COMPETITION IN

ENERGY DRINKS, SPORT DRINKS

AND VITAMIN- ENHANCED
BEVERAGES
CASE STUDY ON:

SUBJECT::-STRATEGIC MANAGEMENT
PREPARED BY::-

LIMBACHIYA YAGNIK C. (15)

PATEL ANKIT K. (28)
PATEL RAVINDRA A. (38)

SUBMITEED TO::-

MR. SHAKTI DODIYA

S K SCHOOL OF BUSSINESS MANAGEMENT

(HNGU) PATAN
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.
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
- 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 country

2. 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
worldwide

3. 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

Competitive Environtment (Porters 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.
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 isnt 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 worlds 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 worlds 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 its 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 Porters 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.

1. What are the Different strategically relevant components of

the global and U.S. beverage industry macro-environment?
Explain.
.

Marketsize. The worldwide total market for beverages in 2009 was $ $1,548.3 billion.
The sales of beverages in the U.S. during 2009 totaled nearly 28.9 billion gallons, with
carbonated soft drinks accounting for 48.2 percent of industry sales and bottle water
making up 29.2 percent of industry sales. Sports drinks, flavored or enhanced water, and
energy drinks made up 4.0 percent, 1.6 percent, and 1.2 percent of industry sales,
respectively, in 2009. The global market for alternative beverages in 2009 was $40.2
billion (12.7 billion liters), while the value of the U.S market for alternative beverages
stood at $17 billion (4.2 billion liters) in 2009. The market for alternative beverages in the
Asia-Pacific region in 2009 was $12.7 billion (6.2 billion liters) and the European market
size in 2009 was $9.1 billion (1.6 billion liters). Case Exhibits 1-7 present industry sales
and volume data for the beverage industry between 2005 and 2009, with forecasts for
2010 2014.
Marketgrowthrate. The dollar value of the global beverage industry had grown at a 2.6
percent compounded annual growth rate between 2005 and 2009 and was forecasted to
grow at a 2.3 percent annual rate between 2010 and 2014see case Exhibit 1. The dollar
value of the global market for alternative beverages grew at a 9.8 percent annual rate
between 2005 and 2009, but was expected to slow to a 5.7 percent annual rate between
2010 and 2014see case Exhibit 3. The U.S. had the strongest growth internationally in
alternative beverage sales with an annual growth rate of 16.6 percent between 2005 and
2009 and a forecasted growth rate of 6.7 percent between 2010 and 2014. Europe and
Asia-Pacific grew at annual rates of 5.3 percent and 5.6 percent, respectively, between
2005 and 2009 and were expected to grow at annual rates of 4.4 percent and 5.1 percent,
respectively, between 2010 and 2014see case Exhibits 5-7. However, poor economic
conditions in the U.S. in 2008 and 2009 led to a 12.3 percent decline in sports drink sales
and a 12.5 percent decline in flavored and vitamin-enhanced waters sales between those
two years. The poor economy also helped slow the growth of energy drink sales to just
0.2 percent between 2008 and 2009.
Segmentation: The global market for alternative beverages was segmented by product
type (sports drinks, energy drinks, vitamin-enhanced beverages, energy shots, and
relaxation drinks). with the demand in each segment varying significantly. In the U.S.,
sports drinks accounted for nearly 60 percent of alternative beverage sales in 2009, while
vitamin-enhanced drinks and energy drinks
Scopeofrivalry. Rivalry in the industry could be considered global, with the
three largest sellers of alternative beverages worldwide competing in most
international markets. However, there were hundreds of regional and specialty
brands of alternative beverages brands that did not compete

internationally.accounted for about 23 percent and 18 percent of 2009 alternative

beverage sales, respectively.

