Competition in Energy Drinks, Sports Drinks and Vitamin-Enhanced Beverages Essay

The problem which I will be looking at in this report is whether the energy drink, sport drink and vitamin-enhanced beverages are able to be sustainable in the beverage industry. Of the four companies to be discussed; will all of them still be around in 10 years? During the mid-2000’s these alternative beverages enjoyed rapid growth; they had premium prices and high profit margins that made them an important part in the lineup of their brands (Thompson, p. C-75). The strength of these companies had been growing strong but had a slight decline in recent years. SWOT for the Industry Strength: Product Expansion – many new products have been developed Distribution Channels – Can use convenience stores, grocery stores Able to deliver with carbonated soft drinks Weakness: Price is high compared to soft drinks Unhealthy ingredients Caffeine is not regulated – like in soft drink industry Opportunity: Consumer demand Supplier Channels – ingredients, cans, labels Product Innovation – provides differentiation Brand Loyalty – taste, image, energy boosting Brand building skills needed 2 oz. energy shots Threat: Economy Scientific evidence that some products are not healthy Effect people with heart arrhythmias and insomnia. Mix with alcohol Relaxed Drink Niche – abuse with prescription cough syrup As we look at this SWOT analysis of the alternative beverage industry we notice that there are some opportunities that they have created and are able to use in the future. Consumers’ choices are changing from the standard soft drink to alternative beverages. The key is to be sustainable by building up these products. The main opportunity to help with sustainability is to build brand loyalty. Try building up the knowledge and uses of your brands will help you gain the skills needed to continue building the brand. SWOT for PepsiCo Strength: Leads in US: Aquafina – mineral water Frappuccino – ready to drink coffee Tropicana – orange juice Gatorade – sports drinks Strong distribution Broad product line Weakness: Slow growth in Latin America and Japan Opportunity: Food division should expand internationally Threat: Coca Cola leading brand for carbonated drinks Living healthy awareness PepsiCo has grown to be a strong competitor in the global market of alternative beverages. This SWOT shows that they need to increase their growth in the markets of Japan and Latin America. As we discussed in the overall market they can learn how to increase their brand loyalty. SWOT for Coca Cola Strength: Leading manufacturer, marketer and distributor for non-alcoholic beverages Gaining distribution of new beverages such as Minute Maid, Dasani and Powerade Multi-year distribution agreement with Hansen Natural Corporation Weakness: Market share in alternative beverages Opportunity: New product development Introduction of existing brands into new country markets Threat: PepsiCo is slowly taking over the market with multi-line of beverages Increase trend in healthy living Globally they have been a top company in the beverage industry. They have been not as strong in the alternative beverage market. The experiences they have with the carbonated beverages can continue on with the new industry and increase their brand loyalty to the alternative side. The key is to expand their brands into the global market and make it sustainable. SWOT for Red Bull GmbH Strength: #1 seller of energy drinks Weakness: Lack of innovation Reliance on small product base Opportunity: Diversification of beverages to capture wider market opportunity Geographical expansion Threat: Other energy drinks such as Powerade and Gatorade Healthier drinks such as mineral water and juices Red Bull has been a leader in marketing of their product. This marketing prowess has made them the number one seller of energy drinks. I think that if they want to grow and be able to protect themselves from the big two they need to grab the opportunity to diversify into other alternative beverages. As they diversify they will expand into becoming a wider market. SWOT for Hansen Natural Corporation Strength: Monster Energy drinks propelled company sales in 2002 Monster Energy is second best-selling energy drink in USA Weakness: Brand name is not as familiar as the others Opportunity: Develop new products Threat: Competitors have bigger names in the industry. The Hansen Natural Corporation is in the earlier stages of development in this industry thus making them not as well-known as the others. They key that they have done is learned from Red Bull and market their product towards the younger male demographics. Building brand loyalty with the young males will help with the sustainability as that generation grows older they will continue to buy the product. Porter’s Five Forces of Competitive Position Rivalry among Existing Competitors: Beverage producers increased the market for alternative beverages by extending product lines and developing new products. Companies established consumer brand loyalty with an emphasis on advertising, sales promotions and endorsements. Switching costs are low for consumers. Rivalry among competitors is strong. Threat of New Entrants: The brands of: Coca Cola, PepsiCo, Red Bull, Hansen Natural have strong productdifferentiation & brand loyalty. Government policies are restrictive by the FDA regulations. Alternative beverage sellers need to have an efficient distribution system that can reach supermarkets and convenience stores. Threat of new entrants is weak. Bargaining Power of Buyers: Of the distributors; delis and restaurants had low switching costs from brand to brand, but also had less ability to negotiate for deep pricing discounts because of volume limitations. Consumers can obtain the products easily and are well-informed Buyers have stronger bargaining power. Bargaining Power of Suppliers: There are many supplier ingredients & are trying to sell the products. Some rare ingredients providers had an adequate amount of leverage in negotiations with energy drink producers. The producers are important customers of suppliers and they buy in large quantities Packaging is readily available from many suppliers. Suppliers are weaker. Threat of Substitute Products: There are many substitutes to alternative beverages such as tea, soft drinks, fruit juices, bottled water and tap water. Competitive pressure from substitute products is strong. As we look at the 5 forces I have decided that rivalry amongst the competitors is the strongest factor while the power of suppliers is weakest. New entrants are a weak force as the 2 big companies historical action is to purchase companies out when they get to be a nuisance in the market. The reason that suppliers have a low bargaining power is that if a company does not want to deal with you there is somebody else out there that is willing to take your place. The buyers (consumers) have a strong force because they are the ones who decide what they want to consume. It is easy to open up the door next to your product and grab the competitor’s product. The 2nd strongest force that I can see is the threat of substitute products. Just like the competitors; consumers have the option to pick a substitute beverage instead of your energy, sports or vitamin-enhanced drink. The reason I went with the rivalry is that we are talking about the sustainability of the market. Competition with fellow companies is healthy for a company and helps the products to grow compared to being the only option in the market. Choice for consumers creates the competition which helps make the whole market stronger. As the market become stable and has a consistent demand the companies will be able to expand their market. The generation that they have to market to be used to having product innovation and marketing innovation. â€Å"An ongoing stream of product innovations tends to alter the pattern of competition in an industry by attracting more first-time buyers, rejuvenating industry growth with concomitant effects on rivalry, entry threat, and buyer power (Thompson, p. 74)†. All of this helps with sustainability. Financial Analysis Net Income Changes | Pepsi – Co| Coca-Cola| Hansen| Between 2007-2008| -8. 9%| -2. 9%| -27. 7%| Between 2008-2009| 15. 7%| 17. 5%| 93. 2%| Between 2007 and 2009| 5. 4%| 14. 1%| 39. 7%| * All three companies had a bad change from 2007 to 2008. The economy at that time was at a low thus it does not mean that it was their fault. * Hansen had a big jump from 2008 to 2009 as they made an important transition of Monster Energy from a domestic North American brand into a truly international brand (Monster Beverage Corp. p. 3). They had a more reasonable change between 2007 and 2009. * Coke has a consistently higher level of net income with a more consistent change. * Pepsi-Co had a good change from 2008 to 2009. Gross Profit Margin | Pepsi – Co| Coca-Cola| Hansen| 2007| 54. 3%| 63. 9%| 51. 7%| 2008| 52. 9%| 64. 4%| 52. 1%| 2009| 53. 5%| 64. 2%| 53. 6%| * Shows a consistent percentage that the revenues can cover the expenses and are able to create a profit. | * The companies are consistent in their ability to achieve that margin. Coke has the highest percentage. | * They appear to have a good handle on covering their expenses with their revenues. | | Operating Profit Margin| | | | | Pepsi – Co| Coca-Cola| Hansen| 2007| 18. 2%| 25. 1%| 22. 5%| 2008| 16. 1%| 26. 4%| 13. 8%| 2009| 18. 6%| 26. 6%| 25. 8%| * Shows how much profit is earned on sales before paying interest charges and taxes. | | * The companies are consistent again with Hansen having a low year in 2008 but close with Coke. | * Coke was the consistent high company. | | | | | | | Net Profit Margin| | | | | Pepsi – Co| Coca-Cola| Hansen| 2007| 14. 4%| 20. 7%| 14. 6%| 2008| 11. 9%| 18. 2%| 9. 1%| 2009| 13. 8%| 22. 0%| 15. 9%| * A high net profit margin indicates a more profitable company that has better control over its costs compared to its competitors. * Coca-Cola is the higher ratio company with a consistent ratio that grew from 2007 to 2009. The other 2 companies are close in percentages and are lower than Coca-Cola. This shows that Coca-Cola is more profitable than the other two companies. Alternatives: * Coca Cola to improve. * Red Bull to improve * Hansen Natural to improve * PepsiCo to improve * Continue running the same Discussion of the Alternatives: Coca Cola One of the keys to help be sustainable is being innovative and building up a good image; this will help to recapture the market share lost in the energy drink market. Coca Cola should also try to create more rapid growth in vitamin-enhanced beverages and also by creating an â€Å"energy shots† product. Globally they can strengthen alternative beverage sales in Asia and their lack of competitiveness in European market. Coca Cola can use a combination of new flavors and formulations, line extensions, and brands; they can increase sales of the alternative beverages internationally by building a strong image and strengthen their distribution capabilities. Researching a country is important factor, so that you can see what that country looks for in an alternative beverage. Then produce that product and also market to their way of life. They could also try and introduce more flavors that people will enjoy and cut the ones that aren’t doing well. PepsiCo Sustainability can be strengthened by having a major image building campaign for their top product. Just like Coke they need to expand into energy shot branding by having Rockstar add energy shot to its distribution agreement. Another option is to negotiate for distribution rights to European and Asia-Pacific markets with Rockstar or launch its energy drink brands into attractive international markets. In the case it, they discussed that they had introduced a new lineup of alternative drinks known as Charge, Rebuild, Defend, and Bloodshot. As a consumer I have not heard of those brands; indicating to me that marketing of those new products needs an overhaul so that we, the consumers, are aware of such products. Another thing they could do is try to come up with new good tasting flavors for its SoBe energy drink line. Red Bull GmbH The Red Bull brand should improve the performance of its recently introduced energy shot. They need to continue to expand into rapidly growing markets for energy drinks. It is necessary for the company to maintain its lead in the U. S. and European energy drink market. A major key for Red Bull is getting additional product line extensions with the help of their R & D department. They also can develop sports drinks or vitamin-enhanced beverages that can further exploit the appeal of the Red Bull brand. Hansen Natural Corporation Hansen has an agreement with Coca Cola to be a distributor. To be competitive in the alternative beverage market you need to have a strong distribution system. When you have control over your own distribution it gives you the power to have good sales volume and increased market share. Placement on store shelves in the â€Å"first mover areas† is a key to increasing those sales and being in control of your distribution, and then you can set up good locations on store shelves. They also need to continue looking at being innovative in producing new and better products. Image is critical in the minds of consumers in choosing the brands they want. The image presented by the product’s name and emphasized in advertisements, endorsements, and promotions create demand for one brand over another. Finally, sufficient sales volume to achieve scale economies helps in becoming an important driver. They need to have sufficient sales volumes to keep marketing expenses at an acceptable cost per unit basis. Continue running the same That kind of alternative is not a good business decision in that progression is what drives the business environment. In a competitive environment those standing still will be passed or swallowed by the running beast as it goes by. As we seen in our SWOT, all four companies are not at a perfect state and have many opportunities at their doorstep. Recommendation: This case and the way in which has worked out is more about how the industry has a whole can be sustainable. Each one of the companies has similar options that are available to help be maintainable. The one company to me that stands out is the Hansen Natural Corporation because it has been innovative in their options in comparison to Red Bull, such as the size of the cans that they offer. They provide more products for the same or lower price point. I recommend that they develop a better distribution system for their product. It will help with the first mover area which they can move into. As they become stronger in their distribution system they will increase their opportunities to sell their products. Options of places to sell their products such as in vending machines will make their product available to an increased market. As these market segments grow the sales volume will increase with a stronger market share to become available. Brand image is strong to continue building by sponsoring the events to the consumers which you focus your products towards. Action Plan: Immediate: Research distribution channels and how to become â€Å"first mover area† company Short: Cancel agreement with Coke Mid: Set up the distribution channel system. Launch the new system. Long: Make adjustments to the system as the need arises. Conclusion: Competition in the Energy Drinks, Sports Drinks and Vitamin-Enhanced Beverages market will continue to grow as the companies continue to be innovative. I have looked at ways to help the companies be more sustainable. I discussed how Hansen Natural will be able to grow and prosper in the alternative beverage market. References Monster Beverage Corp. (2010, February 28). Annual Report. Retrieved March 6, 2013, from www. zonebourse. com/MONSTER-BEVERAGE-CORP-9771916/pdf/182022/Monster%20Beverage%20Corp_Rapport-annuel. pdf Thompson, A. A. , Strickland, A. J. , & Gamble, J. (2012). Crafting and executing strategy: the quest for competitive advantage : concepts and cases (18th ed. ). Boston: McGraw-Hill/Irwin.