Dhiani Dyahjatmayanti Nadia Karina R.

Susetyo Fajar Kusumo

CASE OVERVIEW

Alternative beverages (energy drinks, sport drinks, and vitaminenhanced beverages) industries were the stars of the beverage industry during the mid-2000s.

Alternative beverages become an important part of beverage companiess lineup of brands as a result of rapidly growth along with premium price & high profit margin.

Beverage producers had made various attempts to increasing the market size for alternative beverages by extending exist product lines and developing new one.

CASE OVERVIEW

Some others also moved to capture demand for new relaxation drinks.

Beverage producers even have to face with the criticism that their products contain health risks for consumers.

The most primary concern of many beverage companies was to improve their competitive standing in the marketplace to the best.

MARKET SIZE

2009
Total Market

48.2% carbonated soft drinks 29.2% bottle water 4.0% sport drinks 1.6% flavored water 1.2% energy drinks

Total Sale
Market

$1,581.7 billion
458.3 billion of liters

Global U.S Asia-Pacific European

Dollar Value Volume Sales ($ billions) (billions of liters) 40.2 12.7 17 4.2 12.7 6.2 9.1 1.6

Worldwide

U.S

GENERAL ECONOMIC CONDITIONS

Between 2008-2009, the premium-priced alternative beverage market had been hit especially hard by the lingering economic downturn in the U.S.
Energy drink 0.2%

Sport drinks 12.3% Flavored & vitamin-enhanced waters 12.5%

Market maturity & poor economic conditions caused the U.S beverage industry to decline by 2.1% (2008) & by 3.1% (2009)

GENERAL ECONOMIC CONDITIONS

Industry Conditions in 2010

The global beverage industry was projected to grow from $1.58 trillion in 2009 to nearly $1.78 trillion in 2014. A great deal of industry growth was expected to result from steady growth in the purchasing power of consumers in developing countries, since the saturation rate for all types of beverages was high in developed countries.

POLITICAL, LEGAL, AND REGULATORY FACTORS

Health, safety, competition, consumer rights and individual laws.

Ingredients : the caffeine content, not use kava & valerian root as a food additive Advertising & distribution policies

Regulations

U.S. FDA

TECHNOLOGICAL FACTORS

Industry analysts believed that such exotic flavors as cardamon, hibiscus, and cupuacu might prove to be hits in 2011 and 2012.

Innovation in brands, flavors, and formulations was expected to be necessary for supporting premium pricing and volume increases.

THE FIVE-FORCES MODEL OF COMPETITION

Rivalry Among Competing Sellers

Beverage producers had made various attempts at increasing the size of the market for alternative beverages by extending existing product lines and developing altogether new products.
Low switching costs on the part of consumers. Active and aggressive efforts on the part of sellers to establish consumer brand loyalty & strong emphasis on advertising, sales promotions & endorsements

RIVALRY IS STRONGER

NEW ENTRANTS IS WEAKER

Potential New Entrants

There are many global brands (Coca Cola, PepsiCo, Red Bull, Hansens Natural) with strong product differentiation & brand loyalty. Restrictive government policies (FDA Regulatory). Alternative beverage sellers also needed to have efficient distribution systems to supermarket and convenience store channels to be succesful in the industry

Competition From Subtitute

There were many substitutes to alternative beverages such as tea, soft drinks, fruit juices, bottled water and tap water.

SUBTITUTE IS STRONGER

 There are many supplier ingredients & they fight to sell the products. Packaging is readily available from many suppliers and is commodity like. Bargaining Power Some rare ingredients providers had a moderate of amount of leverage in Suppliers negotiations with energy drink producers. The producers are important customers of suppliers and buy in large quantities.

SUPPLIERS IS WEAKER

 Consumers can obtain the products easily and well-informed High sizes of the regional markets for alternative beverages.
Country United States Asia-Pacific Europe Americas (excluding U.S.) Total Percentage (2009) 42.3% 31.5% 22.2% 4.0% 100%

BUYERS IS STRONGER

Bargaining Power of Buyers

Of all distributors, delis and restaurants had low switching costs from brand to brand, but had less ability to negotiate for deep pricing discounts because of volume limitations.

Which is weakest/strongest?
Suppliers Rivalry

INDUSTRY DYNAMIC ANALYSIS

THE CHANGE IN THE LONG-TERM INDUSTRY GROWTH RATE

A great deal of industry growth was expected to result from steady growth in the purchasing power of the consumers in the developing countries.

THE CHANGE IN THE LONG-TERM INDUSTRY GROWTH RATE

Industry analysts believed that while carbonated soft drinks would remain the most consumed beverage in the US for some time, annual sales would continue to decline.

THE CHANGE IN THE LONG-TERM INDUSTRY GROWTH RATE

PRODUCT INNOVATION
Product innovation had been among the most important competitive features of the alternative beverage industry. Alternative beverages competed on the basis of differentiation from traditional drinks (carbonated soft drinks or fruit juices). Taste, the energyboosting of their ingredients, and image. Energy Drink

PRODUCT INNOVATION

Brand name and packaging, advertising, unique flavors, and nutritional properties. Vitamin-Enhanced Beverages

MARKETING INNOVATION
Alternative beverages were usually purchased for immediate consumption

Distribution

Convenience stores, delis, restaurants, vending machines, sporting events, concerts, outdoor festivals, carnivals

MARKETING INNOVATION
Brand name and packaging, clever ads, endorsements from celebrities and extreme sports athletes and sponsorships of extreme sports events and music concerts.

