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Part I: Analysis of Case 5

1. What are the strategically relevant components of the global and U.S. beverage
indstry macro!environment" #o$ do the economic characteristics of the
alternative beverage segment of the indstry differ from that of other beverage
categories" %&plain.
'ar(et si)e
The beverage market is a large market with the worldwide total market for
beverages in 2009 was $1*5+1., billion. The total sale of beverages during 2009 in
the US was nearly -5+.. billion gallons; with -+./ perent of industry sales was from
arbonated soft drinks and /0./ perent of bottle water industry sales. !n 2009" the
market segment of alternative beverage inlude sports drinks" flavored or enhaned
water" and energy drinks made up #.0 perent" $.% perent" and $.2 perent of industry
sales" respetively. The global market for alternative beverages in the same year was
$-1./ billion &$2.' billion liters(" while the value of the U.S market for alternative
beverages stood at $$' billion &#.2 billion liters(. )eanwhile" in *sia+,aifi region"
the market for alternative beverages in 2009 was $1/., billion &%.2 billion liters( and
it was $9.$ billion &$.% billion liters( in the -uropean market.
'ar(et gro$th
The dollar value of the global beverage industry had grown at a 2.% perent
annually between 200. and 2009 and was foreasted to grow at a /.. perent between
20$0 and 20$#. /owever" this indiator for the alternative beverage industry was
muh higher. 0or e1ample" the dollar value of the global market for alternative
beverages grew at a 9.2 perent annually between 200. and 2009" but was e1peted to
slow down to ..' perent annually between 20$0 and 20$#. US is the ountry has
strongest growth internationally in term of alternative beverage sales with an annual
growth rate of $%.% perent between 200. and 2009 and a foreasted growth rate of
%.' perent between 20$0 and 20$#; while -urope and *sia+,aifi grew at annual
rates of ..3 perent and ..% perent" respetively" between 200. and 2009 and were
e1peted to grow at a rate of #.# perent and ..$ perent" respetively" between 20$0
and 20$#. /owever" poor eonomi onditions in the US in 2002 and 2009 led to a
$2.3 perent deline in sports drink sales and a $2.. perent deline in flavored and
vitamin+enhaned waters sales. !t was also the reason why energy drinks sales
inreased 4ust a little of 0.2 perent between those years.
Segmentation
The global market for alternative beverages was divided by produt type &sports
drinks" energy drinks" vitamin+enhaned beverages" energy shots" and rela1ation
drinks( with different demands for eah group. Sports drinks aounted for nearly %0
perent of alternative beverage sales in 2009" while vitamin+enhaned drinks and
energy drinks got about 23 perent and $2 perent of 2009 alternative beverage sales"
respetively" in the US.
Scope of rivalry
The worldwide ompetition between 3 ma4or produers &,epsi5o" 5oa+5ola and
6ed 7ull( made the industry rivalry beome global. /owever" there were hundreds of
regional and speialty brands of alternative beverages brands that did not ompete
internationally.
/. What is competition li(e in the alternative beverage indstry" Which of the five
competitive forces is strongest" Which is $ea(est" What competitive forces seem
to have the greatest effect on indstry attractiveness and the potential
profitability of ne$ entrants"
The bargaining power and leverage of buyers was as a considerable ompetitive
fore 5onveniene store" groery store" and wholesale lub buyers had substantial
leverage in negotiating priing and slotting fees with alternative beverage produers
beause of their large purhases. 8ew brands with low market shares were most
vulnerable to buyer leverage sine shelf spae was limited while top brands suh as
6ed 7ull were almost always assured of shelf spae. 5oa+5ola and ,epsi5o were
least vulnerable sine they offered a wide variety of beverages that onveniene
stores" groery stores" and wholesale lubs wished to offer to onsumers. *s a result
of this ertain appeal" the two ompanies9 alternative beverage brands almost always
found shelf spae in retail stores. :f all distributors" delis and restaurants had low
swithing osts from brand to brand" but had less ability to negotiate for deep priing
disounts beause of volume limitations.
The bargaining power and leverage of suppliers was the $ea(est ompetitive
fore. )any suppliers for alternative beverage ingredients and they fight with the
others to sell their produts. ,akaging is readily available from many suppliers and is
ommodity like. /owever" some rare ingredients providers had a moderate amount of
leverage in negotiations with energy drink produers. *dditionally" the produers of
alternative beverages are important ustomers of suppliers and buy in large ;uantities.
5ompetition from substitutes is sbstantial. There were many substitutes to
alternative beverages suh as tea" soft drinks" fruit 4uies" bottled water and tap water.
-ven though substitute produts had a bigger market share in the US" onsumers had
tent to buy more alternative beverages. This hange in ustomer preferene had
weakened the ompetitive power of substitute beverages.
The threat of new brands varies by market maturity of eah alternative beverage
ategory. !t has lo$ threat for mature ategories and moderate to strong in young
ategories. <uring the early stages of developing a ategory" when famous brand
leaders hadn9t been established" the threat of entry in alternative beverage ategories
remained strong. *s an e1ample" entrepreneurs launhing new beverages with novel
formulas or well+developed image ampaigns ould ;uikly gain market share among
onsumers laking any established brand preferene who were drawn to the new
beverage ategory. /owever" as the ategory matured" onsumer preferenes
developed and shaped retailers9 purhasing deisions. :ne the ategory had
established its brand leaders" it beame muh more diffiult for new entrants to gain
shelf spae in onveniene stores" supermarkets" and wholesale lubs. Therefore" in
20$0" the threat of entry should be lower for all types of alternative beverages e1ept
energy shots and rela1ation drinks.
The ompetene among sellers of alternative beverage ould be onsidered as the
strongest ompetitive fore. *mong the sellers of energy drinks and other alternative
beverages" ompetition is so strong and will grow stronger eah years. 5ompetition
among ma4or brands enters primarily on brand image" an appealing taste" attrative
pakaging" new produt 6=<" sales promotions and endorsements" and gaining better
aess to shelf spae and strengthening distribution apabilities. *s for 20$0" there
was no evidene of strong prie ompetition in any of the alternative beverage
ategories" whih makes it diffiult to argue that ompetitive rivalry is fiere or
brutal.
0ators that inrease the strength of ompetitive rivalry inluded efforts on the
part of industry rivals to e1pand the number and types of alternative beverages in
their produt lines" low swithing osts on the part of onsumers" ative and
aggressive efforts on the part of sellers to establish onsumer brand loyalty" and
strong emphasis on advertising" sales promotions" and endorsements.
.. #o$ the mar(et for energy drin(s* sports drin(s and vitamin!enhanced
beverages changed" What are the nderlying drivers of change and ho$ might
those forces individally or collectively ma(e the indstry more or less
attractive"
<riving fores of the alternative beverage industry inlude the hange in the long+
term growth rate" industry onsolidation and produt innovation. !n term of long+term
growth rate" while the effets of poor eonomi onditions began in late+200' had a
strong negative effet on sales of sports drinks and flavored or enhaned water and
grew in the energy drinks market" there was also growing market maturity for most
ategories of alternative beverages. The annual rate of growth for the dollar value of
the global market for alternative beverages was foreasted to deline from the 9.2
perent annual rate ourring between 200. and 2009 to an antiipated annual rate of
..' perent for 20$0 through 20$#. >hile dollar value growth rates were e1peted to
deline only slightly in -urope and *sia+,aifi" the annual rate of growth in the U.S.
was pro4eted to deline from $%.% perent during 200. ? 2009 to %.' perent between
20$0 and 20$#.
The seond fores" segments within the alternative beverage industry have
onsolidated as markets have matured and leaders have been established. 0or
e1ample" while 6ed 7ull @mb/ and /ansen 8atural 5orporation remained
independent in 20$0" 5oa+5ola ontrolled suh brands as ,ower*de sports drink"
0uAe vitamin+enhaned beverages" glaBau vitamin+water" and 8:S" 0ull Throttle"
6ehab" Cault" and Ta7 energy drink brands. !n addition" 5oa+5ola distributed
/ansen9s )onster energy drink in parts of the United States" 5anada" and si1
-uropean ountries.
,roduts innovation is a onstant fore as the alternative beverage industry is
ontinuing to reate new ideas that give rise to new beverage industry ategories and
nihes. *s an e1ample" the reent introdution of energy shots has given rise to an
altogether new sub+segment in the industry. !t was undetermined in 20$0 if the
rela1ation drink sub+segment would thrive or prove to be a short+lived fad.
<rivers of hange are unlikely to dramatially alter the attrativeness of the
alternative beverage industry in the ne1t 3+. years. -ven with a slowing eonomy"
there is no indiation that the larger produers suh as 6ed 7ull @mb/" 5oa+5ola" or
,epsi5o are prepared to ompete aggressively on prie for volume and market share
gains. !t is more likely that these larger produers will rely on produt innovations
and a;uisitions to inrease sales and market shares. /owever" the individual and
olletive effet of industry drivers of hange are likely to make the industry less
attrative for lesser+known independent brands unless suh ompanies gain a first
mover advantage in the development of a new beverage ategory.
-. What does yor strategic grop map of the energy drin(* sports drin(* and
vitamin!enhanced beverage indstry loo( li(e" Which strategic grops do yo
thin( are in the best positions" 2he $orst positions"
The strategi group maps show the industry partiipants ompeting in sope of
geographi distribution and brand portfolio flavor. !t shows that beverage produers
ompeting internationally with broad brand portfolios are positioned most favorably
in the industry. /owever" 6ed 7ull @mb/ has suessful marketing a brand in
-urope and the *merias while /ansen 8atural is tehnially a multi+brand produer.
!t should be onsidered a dominant brand ompany sine )onster energy drinks
aount for 90 perent of its sales. /ansen9s suess is part of result of its distribution
agreements with *nheurser+7ush and 5oa+5ola whih give it broad retail that
over aross the U.S. and parts of -urope. Similarly" 6okstar !n.9s suess is
heavily dependent on distribution by ,epsi5o. 5ompanies with a single brand and
regional or national distribution only &e.g." Diving -ssentials" Caation in a 7ottle
&Ci7(" <ream >ater" or <rank( seem to be positioned most poorly in the industry.
The urrent level of ompetition makes it doubtful that small regional produers will
survive over the long+term unless a;uired by a large international bottler.
5. What (ey factors determine the sccess of alternative beverage prodcers"
There are four fators that are neessary for ompetitive suess in the alternative
beverage industry. The first one is aess to distribution" whih is regarded as the
most important industry suess fator due to the fat that most brands of energy
drinksEalternative beverages annot ahieve good sales volumes and market shares
unless they are widely available in stores" and there are also far too many brands for
all to be inluded on store shelves. ,opular brands that en4oyed first mover
advantages suh as 6ed 7ull and .+/our -nergy and brands offered by 5oa+5ola
and ,epsi5o were assured of onsistent aess to distribution. The seond fator is
innovating produt skills. 7y definition" alternative beverages were different from
traditional beverages based upon produt innovation. )oreover" ontinuing produt
innovations were essential to developing additional volume gains from line
e1tensions and the entry into new ategories like energy shots. The third one is image"
whih was also a ritial fator in hoosing a brand of ustomers. The image
presented by the produt9s name and emphasiAed in advertisements" endorsements"
and promotions reated demand for one brand over another. 7rand image was also a
result of labels and pakaging that alternative beverage onsumer found appealing.
Small produers with poor image building apabilities found it diffiult to ompete in
the industry unless the produt en4oyed a first+mover advantage similar to that
ahieved by .+/our -nergy. 0inally" suffiient sales volume to ahieve sale
eonomies in marketing e1penditures is also an important driver. Suessful
alternative beverage produers were re;uired to have suffiient sales volumes to keep
marketing e1penses at an aeptable ost per unit basis.
3. What recommendations $old yo ma(e to Coca!Cola to improve its
competitiveness in the global alternative beverage indstry" to PepsiCo" to 4ed
5ll 6mb#"
5oa+5ola has a slower growth rate ompare to others ompetitors. >hile the
market share of /ansen 8atural 5orporation9s )onster energy drink brand has grown
from $. perent in 200% to 2' perent in 2009 beause of its distribution agreement
with 5oa+5ola" the sales of 5oke9s own brands of energy drinks have been
lakluster. 8:S9s market share has inreased from 2 perent to # perent between
200' and 2009; while 0ull Throttle9s market share had delined from ' perent in
200% to 2 perent in 2009. !n addition" the sales of 5oa+5ola9s 8:S -nergy Shot
amounted to only $$$.2 million in 2009 and had delined by $0.# perent from 2002.
!n addition" the ombined sales of ,ower*de" 0ull Throttle" 8:S" 6ehab" Ta7" and
Cault energy drinks; glaBau vitamin+water; and 0uAe vitamin+enhaned drink fell
4ust short of the sales of 6ed 7ull energy drinks.
