Australia

Possible Scenario Brainstorming EBIT Impacts Statistic Insights Competitive Analysis Possible Scenario Recommendations Red Eye VS. Lipovitan Option 1: Red Eye Advantages ---- Already available in Australian market, faster entry Disadvantages ---- health concerns Option 2: Lipovitan Advantages ---- Healthier, broader range of customers (age group with large pop.) Disadvantages ----Completely new in Australian market, less attractive to teenagers

Recommendations

1. Integrate enterprise resources of the two companies, especially KKL's market power and distribution system and Lipoviatn's know-how, to build a leader role in the ED industry

2. Adapt the current marketing strategy to focus more on particular target market while continuing to be a broader-based beverage supplier

3. Invest on Research & Development to introduce more health ED products as responses to the scientific debates and legal regulations.

4. Also invest on innovation of existing CSD-BW divisions for new products with high profit margin

Brainstorming EBIT Impacts Statistic Insights Competitive Analysis Possible Scenario Recommendations The team suggests that KKL acquire Lipovitan as the optional solution, and the following issues needed to be considered at the strategic level: