Group Summary Business Strategy MM-6056COMPETITION 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 amature stage. This occurs because the demand shift from carbonated soft drink to alternativebeverages. Since the mid 2000s alternative beverages product became product/brand line thatimportant for beverages company because its market grow rapidly and give high profitmargins due to the premium price. This is not only affect to existing beveragesmanufacturers, but also encourage the emergence of new sellers that focus solely onalternative beverages. Alternative beverages segment is divided over several segments of the energy drinks,sports drinks, vitamin-enhanced beverages, two-once concentrated energy shots andrelaxation drinks. Each segmen has different consumer types and different distributionchannel. In term of market, global beverages company also began to shift to consumers indeveloping countries than develop country where the market began to decline, exacerbated byworse economic condition in US which is the largest market of beverages industry.2. Issues and ProblemThere 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 9.00% growth 4.00% 2006 2007 2008 2009 2010 2011 2012 2013 2014b. 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. AnalysisGeneral 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 country2. 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 worldwide3. 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 ReasonPolitic 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- Relaxation Enhanced Drink (Niche) - Red Bull - 5-Hour Energy - Gatorade - Fuze - Vacation in - Monster - Stacker2 6-hour - Powerade - Sobe Bottle - Rockstar Power - Pocari - Bloodshot - Dream - NOS - Red Bull Energy Sweat - Vidration Water - Amp Shot - DoubleShot - Monster Hitman - Full throttle - NOS Energy Shot In alternative beverage, product innovation is an important thing that became thedifferentiation in competition. As an example, for energy drink brand, innovation inflavour, the energy-boosting properties, and image. Efficient distribution system alsobecame 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 largestseller of beverage in US (2009). The reason why Pepsi become leading in food andbeverage industry isn’t because selling carbonated soft drinks but by leading in mostother beverage categories such as Aquafina as the best brand water in US, Frappucino asthe best ready to drink cofee, Tropicana as the best orange juice sales and Gatorade as thebest sport drinks. To expand their market share in 2009 Pepsi expand their product line inalternative drinks by launch Charge, Rebuild, Defend and Bloodshot.The Coca-Cola Company The Coca-Cola Company was the world’s leading manufacturer, marketer, anddistributor of non-alcoholic beverage concerates by selling Coca-Cola, Diet Coke, Fantaand Sprite. The biggest strength from Coca-Cola is from the strong distribution channel asan 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 brandvalue Red Bull sponsored not only athletes and teams competing in sports such as autoracing, free style biking, wakeboarding, snowboarding and golf but also support severalmusic 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 alternativebeverages 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 verytight with so many major players that compete in several segments. Each player has their ownstrategy to compete in this industry but the common strategies to compete in this industry areprice, taste, ingredients, volume and product diversification. From this case we recommendthat each company should be aware about changes that occurs in general and competitiveenvironment by using PEST, Porter five competitive forces, and try to create a scenarioplanning 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