2. What is the market for energy drinks, sports drinks and vitaminenhanced beverages changing? What are the underlying drivers
of change and how might those forces individually or collectively
make the industry more or less attractive?comment.
Change in the long-term growth rate. While the effects of poor economic conditions that
began in late-2007 had a strong negative effect on sales of sports drinks and flavored or
enhanced water and have stalled growth in the market for energy drinks (see case Exhibit
2), there was also growing market maturity for most categories of alternative beverages.
The annual rate of growth for the dollar value of the global market for alternative
beverages was forecasted to decline from the 9.8 percent annual rate occurring between
2005 and 2009 to an anticipated annual rate of 5.7 percent for 2010 through 2014see
case Exhibit 3. While dollar value growth rates were expected to decline only slightly in
Europe and Asia-Pacific, the annual rate of growth in the U.S. was projected to decline
from 16.6 percent during 2005 2009 to 6.7 percent between 2010 and 2014. Case
Exhibits 5 - 7 present the volume and dollar value sales figures and estimates for the
U.S., European, and Asia-Pacific geographic regions.
Industry consolidation. Students should note that segments within the alternative
beverage industry have consolidated as markets have matured and leaders have been
established. For example, while Red Bull GmbH and Hansen Natural Corporation
remained independent in 2010, Coca-Cola controlled such brands as Powerade sports
drink, Fuze vitamin-enhanced beverages, glacau vitaminwater, and NOS, Full Throttle,
Rehab, Vault, and TaB energy drink brands. In addition, Coca-Cola distributed Hansens
Monster energy drink in parts of the United States, Canada, and six European countries.

Product innovation. The alternative beverage industry is continuing to evolve with new
product innovations that give rise to new beverage industry categories and niches. The recent
introduction of energy shots is an example of how an innovation that has given rise to an
altogether new sub-segment in the industry. It was undetermined in 2010 if the relaxation drink
sub-segment would thrive or prove to be a short-lived fad.
Students should conclude that the 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 and 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.

3. What key factors determine the success of alternative beverage

producers?
Factors that are necessary for competitive success in the alternative beverage industry
include:
Accesstodistribution. Access to distribution is the most important industry key success
factor since brands of energy drinks/alternative beverages cannot achieve good sales
volumes and market shares unless they are widely available in storesthere are far too
many brands for all to be included on store shelves. Highly popular brands that enjoyed
first mover advantages such as Red Bull and 5-Hour Energy and brands offered by CocaCola and PepsiCo were assured of consistent access to distribution.
Productinnovationskills. Alternative beverages, by definition, were differentiated from
traditional beverages based upon some product innovation. In addition, continuing
product innovations were essential to developing additional volume gains from line
extensions and the entry into new categories like energy shots.
Brandimage. Image was also a critical factor in helping consumers choose a brand. The
image presented by the products name and emphasized in advertisements, endorsements,
and promotions created demand for one brand over another. Brand image was also a
result of labels and packaging that alternative beverage consumers found appealing.
Small producers with poor image building capabilities found it difficult to compete in the
industry unless the product enjoyed a first-mover advantage similar to that achieved by 5Hour Energy.
Sufficient sales volume to achieve scale economies in marketing expenditures.
Successful alternative beverage producers were required to have sufficient sales volumes
to keep marketing expenses at an acceptable cost per unit basis.

4. What recommendations would you make to Coca-Cola to

improve its competi-tiveness in the global alternative
beverage industry? to PepsiCo? to Red Bull GmbH?
Students will note that while the market share of Hansen Natural Corporations Monster

