1. Case Overview

Alternative beverages industries were the stars of the beverage industry during the

mid-2000s. Alternative beverages industries are energy drinks, sport drinks, and vitamin-

enhanced beverages. Alternative beverages become an important part of the beverage

company’s lineup of brands as a result of rapid growth along with premium prices and

high profit margin. All beverage producers had made various attempts to increasing the

market size for alternative beverages by extending existing product lines and developing

new product to the market. By making it stronger in the market these players also want to

move and capture demand for new relaxation drinks.

In addition, by producing alternative beverages these producers have to face with

the criticism that their products contain health risks for consumers. It is because when the

consumer drink more than one can of the alternative drink or drink with other medicine, it

would occur health problems in the futures. Furthermore, in case study the most primary

concern of many beverage companies or players ways to improve their competitive

standing in the marketplace for the best to make their customer would purchase more

than one product of their product line. It is lastly link to higher market share in the

alternative beverage and increase profit for their company.

2. Issues & problem

i. A global economical crisis that makes customer became more price sensitive.

Several alternative beverage Industry begins to matter that could be seen

from this graph below that show the growth of the global alternative beverage

become slower every year.

During the global recession it would make the consumer more sensitive to

the price or product they want to buy because the alternative beverage product is

price-premium. They likely to go to other substitutes drink to away their thirsty

that offer lower prices.

ii. Health issues

Alternative beverages are products that give extra energy or power to the

consumer. If this alternative drink has a drink with over-the-counter drugs or

alcohol such as NoDoz it could cause seizures. Besides that, this alternative drink

has a high caffeine content and the effect of large doses of caffeine on individual

especially children.

3. The components of A company macro-environment

i. Political Factor

Regulation about content of alternative beverage from US Food and Drug

Administration (FDA) and similar body in other country to ensure that the

producer of alternative beverage follow the requirement. It is to protect the buyer

to have health problem if they consume more than should.

The impact of the political factor to alternative beverage is low because

there are few Government regulations that really control about alternative

beverage. Political factor may not give challenge to the producers.

ii. Economic Factors

The global beverage industry projected to grow from $1.58 trillion in 2009

to early $1.78 trillion that link of increasing demand in alternative beverage, with

US contributed demand for 42.3 percent in 2009 worldwide. In addition, its

steady growth in purchasing power of consumer in developing countries like Asia.

Besides that, the market of carbonated soft drink in the maturity stage that make

more producer to switch to alternative beverage. Poor economic conditions in US

because there is a global economic crisis that makes the consumer becomes more

prices sensitive that affect the industry growth.

At the conclusion, the impact of economic factors is moderate toward the

industry. The premium price of alternative beverage makes it sensitive toward

economic condition because it will affect consumer’s purchasing power where

their disposable income will decrease or increase depends on their economic

condition.

iii. Social Factors

Based on the case study, more consumer preference shifted from

carbonated soft drink to alternative beverages. It is because more review of health

concern from physician, health professional, and a member of law enforcement

about the content and effect of consuming alternative beverages. Demographic of

consumer is different in every alternative beverage segment such as age, job and

lifestyle also may impact the industry.

In terms of that, the impact of social factors is high to the alternative

beverage. The reason of consumer consumed alternative beverage is complex. Not

only to fulfill their thirst but also the image, benefit, lifestyle, health and other

factors that they get from the products. So, the producer may fulfill the

requirement or take it the points as the opportunities to come out with the new

product.

iv. Technology Factor

Nowadays, the internet and social media is the trend of citizen around the

world. Fast technology development will affect production and distribution

system of the producer. It can increase the efficiency of the supply chain for the

company. Besides that, the consumer that health concern may do medical research

to get information about the healthy lifestyle.

The impact of technology to the industry is low. The technology in

alternative beverage industry does not change too much in recent year. So, the

producer may not too worry too much regarding technology aspect.

4. Porter’s 5 Forces Model

i. Rivalry among competing seller

Based on the case study, rivalry among seller is strong because beverage

producers had made various attempts at increasing the size of the market for

alternative beverages by extending existing product lines and developing

altogether new products. This all beverage producers have expanded their product

line and look opportunity to join in alternative beverage industry. They also use

their strong market proposition as their competitive advantage to enter this

industry.

In addition, all players have active and aggressive efforts on the part of

sellers to establish consumer brand loyalty and strong emphasis on advertising,

sales promotions and endorsements. The highly competitive markets of alternative

industry that make this seller have stronger influence of the industry.

Another point is low switching costs on the part of consumers. Consumer

may incur a low cost if they switch to other users. It is because the price of each

alternative drink is almost similar. If the consumer have shift to buy other product

they may cost’s differential of 20% to 30% only. It has made the seller more

influence towards the consumer because of the low price different between the

players.

ii. Potential New Entrance

In aspects of the new entrance, it would conclude as weaker for them. In

the alternative beverage there are many global brands such as Coca Cola,

PepsiCo, Red Bull, Hansens Natural with strong product differentiation and brand

loyalty towards their own consumption. These players also a strong brand

positioning in the consumer minds that make them more competitive and sustain

in this industry as compare to the new entrance.

