Commercial and Strategic Management

PRACTICAL CASE
COMPETITION IN ENERGY DRINKS, SPORT DRINKS
AND VITAMIN ENHANCED BEVERAGES
Teacher: Teresa de Lemos

by

Group 4
Pedro Soldado N 70184
Kathrin Beck N 80429
Matthijs Van der Linden N 80430

October 27, 2014

Index
Index ........................................................................................................................................... 1
List of Figures.............................................................................................................................. 2
List of Tables ............................................................................................................................... 2
0. Executive Summary ................................................................................................................ 3
1. Introduction ............................................................................................................................ 4
2. Market Definition / Market Segment..................................................................................... 5
3. External Environment Analysis ............................................................................................... 7
4. Internal Environment Analysis ............................................................................................. 14
5. Organization Competitive Position Analysis ........................................................................ 15
6. SWOT Analysis ...................................................................................................................... 17
8. Conclusion ............................................................................................................................ 22
References ................................................................................................................................ 23

List of Figures
Figure 1 - Strategic group map for the global beverages industry ............................................ 9
Figure 2 - Five Forces of Porter for Robin Hood Case .............................................................. 11
Figure 3 - Value Chain Analysis of the Coca-Cola Company..................................................... 14

List of Tables
Table 1 - Market Segmentation.................................................................................................. 6
Table 2 - PESTL Analysis.............................................................................................................. 8
Table 3 - Mapping between threat and scale used on chart ................................................... 11
Table 4 - Benchmarking Analysis .............................................................................................. 15
Table 5 - SWOT Analysis for The Coca-Cola Company ............................................................. 17
Table 6 - SWOT Analysis for PepsiCo........................................................................................ 18
Table 7 - SWOT Analysis for Red Bull GmbH ............................................................................ 19

0. Executive Summary
This report provides an analysis on the Competition in Energy Drinks, Sport Drinks and
vitamin enhanced beverages case study.
It is provided a market, external and internal environment analysis, along with evaluation of
the competitive position of the 3 main companies (The Coca-Cola Company, PepsiCo, and
Red Bull GmbH) on the global alternative beverages industry. In the end, a SWOT analysis is
presented for each of these companies, with the main identified factors.
On a first quick analysis, the global beverages industry, in particular the alternative
beverages industry has a lot of competitors, trying to get the best competitive advantage.
The soft drinks industry has been on a slowly decaying rate mainly on developed countries,
where consumer awareness to health-related issues start to emerge. However, the
alternative beverages industry provides many growing opportunities, especially on new,
trendy beverages (healthier drinks, relaxations drinks or energy shots).
While doing market segmentation, we concluded that consumers profiles are quite divided
to each product type, as they provide very different effects (hydration, relaxation, energy,
etc) for very different profiles.
However, the alternative beverage industry is not very attractive, as there is an intense
rivalry between the major competitors, with strong brands.
While comparing the 3 companies, we concluded that the main success factors are:
distribution, advertising, innovation capabilities and market share. We came to the
conclusion that The Coca-Cola Company, based on this factors, has a quite strong position on
the industry, mainly due to its incredibly valuable brand Coca-Cola.
After we did a SWOT analysis to each company, and came to the following conclusions:
- The Coca-Cola Company should go with a Broad Differentiation Strategy. It lacks
some diversity concerning the alternative beverages industry, it has the distribution
channels to have the products easily available to customers, and the innovation capabilities
to create new products or acquire existing products and improve them. The risk associated
to this approach is lowered considering people will be open to try new things coming from a
company with such a valuable brand and consumers base.
- PepsiCo should go with a Focused Differentiation Strategy, with a special focus on
improving its image and trust by some of its customers, and launching a new, healthyflavored beverage.
- Red Bull GmbH should go with a Focused Differentiation Strategy, focusing on what
it does best (energy drinks) but extending its range of customers by launching new flavors
and varieties to defend itself against new competitive products.
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1. Introduction
This case analysis is based on John E. Gambles article Competition in Energy Drinks, Sport
Drinks and vitamin enhanced beverages which sheds light on the market of Energy Drinks,
Sport Drinks and vitamin enhanced beverages. Gambles analyzes leading alternative
beverage producers in his article and gives insights on recent trends in the market. He also
shares his thoughts on the key competitive capabilities in the market and gives an overall
summary on the suppliers and industry conditions.
In the first chapter of this analysis the market and market segmentation is defined. The
second and third chapters provide an analysis of the external environment and the internal
environment whereas the fourth chapter the competitive position of the company analyses.
Following the analysis a full SWOT analysis is provided in chapter six, followed by the
definition of strategy in chapter 7. At the end of the analysis conclusions and
recommendations are provided with an emphasis on how the analyzed companies could
improve their competitiveness in respect to each other in the global alternative beverage
industry.