energy drink brand has grown from 15 percent in 2006 to 27 percent in 2009 because of
its distribution agreement with Coca-Cola, the sales of Cokes own brands of energy
drinks have been lackluster. NOSs market share has increased from 2 percent to 4
percent between 2007 and 2009, while Full Throttles market share had declined from 7
percent in 2006 to 2 percent in 2009see case Exhibit 9. In addition, as shown in case
Exhibit 10, the sales of Coca-Colas NOS Energy Shot amounted to only $11.8 million in
2009 and had declined by 10.4 percent from 2008. In addition, the combined sales of
Powerade, Full Throttle, NOS, Rehab, TaB, and Vault energy drinks; glacau
vitaminwater; and Fuze vitamin-enhanced dirnk fell just short of the sales of Red Bull
energy drinks.
While it may it may be unrealistic for Coca-Cola to seriously challenge Gatorade
in the mature U.S. market for sports drinks, students should recommend that the
company bolster its product innovations and image building efforts to regain lost
market share in energy drinks and capture more rapid growth in vitamin-enhanced
beverages and energy shots. Some students may suggest that Coca-Cola pursue
the acquisition of Living Essentials 5-Hour Energy or at least enter into a
distribution agreement with the company that would be patterned after its
agreement with Hansen Natural Corporation.
Other recommendations for Coca-Cola should center on efforts to build upon its
strength in alternative beverage sales in Asia and act quickly to resolve its lack of
competitiveness in the European market for alternative beverages. Students may
suggest that a combination of new flavors and formulations, brands, line
extensions, improved image building, and distribution capabilities are needed to
increase sales of alternative beverages internationally.
We will commend PepsiCo management on its strategy in the alternative beverage
industry that has yielded number-one rankings for worldwide, U.S. and European
sales of alternative beverages. As shown in case Exhibit 8, the company was also
a close runner-up in the Asia-Pacific market for alternative beverages in 2009.
Also, Gatorade held a commanding 75 percent share in the $1.57 billion sports
drink market and Propel and SoBe Lifewater were other best-seling alternative
beverage brands. In addition, its distribution agreement with Rockstar, Inc.
allowed it to offer the number-three brand of energy drink sold in the United
States
However, students may be very critical of PepsiCos strategy in the energy drink
category of the alternative beverage industry outside of its distribution agreement with
Rockstar, Inc. Amps market share in the energy drink category has declined from 4
percent in 2006 to 3 percent in 2009 after rising briefly in 2007 and 2008. Also, the
companys DoubleShot energy drinks do not seem to be gaining any traction in the
marketplace with a 3 percent market share in 2009. Also, the company did not offer an

energy shot beverage in 2010 and it was unclear who well its new brands (Charge,
Rebuild, Defend, and Bloodshot) would perform in the marketplace. Students may
recommend that the company launch a major image building campaign for whichever of
its energy drink brands show the most promise. Students should also recommend that the
company develop its own energy shot brand or encourage Rockstar to add an energy shot
to its distribution agreement with the company.
Even though PepsiCo has strong positions in the European and Asia-Pacific alternative
beverage markets, students may surmise that its success in those markets comes more
from the performance of Gatorade and SoBe since none of its energy drink brands appear
to have any popularity outside the U.S. and its distribution agreement with Rockstar, Inc.
is for the U.S. and Canada only. Students may recommend that the company negotiate
for the European and Asia-Pacific distribution rights to Rockstar or launch its most
promising energy drink brands in attractive international markets. Analysts believed that
Europe, Australia, South America and the Middle East were attractive markets for energy
shots. These markets might also be attractive markets for PepsiCo to pursue when
seeking growth in international sales of energy drinks.
Students will be very impressed with Red Bulls worldwide number-one ranking in the
market for energy drinks, which made it the third-largest producer of alternative
beverages worldwide and the number two seller of alternative beverages in the U.S. and
Europe. Students will also be quite pleased with the companys broad image builing
campaign that included wide-ranging sports team sponsorships, music event
sponsorships, advertising, promotions, and its signature Flugtag events.
Recommendations for Red Bull GmbH should emphasize its need to improve the
performance of its recently introduced energy shots and continued expansion into rapidly
growing country markets for energy drinks. Students may recommend that the company
maintain its lead in the U.S. and European energy drink market with additonal product
line extensions based upon product innovation. Students may also recommend that the
company develop sports drinks or vitamin-enhanced beverages that can further exploit
the appeal of the Red Bull brand.