>hile it may be unrealisti for 5oa+5ola to seriously hallenge @atorade in the
mature U.S. market for sports drinks" the ompany should boost its produt
innovations and image building efforts to regain lost market share in energy drinks
and apture more rapid growth in vitamin+enhaned beverages and energy shots.
5oa+5ola should pursue the a;uisition of Diving -ssentials9 .+/our -nergy or at
least enter into a distribution agreement with the ompany that would be patterned
after its agreement with /ansen 8atural 5orporation.
*nyway" 5oa+5ola should fous on building upon its strength in alternative
beverage sales in *sia and ating ;uikly to resolve its lak of ompetitiveness in the
-uropean market for alternative beverages. 5ombination of new flavors and
formulations" brands" line e1tensions" improving ompany9s image" and distribution
apabilities are needed to inrease sales of alternative beverages internationally.
!n the other hand" ,epsi5o gains number+one rankings for worldwide" U.S. and
-uropean sales of alternative beverages. The ompany was also a lose runner+up in
the *sia+,aifi market for alternative beverages in 2009. *lso" @atorade held a
ommanding '. perent share in the $$..' billion sports drink market and ,ropel and
So7e Difewater were other best+selling alternative beverage brands. !n addition" its
distribution agreement with 6okstar" !n. allowed it to offer the number+three brand
of energy drink sold in the United States
/owever" ,epsi5o9s strategy in the energy drink ategory of the alternative
beverage industry outside of its distribution agreement with 6okstar" !n. is
;uestionable. *mp9s market share in the energy drink ategory has delined from #
perent in 200% to 3 perent in 2009 after rising briefly in 200' and 2002. *lso" the
ompany9s <oubleShot energy drinks do not seem to be gaining any purhase in the
marketplae with a 3 perent market share in 2009. The ompany also did not offer
energy shot beverage in 20$0 and it was unlear who well its new brands &5harge"
6ebuild" <efend" and 7loodshot( would perform in the marketplae. The ompany
has to launh a ma4or image building ampaign for whihever of its energy drink
brands show the most promise. Students should also reommend that the ompany
develop its own energy shot brand or enourage 6okstar to add an energy shot to its
distribution agreement with the ompany.
-ven though ,epsi5o has great position in -uropean and *sia+,aifi alternative
beverage market" this suess omes more from the performane of @atorade and
So7e sine none of its energy drink brands appear to have any popularity outside the
U.S. and its distribution agreement with 6okstar" !n. is for the U.S. and 5anada
only. >e would reommend that the ompany negotiate for the -uropean and *sia+
,aifi distribution rights to 6okstar or launh its most promising energy drink
brands in attrative international markets. *s -urope" *ustralia" South *meria and
the )iddle -ast were attrative markets for energy drink" they might also be attrative
markets for ,epsi5o to pursue when seeking growth in international sales of energy
drinks.
6ed 7ull had an impressive performane with the worldwide number+one ranking
in the market for energy drinks" whih made it the third+largest produer of
alternative beverages worldwide and the number two seller of alternative beverages in
the U.S. and -urope. The ompany had the right strategy to have broad image
building ampaign that inluded wide+ranging sports team sponsorships" musi event
sponsorships" advertising" promotions" and its signature 0lugtag events. To keep these
ompetitive advantage" 6ed 7ull @mb/ should emphasiAe its need to improve the
performane of its reently introdued energy shots and ontinued e1pansion into
rapidly growing ountry markets for energy drinks. !t is neessary for the ompany to
maintain its lead in the U.S. and -uropean energy drink market with additional
produt line e1tensions based upon produt innovation. 0inally" they should develop
sports drinks or vitamin+enhaned beverages that an further e1ploit the appeal of the
6ed 7ull brand.
Part II: Executive Summary
*lternative beverages industries were booming during the mid+2000s. *lternative
beverage beomes an important part of beverage ompanies9 lineup of brands as a result
of rapidly growth along with premium prie and high profit margins. /owever" the
premium+pried alternative beverage market was heavily affeted by the eonomi risis
in the US. >hile sales of these produts deduted" beverage produers had made various
attempts to inreasing the market siAe for alternative beverages by e1tending e1ist
produt lines and developing new one. Some others also moved to apture demand for
new rela1ation drinks. 7everage produers even have to fae with the ritiism that their
produts ontain health risks for onsumers and therefore many strategies to promote
their produts beome rekless behavior. 7ut the most primary onern of many beverage
ompanies was how to improve their ompetitive standing in the marketplae to the best.