2. Market Definition/Market Segments

On this analysis, we consider the global beverages market, but with special emphasis on the
alternative beverages market.
This decision is based on the fact that the companies we are focused on (PepsiCo, The CocaCola Company, and Red Bull GmbH) operate on most of the global beverages market
(exception being the Red Bull company, focused on the energy drinks category).
With this considerations in mind, we start by doing a small analysis on the global beverages
market, and then we focus on the alternative beverages category. The market segmentation
is also done based on this secondary market.

Market Size and Evolution

The global beverages market was, in 2009, a $1.58 trillion industry, and expected to grow to
$1.78 trillion on 2014.
Despite these numbers, in the U.S., volume sales are slowly declining due to market
maturity, poor economic conditions, and also due to a shift on consumers preferences. This
change in preferences is beneficial to the alternative beverages category, offering many
opportunities to bigger players on the global beverages industry.
Additionally, a great growth of the global beverages industry was expected, resulting from
the growth of purchasing power on developing countries (the developed countries are
already saturated).
The alternative beverages market totaled, in 2009, worldwide sales of $40.2 billion.
On this market, there are 3 larger producers: PepsiCo, Coca-Cola and Red Bull, with PepsiCo
being the dominant company on the market.

Market Segmentation
There are many ways to segment a market. This task serves a very important purpose: to
separate the general market (the alternative beverages market on this case) into categories
that can be targeted and marketed to more effectively [1]. The 4 main types of
segmentation are: geographical, demographic, psychographic and behavioral.
On this particular case, the type chosen was mainly a psychographic segmentation, due to
the information provided by the article, and being a market easily segmented by consumers
lifestyle, interests and by the benefits they look for in the products.
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Still, some behavioral analysis was added, due to information provided on the article about
product usage and usage situations [2]. This analysis is presented on Table 1
Type
Energy
Drinks

Sports
Drinks
VitaminEnhanced
Beverages
Energy
Shots
Relaxation
Drinks

Segment
- Teenagers and young adults (18 to 24 years
old) [3]
- College students who need energy to study,
stay awake
- Sports, fitness people
- People who practice strenuous outdoor
activities (manual labor jobs)
- Adults interested in increasing intake of
vitamins
- Health-conscious customers
- Adults (office workers, parents) who
experience fatigue and want an energy boost
- People with trouble sleeping or focusing
- Adults who need relax after a strenuous day

Buyer Decision Criteria

- Need for energy
- Easy access to product
- Perceived products
effects
- Need for hydration
- Portability (easy to carry
while training or working)
- Perceived products
effects (even If minimal)
- Alternative to soft drinks
- Immediate product
effects
- Trendy
- Alternative to other
beverages (energy,
alcoholic, etc)

Table 1 - Market Segmentation

Its easy to notice that the market is easily segmented based on costumers profiles, and on
what usage they give to the product. The main criteria associated to each segment relies on
the costumers needs and demands for each product (need for energy, hydration, well-being
or relaxation).

