Competition Energy Drinks
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The beverage industry, like most food service industries in these economic times, faces many challenges. Not one company is excluded from the challenges of economic conditions, demographics, social and global forces, and regulatory, political, and legal factors.
The global economic conditions affect the energy drink industry in many ways. This industry depends highly on the disposable income of its customers. People are very cautious with their money these days and if additional income does not exist to purchase these items, then the companies suffer. In recent projections, however, this does not seem to be the case. The global industry factors show a projected growth of $20 trillion in sales between 2009 and 2014, and demand for these alternative beverages is expected to increase globally as customer purchasing power increases.
Social factors play an important part in the industry’s strategy, as well. With customers concerned with healthy lifestyles and exercise, the alternative beverage industry has increased sales in the last decade. Customers demanding low calorie, energy & vitamin-enhancing drinks turn to these types of beverages for their needs instead of carbonated soft drinks. Alternative drinks are consumed by a slim demographic. These products are generally used by young adults, college and high school students, athletes and exercise aficionados. Another branch of these drinks are the energy “shots,” which have become very popular in the last decade.
With new legislation and changing regulations, it is very important for companies to stay abreast of all changes. There has been an increase in negative reports on what affects energy drinks have on people that use them, from high blood pressure to arrhythmia, which as forced some companies to include warning labels on their packaging. There is also a concern with the consumption of these drinks contributing to the obesity issue, many of these drinks contain high fructose corn syrup, and many additives that can contribute to weight gain if consumption is not limited.
Competition is fierce in this industry; not only between the two biggest competitors, Coca-Cola Company and PepsiCo Inc., but also Red Bull GmbH, Hansen Natural Corporation and privately owned regional brands. The two major companies, Pepsi and Coca Cola, are strong competitors within the alternative beverage market and use both the introduction of new products as well as the introduction of existing products in new markets to increase sales. Pepsi has introduced several new products – Charge, Rebuild, and Defend – three new brands available to consumers interested in vitamin-enhanced drink alternatives. Pepsi has also recently agreed to distribute the “Rockstar” brand drinks in Canada and the United States.
Coca-Cola Company’s strategy is to distribute their existing brands in the new markets of Japan, South Korea, Hong Kong and other Asia/Pacific countries. In order to compete with these two major companies, Red Bull relies on sponsorships and promotion as well as celebrity endorsements. By using advertising in this manner, Red Bull is able to use its slogans and logos in a variety of ways to get their name out into the public. Hansen Natural Corporation utilizes a different approach to boost sales. This company increased their package size and still maintained a competitive price compared to Red Bull. Like Red Bull, Hansen also uses celebrity promotion and sponsorship as a marketing tool. This is not to say that PepsiCo Inc. and Coca-Cola Company do not utilize this method of advertising, as they both spend billions on advertising promotions, celebrity, and sporting endorsements. The competitive edge in this case lies with PepsiCo Inc., whose sales of energy and alternative beverages have surpassed its competitors in the past few years.
New entrants are not a strong competitive pressure for this industry. The dominating companies are unsurpassed in their strong brand names and great distribution channels. The industry is fully saturated. These factors make it difficult for new companies to compete against them. Any new company wanting to get into this industry would face high capital start-up expenditures and would surely fail due to the high cost. Substitution of products is also an area where the competitive force is low. With brand loyalty, the market for substitution is very low. Consumers want the brands they are used and won’t accept substitution. Suppliers for the industry do not hold much competitive pressure either. Suppliers to this industry are bottling equipment manufactures and secondary packaging suppliers. The suppliers have little bargaining power, as the two major brands own their own bottling centers.
As discussed earlier, changes in this industry’s long-term growth rate is a positive one. Growth is high in this market and is expected to continue to grow. One of the reasons for this is the increasing globalization. Coke is expanding its operations to be more global as are some of its competitors. The changing spectrum of the customer base is not really a factor here. Most of the demographic has not changed much since the introduction of these alternative beverages. Marketing and innovation has to continue to grow so that the company can grow. Regulatory influences and government policy changes are a huge factor in this industry. As the customers call for increased legislation and regulation of the ingredients, the companies have to make adjustments to their drink formulas, and this could prove costly if not monitored closely. Society is constantly changing and this industry needs to transition with these changes. By the introduction of new products and the re-tooling of existing products, all of the competitors can be successful.
This industry has several success factors, product marketing, product differentiation, brand name, a strong distribution network and the ability to adapt to change. PepsiCo Inc. and Coca-Cola Company have strong aspects of all of these factors which is what has made both of them so successful. PepsiCo Inc. has branched into the food market as well as remaining in the soft drink and alternative beverage markets. Coke has had a similar strategy and relies heavily on their brand name and product recognition. All of the companies have unique and successful marketing techniques such as sponsorships, promotions, and celebrity endorsements.
In order to achieve a successful strategic plan, a company needs to establish a group of people to discuss the goals and objectives of their company, sometimes called a task force. The task force should then decide what the company’s goals and objectives are. By drafting Mission and Vision statements, this task force can begin to convey their goals and objectives. Strategic planning is an on-going task for every company. When a plan is established the implementation and monitoring phases begin. To be successful a company should be constantly monitoring its goals and objectives and changing them when the need arises.
With competition so high in this industry, a strong strategic plan is critical. In viewing these companies one can see that their plans are very strong. In order to continue to grow and compete in this market all companies need to look forward at the changing times, attitudes and cultures. All of the companies in this market, as with any market, need to maintain their competitive advantage and find new and different ways to achieve it. A comprehensive action plan needs to be put into place and reviewed often. By doing this all companies have a better chance at keeping their competitive advantage and enjoying better profits for their shareholders.