Competition in Energy Drinks, Sports Drinks and Vitamin-Enhanced Beverages (Case Study Sample)
As a new member of PepsiCo’s brand management department, you have been asked to prepare an analysis of the global and U.S. alternative beverages industry. Your 5-6 page executive summary should list strategic issues confronting PepsiCo and its alternative beverage brands and make recommendations to address such issues. The executive summary should be supported by your analysis of the industry. The exhibits to the summary report MUST include: A Five Forces model, macro-environmental characteristics, key success factors, drivers of change and industry dynamics, and a strategic group map (See chapters 3 and 4). Note: this case is about the alternative beverage industry & the role of Pepsi in that industry--do not focus on the cola wars w/ Coke.source..
Competition in Energy Drinks, Sports Drinks and Vitamin-Enhanced Beverages
In the mid-2000s, the alternative beverage area witnessed extensive growth and increase in competition. This was occasioned by an increase in the number of industry players due to the high growth in the area and the premium price of the products. These products include the energy drinks, sports enhancing drinks and vitamin fortified drinks. To increase their overall growth and remain competitive in the market, giant beverage companies like Coca-Cola and PepsiCo enter the production of such beverages (Bachmeier, 2013).
The comprehensive performance and the positive feedback posted by the market on these alternative drinks motivated these competing firms. To shove their performance, the companies developed intentions of introducing other enhanced and fortified sports and energy drinks into the market. However, these plans were hampered the market performance and economic crisis that hit the united states towards the end of 2008. Market response and criticism also increased as some consumer insight organizations argued that such drinks increased reckless behaviors among individuals (Kay, 2009).
PepsiCo has remained one of the largest beverage producers in the world and was ranked as the fourth largest in 2010. The company produced and markets its products in over 200 countries across the globe. Most of its products found in different parts of the global market include the Lay’s, Tostitos, Cheetos and the mountain dew. The company sold the largest beverages in the United States in 2009 and this was attributed to the high performance of Frito-Lay, one of its subsidiaries (Hein, 2008).
By entering the beverage industry, PepsiCo makes extensive market performance which overwhelmed the performance of Coca-Cola. By investing heavily in the production of non-carbonated beverages, PepsiCo developed a market niche away from the competitive carbonated drink market dominated by Coca-Cola. The company sold 47.8% of its products in the United States alone in 2009, thus pushing its dominance in the beverage area. The company’s introduction of energy drinks made up of L-carnitine and fortified with other amino acids thrust into the energy beverage market (Bachmeier, 2013).
Strategic issues facing PepsiCo
The advances in the carbonated drink area have affected the growth and development of the alternative beverage area in significant ways. This has posed serious strategic challenges to PepsiCo and reduced its impact in the market. The market in the United States has for long been aware of carbonated drinks produced by Coca-Cola and PepsiCo. However, the entry of the non-carbonated beverage alternatives has received competition from the well-established carbonated beverages (Bachmeier, 2013).
PepsiCo also faces competition from external companies and producers operating in the United States who have established themselves as energy and sports drink producers. These include Red Bull, Coca-Cola and Hansen. The production by these companies and those of PepsiCo increases the total number of energy and sports beverages in the market. In the United States alone, the total number of alternative beverages is way above 500 and this demonstrates the high competition in the market (Hein, 2008).
Distribution of products into the market determines their success and performance especially in a competitive market as an alternative beverage market. PepsiCo has faced extensive challenges in developing effective and working distribution channel and this has affected its ability to reach out to the market. With an area that has other players and competitors, product distribution and ready availability determine its overall success and market response. The lack of proper and will coordinated supply chain structures has hampered the distribution process of the company and affected its overall competitiveness.
Consumer organizations and other market based nutritional lobbies have continued to wage a debate that advises against the use of energy drinks. Most of these organizations have targeted energy and sports products from PepsiCo and this has affected market performance. The increase health concerns raised on the continued use of these drinks have affected their response and acceptance in the market. While some argue that the use of sports and energy drink is habitual, some deaths have been associated with the continued use of energy drinks like red bull (Bachmeier, 2013).
This has scared away potential buyers and hampered the overall performance of the products launched by the company. The development of products with high caffeine content, a common approach in most energy drinks, also increases the risk of insomnia and other heart complications. This and other impacts of energy and sports drinks have affected the ability of the company to make significant impacts on the market (Kay, 2009).
Law enforcement in the United States has also questioned the impacts of the products on an individual’s decision making. In most instances, individuals who have consumed the soft drinks have demonstrated high willingness to take risks. This has increased the overall accident rates in the country. Some of the products have also been rejected by the foods and drug agency in the United States due to their valerian roots. This among other factors have hampered the marketing process for these products and reduced their market presence. Vitamin fortified products have been shown to lack minimum dietary requirement and this has affected their acceptability in the market (Hein, 2008).
Five forces analysis of the alternative beverage industry
The non-carbonated drink in the United States and beyond is bordered by changing market dynamics and this affects the performance of industry participants. However, competition in this industry has remained relatively high as companies with substitute products fight to edge the influence of the other. Most of the products manufactured by these companies serve the same purpose and having almost the same composition. This affects the choice of the customers and complicates the brand development process (Kay, 2009).
The high prices of products in this beverage industry have made it lucrative and attractive to other companies. As a result, most companies have showed interest in entering the market and increasing the current competitive pressure. Existing companies like PepsiCo and Coca-Cola continue to develop products that can enable them enter the market and have a share of the customers. However, the distribution channel and the volume of target customers affect the entry. Most existing companies in the industry like Coca-Cola and PepsiCo have traditional customer base and breaking into their dominance is a challenge. This makes it difficult for new entrants into the industry to make significant impacts (Gamble, 2010).
Due to the regulations and health associated issues concerning the consumption of caffeine based energy and sports drink, newest customers have shied away from the products. This has led to continued market stagnation and this has made it unattractive to new industry players. The taste of the consumers is also constantly changing and these impacts on the willingness to continue using a particular product line. As a result, companies in this industry spend extensive resource in their research and development to improve their products and retain the customers (Hein, 2008).
Suppliers in this area have continued to play a major role in the success of a new or existing company. Most of the suppliers provide nutritive products used in the manufacture of the drinks, the bottling and canning materials and preservatives. This makes their role in the industry paramount in the success of the industry players. Other products that are also of the essence in the development of the non-carbonated energy drinks are the supplement specialties. These are supplied by limited companies in the United States (Kay, 2009).
Industry players that have the muscles to source for high quality suppliers dominate the market by producing market sensitive products. Suppliers pl...
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