3. External Environment Analysis

In order to better understand the external environment on which our company is in, we
decided to use 2 methods:

PESTL analysis, that we used to assess the external macro-economic factors;

Porter five forces, to analyze to level of competition within an industry.

PESTL Analysis
The PESTL Analysis is widely used as an environment analysis tool. It encapsulates the most
important factors that describe the environment on which the company/business operates,
divided by its nature (political or economic nature, for example.
To this we associated the impact each of the factors (the most important ones) have on the
business.

Factors
Political

Impact on Business

- The FDA warned against the use of kava and not

approved valerian root as food additive

- Growing political concern about the

health impacts of alternative beverages
can have a negative impact on brand
names and sales

Economical
- Poor economy has been leading to decreasing
- Poor economy forces the companies
sales For example sales of sports drinks declined by to explore all potential ways of
12.3% between 2008 and 2009
increasing revenue and cutting costs
- Market is saturated on developed countries
Social & Demographic
- Growing concern in society about health
- Health concerns may result in sales
problems related to consuming alternative
decrease and bad brand reputation
beverages
- Health professionals complain about the high
amounts of caffeine and other unhealthy
ingredients in alternative beverages.
- Concerns among consumers about the negative
impact on health when consuming these beverages
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Technological
- Technological innovation allows companies to
produce their beverages more efficiently
- Social media provide an efficient way to advertise
products
Legal

- Innovations lead to lower costs and

ultimately higher margins

- The amount of caffeine allowed in energy drinks

is not regulated by the FDA.
- US attorneys requested the FDA to ask the federal
government to forbid the selling of products with
caffeine and alcohol

- The producers of alcoholic energy

drinks stopped selling them because of
US attorneys request to the FDA
- Growing health concerns can lead to
new legislation, that could ultimately
result in great difficulty for producers

Table 2 - PESTL Analysis

Strategic Map
The strategic group analysis aims to characterize companies based on similar characteristics.
This map allows an easy identification of the companys position on the global picture, and
who the direct and indirect competitors are.
On our analysis, we mapped some of the global beverages industry companies regarding
their geographical distribution (whether its business extends internationally, nationally or
regionally) and its brand portfolio (single or multi-brand company).
The produced strategic map is presented on Figure 1.

Figure 1 - Strategic group map for the global beverages industry

On a quick analysis of the map, we can conclude that the companies which operate at an
international level, can have very different approaches as brand portfolio is regarded.
Coca-Cola and PepsiCo are multi-brand companies, with a wider market. Red Bull is the
opposite, being a single-brand company (sugar free variety and limited editions products not
counting to this analysis). Hansen Natural (now Monster Beverage) is a particular case, as it

is not a single-brand company, but 90% of its sales come from the Monster energy drink, the
dominant brand.
In addition to these big companies, hundreds of regional brands of alternative beverages
operate on small regions or specialty stores, not representing direct competition to the
bigger players.

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Porter 5 Forces Analysis

In order to evaluate the industry attractiveness on this particular case, the Porters Five
Forces analysis was used. First, it was needed to provide an appropriate scale to quantify
each force. The scale used is defined on Table 3.
Scale
1
2
3
4
5

Threat Size
Very Low
Low
Medium
High
Very High

Table 3 - Mapping between threat and scale used on chart

Forces of Porter
Threat of New Entrants

5
4
3
Competitive Rivalry

Threat of Substitute
Products

Supplier Bargaining Power

Buyer Bargaining Power

Figure 2 - Five Forces of Porter for Robin Hood Case

The result of the analysis is illustrated on Figure 2.