Energy Drinks Image

Japans Alinamin V Energy Drink

REGULATORY INFLUENCES & GOVERNMENT POLICY CHANGES

Caffeine content of energy drinks were not regulated by the US FDA Melatonine hormone of relaxation drinks The FDA warned against the use of Kava and not approved valerian root as food additive

CHANGING SOCIETAL CONCERNS, ATTITUDES, AND LIFESTYLES

Energy drinks, sports drinks, and vitamin-enhanced beverages contain ingredients that is not healthy (chemical ingredients)

Growing concerns about health, associated with what theyve consumed

INDUSTRYS DRIVER OF CHANGE

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 & collective effect of industry drivers of change are likely to make the industry less attractive for lesserknown independent brands unless such companies gain a first mover advantage in the development of a new beverage category.

STRATEGIC GROUP

STRATEGIC GROUP MAPS

Key succes factors

Key succes factors

The strategy element, product and service attributes, operasional approaches, resources, and competitive capabilities with the greatest impact on competitive success in the marketplaces.

Key succes factors the industrial beverages

 Huge market in the healthy products & growing market for specialized foods for ethnic groups Distinctive name, product & packaging Internet promotion (banner ads & keywords) can increase their sales & more computerized manufacturing & ordering processes can increase their efficiency Consumer income is high, more tend to eat out, convenience is important to U.S. High U.S. FDA standards eliminate overnight competitors Broadening of Product Base

Growing Savory Snack and Bottled Water market in US

More expensive products than Coke, such a high price may limit lower income families from buying a Pepsi product Not entirely patentable, constant replicability by competitors Technological : Computer breakdowns, viruses & hackers can reduce efficiency & must constantly update products or other competitors will be more advanced Very elastic demand, almost pure competition

Opportunities

Threats

 The increasing number of consumer lifestyles will softdrink The distribution of products that are easy to many regions because of the extensive network Cooperation with various parties for example: Mc.Donald, KFC etc Development of new types of food products The growth of advertising on the internet because internet usage has increased

Many consumers are starting to leave the carbonated drinks In some countries like India banned the sale of coca-cola The U.S. invasion of Iraq that affect the sale of coca-cola The high price of raw materials Difficulty managing all subsidiaries worldwide Sluggish growth of carbonated beverages

Opportunities

Threats

 Diversification of retail outlets Extension of product line this will help to retain market share Geographical expansion, Continuation of its tradition of entering new markets through the process of on-trade, has potential on an international level. Red Bull is still quite a new product in the growing functional drinks market, which leaves a lot of room for development in major markets Hardcore advertising and promotion Costumer recognition through sponsorship of sport and music event New ventures like partnership

Opportunities

Threats

Health concern tougher rules from government on high caffeine content Costumer awarenes of health and well being people my start to drink other alternative as it associated with healthier life style Drinks might be not accepted in the new market Organic energy drinks might steal Red Bulls market share Many copycat energy drinks such as Mad Bull and Red Devil threaten to take brand share from Red Bull. Red Bulls sales are threatened by the continued into the drinks market by key drink players such as Coca-Cola with its Powerade brand Many small operators also act as a threat because they have a high cool value amongst younger consumers with whom energy drinks are popular

 Disribution with major beverages companies create international opportunities Growing demand in the adult demographic Increasing demand for energy shots

Consumer health apprhensions Price given economic down turn Other more grown up offering from other companies Juice companies and high end drink may take the away fringe and older consumer Enegy drinks distributed through main competitors distributor system

Opportunities

Threats

Coca-Cola
Improving its product by innovating & building up good image to recapture the market share it lost in energy drinks category. Trying to create more rapid growth in vitamin-enhanced beverages & energy product. Building up its strength in term of alternative beverage sales in Asia & react quickly to solve the problem of lacking competitiveness in the European market for alternative beverages. Using a combination of new flavors & formulations, brands, line extensions, improved image building & distribution capabilities to increase sales of alternative beverages internationally.

PepsiCo
Launching a major image building campaign for the most promise product it have. Developing its own energy shot brand try to convince Rockstar to add an energy shot to its distribution agreement. Negotiating for distribution rights to European & Asia-Pacific market with Rockstar or launch its energy drink brands in attractive international markets.

Red Bull
Improving the performance of its recently introduced energy shots & continue to expand into rapidly growing country markets for energy drinks. Developing sports drinks or vitamin-enhanced beverages that can further exploit the appeal of the Red Bull brand.

Hansens Co
Expanding the distribution of energy drinks & alternative beverages internationally. Building brand image of Monster energy drink with the right marketing strategy.

In order to compete, beverages companies should to expand the number and types of alternative beverages in their product lines by improving and developing the formulas and flavors, establish brand loyalty with strong marketing strategy, and have efficient distribution systems to get distinctive adventages