The global beverage industry was foreasted to grow from 2009 to 20$# by $0.2 trillion
as beverage produers entered new geographi markets" developed new produts and
reate demand for popular drinks. The alternatives beverage beame important segments
within the industry in 20$0.
- Distributions
5onsumers an buy most alternative beverages brands in supermarkets" superenters"
stores" wholesale lubs" and onveniene stores. >hile 5oa+5ola and ,epsi5o were able
to enourage their ustomers to purhase items aross its produt line" some smaller
produers even typially used third parties to sale and deliver produts to the distribution
hannels.
- Suppliers
The suppliers for the alternative beverage industry are the makers of nutritive and non+
nutritive ingredients. Suppliers to the industry also inluded the manufaturers of ans"
bottle" printers and pakaging suppliers.
- Key competitive capabilities
*lternative beverages ompete was different from traditional drinks. >hile energy drinks
brands try to develop brand loyalty" alternative beverage sellers try their best to have
effiient distribution systems by ma1imiAing the number of deliveries per driver" offering
on+time deliveries and responsive ustomer servies; along with keeping marketing
e1pense at aeptable level.
- Recent trends
*lternative beverage produers were optimisti in prospeting the industry. >orldwide
demand was e1peted to grow as onsumer purhase power inreased. ,roduers also
e1pet to support premium priing and inreasing volume beause of innovation in
brands" flavors" and formulations. The emergene of two+oune energy is an important
growth ategory in the industry. There are even some individuals try to mi1 alohol with
energy drinks.
Some leading alternative beverage prodcers
- Pepsico:
,epsio beame the world9s fourth+largest food and beverages produing ompany in
20$0. ,epsio also beame the largest seller of beverage in the US by leading most of
alternative beverage ategories. ,epsio9s global market share in 2009 was 2%.. perent"
overome by $$.. perent to 5oa+5ola.
- Coca-cola:
5oa+ola was leading the world in terms of manufaturing" marketing" and distributing
of nonaloholi beverage onentrates" and also known as the world9s most valuable
brand. !t has vast global distribution system and also an gain distribution for new
beverages. 5oa+ola was the third+largest seller of alternative beverage and in the top
five best+selling nonaloholi beverages worldwide in 2009.
- Red Bull Gmbh
6ed bull is the world9s number one seller of energy drinks" whih made it the third+
largest produer of alternative beverages worldwide and beame the number two sellers
of alternative beverages in the US and -urope. !n 20$0" 6ed bull sponsored athletes and
sports teams" and a number of musi events all over the world during its series of
promotion ampaign.
- Hansen Natural Corporation
/ansen 8atural 5orporation had developed and introdued many alternative beverages.
*long with ommons produts" the ompany also produes /ansen9s natural 4uies and
ied tea. /ansen imitated 6ed 7ull9s image+building and marketing approahes.
The relative strengths of produers in the beverage industry attrat many additional
entrants during the ne1t several years.
4ecommendation for each company:
Coca cola should improve its produt by innovating and building up good image to
reapture the market share it lost in energy drinks ategory. 5oa ola should also try to
reate more rapid growth in vitamin+enhaned beverages and energy shots produt. *lso
it should build up its strength in term of alternative beverage sales in *sia and reat
;uikly to solve the problem of laking ompetitiveness in the -uropean market for
alternative beverages. 5oa ola an use a ombination of new flavors and formulations"
brands" line e1tensions" improved image building" and distribution apabilities to inrease
sales of alternative beverages internationally.
Pepsico have to launh a ma4or image building ampaign for the most promise
produt it have. ,epsio also needs to develop its own energy shot brand try to onvine
6okstar to add an energy shot to its distribution agreement. !n addition" ,epsi should
negotiate for distribution rights to -uropean and *sia+,aifi market with 6okstar or
launh its energy drink brands in attrative international markets.
4ed 5ll 6mb# should improve the performane of its reently introdued energy
shots and ontinue to e1pand into rapidly growing ountry markets for energy drinks. !t is
neessary for the ompany to maintain its lead in the U.S. and -uropean energy drink
market with additional produt line e1tensions based upon produt innovation. *lso" it
should develop sports drinks or vitamin+enhaned beverages that an further e1ploit the
appeal of the 6ed 7ull brand.