Competitive rivalry
The different beverage producers have constantly been trying to expand market share by
adding products to their product lines and attempting product differentiation.
The producers have been actively and aggressively trying to establish consumer brand
loyalty by focusing on advertising
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Score on scale: 5

Threat of substitute products

There are a lot of substitute products that are very popular such as tea, bottled water, fruit
juices, etc.
Score on scale: 4

Threat of new entrants

The existing alternative beverage producers all have a strong brand name, consumer brand
loyalty and the product lines strongly differentiated. It is not likely that a new entrant could
easily pose a threat to these existing beverage producers. Moreover, for a new entrant to be
successful in the alternative beverage market it is vital to have a vast an efficient beverage
distribution system to different selling points, competing against the existing producers that
already established this will be hard.
Score on scale: 2

Buyer bargaining power

Convenience stores account for 75 percent of the alternative beverage sales. Therefore
these stores have a lot of bargaining power and are aggressive in pressing producers for low
prices and slotting fees.
Score on scale: 4

Supplier bargaining power

There are many suppliers in the alternative beverage industry; for example suppliers of all
different types of ingredients (sugar, taurine, sodium, potassium, etc), Packaging
manufacturers of plastic cans or plastic bottles. Most packaging supplies are readily
available. The numerous suppliers of secondary packaging materials compete aggressively
for the business of the large beverage brands and therefore have a bad bargaining position.
Score on scale: 2

Adding all forces, we get a total of 17. Based on this, as 17 is more than the average of our
maximum total (5*5 = 25) we conclude that the industry is not very attractive, mainly due to
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fierce rivalry between the main competitors, and to a constant need for innovation (risking
losing clients if other competitor comes up with new, more attractive alternatives).

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4. Internal Environment Analysis

To analyze the internal environment, it is suitable to use Porters Value Chain. This process is used to identify the internal activities that the
company engages when transforming its inputs (raw materials, supplies) into outputs.
This analysis is divided on primary and support activities. The primary activities are activities that add value to the final product in a direct way,
and the support activities are the ones that add value indirectly [4].

PROCUREMENT

SUPPORT
ACTIVITIES

- Negotiation with suppliers to reduce raw materials (sweeteners, packaging materials) costs

TECHNOLOGY DEVELOPMENT
- Innovation crucial to improve competitive advantage (new flavors, new ingredients)
- Processes improvement (manufacture, quality)
- Market research
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INFRASTRUCTURE

PRIMARY
ACTIVITIES

- Quality management
- Legal services

OPERATIONS
INBOUND LOGISTICS
- Ensuring suppliers compliance with CocaColas Supplier Guiding Principles [5]
- Receiving and storing all resources

- Syrup and
concentrate
production
- Bottling
operations

OUTBOUND
LOGISTICS
- Warehousing
- Order
fulfillment

MARKETING AND SALES

- Powerful advertising to
achieve sales
- Promotion
- Distribution channels

Figure 3 - Value Chain Analysis of the Coca-Cola Company

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5. Organization Competitive Position Analysis

Key Success Factors
1. Distribution
This is the most important because with efficient distribution channels companies
guarantee that their products are widely available and can achieve good sales
volumes;
2. Advertising
This factor is responsible for the creation of demand. Advertising campaigns,
sponsorship and participation on sports competitions work as powerful marketing and
advertising tools to guarantee premium shelf spaces and attractive volume sales;
3. Innovation
Developing new flavors and researching about new ingredients, such as herbs, plants
and other materials is a crucial factor for a company to obtain a competitive advantage
on this market
4. Company size
Market shares and the overall dimension of the company allows it to better negotiate
with suppliers, and seizing opportunities (contracts with other large companies, such
as food chains).

Benchmarking
Bearing all those factors in mind, we can analyze the competitive position of the main
companies on this industry.
The company size (factor 4) evaluation is based on the companys main brand value, as seen
in [6]; not being the perfect measure for the size of the company, it plays a vital role on
value recognition and company bargaining power.
Factor
1
2
3
4

Weight (%)
25
35
25
15
100

Coca-Cola
5
5
4
5
4.75

PepsiCo
5
4
4
3
4.1

Red Bull
3
4
4
1
3.3

Table 4 - Benchmarking Analysis

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From this analysis, we conclude that Coca-Cola still has some competitive advantage on this
industry, mostly due to its great advertising (considered by some as the most valuable
brand) that, although not intense (theres not many advertising campaigns by Coca-Cola)
represents an always present brand (especially on Christmas season, where it is one of the
more remembered brands).
Still, this analysis is subjective and prone to errors, especially on this case where some data is
not available to further analysis, so special caution while reading from its conclusions is
advised.

