Business Strategy

1. Group Summary
Business Strategy
MM-6056
COMPETITION IN ENERGY DRINKS, SPORT DRINKS AND VITAMIN-
ENHANCED BEVERAGES
Lecturer :
Dr. Mohammad Hamsal
Developed by :
Deru R. Indika 29110301
Nisham Fiksriyoso 29110309
Erika Paraminda 29110310
Josia Pranata T. 291103
Master of Business and Administration
Bandung Institute of Technology
Bandung
2012

2. 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.
Global Alternative Beverage
19.00%
14.00%
Value
9.00% growth
4.00%
2006 2007 2008 2009 2010 2011 2012 2013 2014
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. 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

4. According to PEST analysis over industry alternative beverages concluded:
Factors Impact Reason
Politic Low There are few Government regulation that really control
about alternative beverage.
Economy Moderate The premium price of alternative beverage make it
sensitif toward economic condition because it will affect
consumer’s purchasing power where their disposible
income will decrease or increase depends on their
economic condition.
Social High The reason of consumer consumed alternative beverage
is complex, not only to fulfill their thirst but also the
image, benefit, lifestyle, health, and others factors that
they get from the products. So, company that have
innovation and can meet consumer want, will be success
in this industry (Sustainable Competitive Advantage)
Technology Low The technology in alternative beverage industry do not
change too much in recent year.
Competitive Environtment (Porter’s 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.

5. Top Brand in each segment of alternative beverages
Energy Drink Energy Shot Sport Drink Vitamin- Relaxation
Enhanced Drink (Niche)
- Red Bull - 5-Hour Energy - Gatorade - Fuze - Vacation in
- Monster - Stacker2 6-hour - Powerade - Sobe Bottle
- Rockstar Power - Pocari - Bloodshot - Dream
- NOS - Red Bull Energy Sweat - Vidration Water
- Amp Shot
- DoubleShot - Monster Hitman
- Full throttle - NOS Energy Shot
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 isn’t 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 world’s 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 world’s 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.

6. 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 it’s 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

7. partnership in providing business to alternative beverages company, especially secondary
packaging material suppliers.
Base on Porter’s 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.

8.  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.
Conclusion and Recommendation
Alternative beverage industry already mature, the competition on this industry is very
tight with so many major players that compete in several segments. Each player has their own
strategy to compete in this industry but the common strategies to compete in this industry are
price, taste, ingredients, volume and product diversification. From this case we recommend
that each company should be aware about changes that occurs in general and competitive
environment by using PEST, Porter five competitive forces, and try to create a scenario
planning to face both best and worst situation.
Lesson Learn
a. Social factors are the strongest factor that determines the successful from one product
because it determines consumer demand especially: Demographic factor and Social
Issue factor (health Issues).
b. Each product should choose the right brand endorsement according their target market
to support the product sales.
c. Usually we only analyze the internal factor from the industry but now we learn to
analyze the external factor that consist of general and competitive environment