Besides that, restrictive government policies such as the Food and Drugs

Administration Regulatory must be followed by the entrance to enter into this

industry. In the alternative drink the producer may have caffeine, taurine, guarana

and ginseng as their ingredient. The amount of caffeine and all those ingredients

need to give attention and may not put any alcohol in the drink because it would

affect the consumer health.

Alternative beverage sellers also needed to have efficient distribution

systems to the supermarket and convenience store channels to be successful in the

industry. As compare to others player, they have their excellent supply chain and

may easy for them to enter to any hypermarket but for the new entrance it would

give problem to them.

iii. Competition from substitute

There were many substitutes to alternative beverages such as tea, soft

drinks, fruit juices, bottled water and tap water. This substitute product has 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. It would make the consumer change to other substitute’s product if

they want to release their thirsty and when the consumers are price sensitive. As a

result, competition among substitutes is stronger.

iv. Bargaining Power of Suppliers

In alternative industry, there are many supplier ingredients and they fight

to sell the products to those producers. I would give the picture that the sellers

have more influence towards buying the raw materials from the suppliers.

Packaging is readily available from many suppliers and is commodity like. It is

because this seller or producer may buy at another supplier if the supplier

demands for high prices. Furthermore, the producers are important customers of

suppliers and buy in large quantities. If the supplier lost this producer it would

affect their sales and their raw materials may not be supplied to others.

Besides that, some rare ingredients providers had a moderate amount of

power in negotiations with energy drink producers. It is because this rare

ingredient is low purchasing by the producer. The supplier may not be demand

and may protect the relationship with the producer. In terms of the points, in

alternative beverage the bargaining power of suppliers is weaker.

v. Bargaining Power of Buyers

The bargaining power of buyers in alternative beverage is strong.

Consumers can obtain the products easily in the hypermarket, shop or any petrol

station. This makes the consumer easily switch to others brand and become more

powerful than the seller. Besides that, to the healthy consumer they can easily and

well-informed regarding the content of the products by looking the content at the

packaging and compare with other brands.

Alternative beverages have high sizes of the regional markets in 2009. It

makes consumer more power toward this industry. At United-states the alternative

industry has more market size as compare to others region.

Of all distributors, delis and restaurants had low switching costs from

brand to brand, but had less ability to negotiate for deep pricing discounts because

of volume limitations. It also the strongest factors that lead to bargaining power

among buyer are strong.

5. Market Positions of Alternative Beverage

6. Recommendation for each company

i. PepsiCo

PepsiCo can launch a major image building campaign for the most

promise product it has. PepsiCo may have an aggressive promotional strategy that

comes out with the advertisement that may the consumer know and be influential

to the advertisement. Besides that, the campaign may influence to build more trust

towards the consumer when they drink their product.

PepsiCo can develop its own energy shot brand by trying to convince

Rockstar to add energy shot to its distribution agreement. PepsiCo may convince

Rockstar to add other flavor to make this energy drink more interest toward all

levels of age.

Country Percentage (2009)

United States 42.3%

Asia-pacific 31.5%

Europe 22.2%

Americas (excluding

US)

4%

Total 100%

Negotiating for distribution rights to European & Asia-Pacific market with

Rockstar or launch its energy drink brands in attractive international markets. It is

to make PepsiCo leading in the industry. PepsiCo may expand their business to

gain more share in the industry beside that encounter the issue of price sensitivity

by the consumer.

For health issue, PepsiCo can put a warning sign in the packaging of the

products to make the consumer know what the probability of them to be harmed.

It is also as a guide to the consumer to plan their purchasing.

ii. Coca-Cola

Coca-Cola is one of the strongest brand positioning in the market. By

improving its product by innovating and building up good image to recapture the

market share it lost in the energy drinks category. Innovations the product by

adding another ingredient to the energy drink to make the consumer become more

powerful. Besides that, Coca-Cola may try to create more rapid growth in

vitamin-enhanced beverages and energy product.

Building up its strength in term of alternative beverage sales in Asia and

react quickly to solve the problem of lacking competitiveness in the European

market for alternative beverages. Coca-cola may use a combination of new flavors

and formulations, brands, line extensions, improved image building and

distribution capabilities to increase sales of alternative beverages internationally.

iii. Red Bull

Red Bull may improve the performance of its recently introduced energy

shots and continues to expand into rapidly growing country markets for energy

drinks. Red Bull also can develop sports drinks or vitamin-enhanced beverages

that can further exploit the appeal of the Red Bull brand. It is because Red Bull

may use their name as the leader of energy drink industry to the new expands

product line of vitamin-enhanced beverages. It would make their loyal customer

to try their new product line.

iv. Hansens Co

Hansens Co must expand the distribution of energy drinks and alternative

beverages internationally. It is to make them increase their sales and make their

products, Monster as a leader in the energy drink market in another country. In

addition, building the brand image of Monster energy drink with the right

marketing strategy. The marketing strategy must be aggressive enough to make

the consumer be attracted and influenced to the advertisement.

7. Conclusion

In order to compete, beverage companies should expand the number and types of

alternative beverages in their product lines by improving and developing the formulas

and flavors, establish brand loyalty with a strong marketing strategy, and have efficient

distribution systems to get distinctive advantages.