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6. SWOT Analysis
After the previous analysis, we are in a position to withdraw the Strengths and Weaknesses,
Opportunities and Threats for our 3 main companies, and intersect them so we can provide
a well-informed decision about the strategy to follow [7]. The 3 SWOT analysis are presented
on Table 5, Table 6 and Table 7.

The Coca-Cola Company

STRENGTHS

WEAKNESSES

One of the most valuable

brands
High customer loyalty
Bargaining power over
suppliers
Largest market share in
beverages (42,4% in 2013)
Powerful distribution
channels

Considered and proven

unhealthy. Relies highly on
carbonates.
Not focused on alternative
beverages as some of its
competitors

OPPORTUNITIES
Emerging markets
Healthy drinks not very
competitive
Defend market share
through acquiring other
organizations

Acquire other companies

(with valuable products) and
distribute them and improve
them

Invest on healthy drinks

production and make them
popular

Improve brand image

regarding health-related
issues
Expand distribution to
other markets (developing
countries mainly)

Innovate with new,

possibly healthier
ingredients (natural
sweeteners for example)

THREATS
Strong competition
Health consciousness
amongst people
Decline in purchasing
power amongst consumers

Table 5 - SWOT Analysis for The Coca-Cola Company

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PepsiCo
STRENGTHS

WEAKNESSES

Product diversity
Various corporate
responsibility projects
Globally recognized
Powerful distribution
channels

Depends highly on
Walmart
Pepsi is a lower-recognized
brand compared to CocaCola
Several scandals such as
using tap water and selling it
as mountain spring water

OPPORTUNITIES
Expand to new countries
to increase market share.
Strengthen alternative
beverages production

Expand the distribution to

new markets and develop
alternative beverages as well

Increase brand awareness

especially with big
marketing campaigns on
new markets

THREATS
Strong competition
Health consciousness
amongst people
Decline in purchasing
power amongst consumers

Keep branding on health

related issues and corporate
responsibility projects
Develop healthier
beverages

Spread out dependency

and rely less on one party
Launch big campaigns also
addressing the health issue
to gain more brand
recognition

Table 6 - SWOT Analysis for PepsiCo

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Red Bull GmbH

STRENGTHS

WEAKNESSES

Category leader in the

category of energy drinks
Strong brand image
internationally
Geographically wide
spread
Recognizable identity due
to marketing activities such
as sponsoring of extreme
sports and music events

High caffeine, taurine and

sugar content makes Red
Bull vulnerable as a brand
due to strict regulations
Higher priced than
competitors
Reduced brand portfolio
(single brand)

OPPORTUNITIES
Emerging markets
Production opportunities
in emerging markets
Energy drinks market
growth
Market not saturated and
open to new flavors and
variations

Make use of strong image

to launch new flavors rapidly
and with big impact

Set the price lower for the

emerging markets to
penetrate the market easily
and launch new flavors here,
too

Make use of wide reach to

make a shift in brand image
directing to a healthier
image

Launch a new flavor with

all natural and organic
ingredients to not lose
customers to Monster

THREATS
The biggest competitor,
Monster with its natural
ingredients. More appealing
to a certain group of
customers.
Consumer concerns on
health related issues due to
consumption
Need to maintain high
marketing costs in already
developed markets

Table 7 - SWOT Analysis for Red Bull GmbH

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7. Strategy Definition
After all the analysis done, we got to the following conclusions:

The Coca-Cola Company

- The Coca-Cola Company is a very powerful company, with one of the most valuable brands
on the world;
- It has incredibly powerful and well-established distribution channels, that can be used and
seized to propel new or recently acquired products to any place in the world;
- The power on terms of market share and advertising power provides the company with
some power to convince consumers to try new flavors/product varieties and accept
innovative alternative beverages;
- However, a lack of diversity when concerning alternative beverages has made Coca-Cola
fall behind on this secondary market, and is currently not seizing the most of this industry
possibilities.
With this main points, and supported by our entire analysis, we recommend to The CocaCola Company a Broad Differentiation Strategy.
It has the power to innovate and create new products (or acquire existing products and
companies and rebrand them) and the distribution channels and marketing tools needed to
commercialize these new products, or implement captivating marketing campaigns
(distribute free samples, invest on new products awareness on sports events for example).
The main brand (Coca-Cola) value reduces the risk when launching new products, as people
will be receptive to new products/flavors coming from this company.

PepsiCo
- Pepsi is a widely recognized brand with well-developed distribution channels. This
experience can be used to develop new channels;
- Pepsi is already doing well on various corporate responsibility projects. It now has to also
launch some health campaigns;
- Scandals in the past took Pepsi down, this has to be avoided in the future and made up for
with various branding campaigns;
- The already broad product diversity makes it easy to introduce new healthy wellness
flavors to new and existing markets;
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- Supported by the entire analysis we recommend to PepsiCo a Differentiation Focus

Strategy.
Pepsi needs to be more innovative in terms of addressing the health issue and needs to
regain trust from some of the customers. They should solely focus on that.
They have all distribution channels necessary to quickly launch a new product and penetrate
the market with a competitive drink with a healthy flavor.

Red Bull GmbH

- The brand is almost worldwide recognized and has to focus on market share in emerging
markets now to gain some territory there and get some competitive advantage.
- The lack of a diverse product range is something Red Bull has to focus on to be ahead of
competition.
- The existing marketing stunts on sport and music events can be used to promote the new
flavors and reach a lot of people immediately.
- The existing distribution channels can be used to spread the product quickly and
effectively.
- Health campaigns and concerns are an issue for Red Bull and should be quickly answered
with healthy campaigns and new organic/ healthy/ wellness flavors.

Supported by the entire analysis we recommend to Red Bull a Differentiation Focus

Strategy.
The focus should be on one or several new products or product, while remaining on the
energy drinks segment, to be able to offer a more diverse product range to its customers
and reach new customers who did not buy Red Bull so far due to health concerns.
Good research, development and innovation is therefore needed to develop and deploy high
quality products fast.

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8. Conclusion
The global beverages industry is an intensively competitive industry. A decrease on the soft
drinks consumption is forcing the main companies to innovate and create new products on
the still not saturated alternative beverages industry.
Our 3 main companies, The Coca-Cola Company, Red Bull GmbH and PepsiCo all have
different standings on this industry, with Red Bull being the one fully immersed in it (single
brand, the energy drink Red Bull).
This makes this industry quite desirable to be explored, as there is space for innovation and
costumer acquisition with new, trendy different products.
We concluded that our companies have to take measures to seize these opportunities, and,
on Red Bulls case, not loose possible new markets (it can happen, if its only focus stays on
energy drinks).
Based on our analysis we concluded that:
- The Coca-Cola Company has to differentiate its products, as it has been losing the fight
on the alternative beverages industry, while the soft drinks market slowly decays, and some
health-related concerns raise awareness on the soft drinks consumption. It should do this
hanging on the fact that it is a well-known company, with many greatly valuable brands and
a strong customer base.
- PepsiCo has to differentiate its offer, focusing on addressing the health-related issues by
launching a new competitive drink with a healthy flavor, while regaining some trust from its
customers, improving its market position. It has the distribution channels to launch new,
trendy products who can give the company a competitive advantage.
- Red Bull GmbH has to focus on emerging markets, as it is the dominant company on the
energy drinks segment. But is also need to differentiate its offer a bit, to maintain its
competitive advantage and gain some territory, while defending itself (by pleasing a wider
range of costumers) from new energy drinks from its competitors.

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