Beverage Company Analysis
What are the strategically relevant components of the global and U.S. beverage industry macro-environment? How do the economic characteristics of the alternative beverage segment of the industry differ from that of other beverage categories? Explain.
The most strategically relevant components of the global and U.S. industry microenvironment include the annual per capita drink consumption of consumers, the demand for food services at drinking and entertainment establishments, and the demand for beverages from grocery stores and other retail outlets. Additional relevant components include the price of each ingredient that goes into the beverage, with sugar being one of the most pervasive and dependent on outside markets. While the overall beverage industry continues to consolidate and shows signs of being in a rapidly declining phase of its lifecycle, the alternative beverage industry is growing rapidly as consumers look for healthy, high energy alternatives to traditional forms of caffeinated beverages. The alternative energy segment is quickly capitalizing on this trend, using advanced forms of branding and marketing to underscore the unique value of these drinks and the healthy, high energy benefits to consumers. The combination of healthy attributes and exceptionally good marketing is leading to a growing, highly profitable market.
2. What is competition like in the alternative beverage industry? Which of the five competitive forces is strongest? Which is weakest? What competitive forces seem to have the greatest effect on industry attractiveness and the potential profitability of new entrants? Analyze all five forces.
The competition in the alternative beverage market is intensifying rapidly, as each of the five forces that comprise the Porter Model are undergoing significant transformation in this market. Figure 1 shows the Porter Five Forces Model. The strongest of the five forces in the market is Buyer Power today, hence the very aggressive marketing going on across all competitors in this market. The Threat of New Entry is also exceptionally high right now, yet the Buyers are actually driving even greater change overall. The Threat of New Entry is seeing barriers to the production fo new drinks becoming more expensive to overcome. Supplier Power initially was very strong in this market as there were differentiated, and often highly customized ingredients. Over time this specific force has become more dependent on Buyer Power to drive profitability. The fourth factor, Threat of Substitution, is ever-present across the many substituted energy-inducing beverages consumers can purchase. It is more at a steady-state however; it will never be as strong as Buyer Power for example. Finally, the fifth factor is Competitive Rivalry, and that will continue to accelerate and gain momentum over time in the beverage market. None will emerge however as strong as Buyer Power over time.
3. How is the market for energy drinks, sports drinks and vitamin-enhanced beverages changing? What are the underlying drivers of change and how might those forces individually or collectively make the industry more or less attractive?
The underlying drivers of change in the industry are a mix of those that make the industry both exceptionally attractive and also very unattractive from a profitability and long-term growth standpoint. First, the market for energy drinks, sports drinks and vitamin-enhanced beverages is being more fragmented and growing much faster than the traditional market for energy drinks. This is due to both the healthy nature of these drinks, the caffeinated ingredients, and nearly immediate energy they give consumers,. The underlying drivers of change that are going to individually and collectively make this industry even more attractive over the long-term is the proliferation of individualized brands and the ability of drink producers to rapidly increase their speed to market. These two factors will lead to short, more profitable product lifecycles and a much greater level of innovation over the long-term.
4. What does your strategic group map of the energy drink, sports drink, and vitamin-enhanced beverage industry look like? Which strategic groups do you think are in the best positions? The worst positions?
Those brands that have the ability to continually support a very high perception fo value for the price and also have earned a reputation for having a very healthy, good-tasting drink are in the ideal position in this market. The brands that lack these attributes and have a low perception of value, like AMP for example, are going to increasingly have trouble breaking into new markets and holding onto market share. Full Throttle, which has a good reputation of value for the price, is not as good-tasting as Red Bull and Monster which further hurts the positioning of the product. The strategic group map is shown below.
5. What key factors determine the success of alternative beverage producers?
The most critical key factor is building an sustaining a highly differentiated and valuable brand. As Buyer Power dominates this industry, creating and sustaining a highly defensible brand is essential to any company looking to stay profitable and grow in this industry. Additional key factors include creating a highly agile, effective supply chain that can anticipate and react to changes in ingredient forecasts and demands, in addition to creating a highly effective framework for planning and executing new products. Of the many factors necessary for success in this market, foremost among the secondary set is rapid time-to-market of new product ideas, and an excellent foundation of new product and introduction processes. All of these factors taken together will equip a company to compete in this very rapidly changing, mercurial, highly competitive industry that is the fastest growing of all beverage markets.
Porter, Michael E., Millar, Victor E..(1985). How Information Gives You Competitive Advantage. Harvard Business Review, July 1, 149.
Porters’ Five Forces Model
Perception of Value for the Price
Healthy, Good Tasting High Energy Ingredients
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