Competition in Energy Drinks - Essay Example

Competition in Energy Drinks Competition in energy drinks, sports drinks and the vitamin –enhanced drink is an issue that has continuously gained ground across the world through some of the soft drinks companies such as Coca cola Company, Pepsi Company among other companies. In light of this, Porter’s five forces has analysed the market in relation to the alternative beverages to establish their consumption rate as compared to those of carbonated drinks and their market position up until 2015. Porter’s Five Forces Porter’s Five Forces is an analysis that was initiated by Michael Porter as a means in which companies, and businesses would be in a position to assess and analyse their strength and position in a given market (Hill and Jones 12). In essence, the Porter’s five theory comprise of five forces namely: existing competitive rivalry between suppliers, threat of new entrants, bargaining power of buyers, power of suppliers and the threat of substitute products with the inclusion of technological change (Orcullo 48). Competition in Energy Drinks, Sports Drinks and Vitamin Enhanced Beverages United States is one of the countries that serves the market for drink such as energy, sports drinks and vitamin enhanced beverages. Apparently, energy drinks are consumed by young people who want to increase their healthy levels. On the other hand, the sport drinks are mostly consumed by people who constantly watch their fitness and those who engage in sporting activities. In the same way, vitamin enhanced beverages are mostly consumed by adults especially those that have varying health issues (Bangs and Henricks 226). Some of the companies that are involved in the production of these alternative beverages include Coca cola Company, Pepsi Company and the Red Bull GmbH among others. In relation to this, it is clear that the market for this alternative beverage especially across the world must be analyzed through the five forces of Michael Porter to ascertain their competitive level (Gamble 75). The Threat of Buyers Using Their Bargaining Power In every market, there must be buyers who play a big role in the products that are in the market. In this case therefore, it is evident that the bargaining power in them particularly when they are purchasing alternative drinks is high (Orcullo 49). It is worth mentioning that most people have opted to consume alterative drinks as opposed to carbonated drinks. This in turn has translated to an increase in the demand for the alternative drinks as compared to other drinks in the market. In response to this, the Coca cola Company and the Pepsi Company have gradually increased their production of alternative beverages. For instance, there has been extension of product line and the development of new products which moves in to capture the demand from buyers (Gamble 77). The Threat of Substitute Product It is often argued that any competition is endangered if there is presence of substitute products in the market (Orcullo 50). Although, Coca cola Company and the Pepsi Company are ancient in the world in regard to production of soft drinks and the gradual production of alternative beverages, other companies such as Red Bull GmbH have come up with substitute drinks with varying prices. As a result, buyers have options while purchasing such drinks making the market extremely competitive. The Threat of Supplier Bargaining Power In the same way, the bargaining power of Suppliers is very crucial in any market. In essence, the power depends on issues such as degree of differentiation of inputs, cost of inputs in relation to selling prices of the product, and the presence of substitute products (Bangs and Henricks 226). In light of this, the Coca cola Company and the Pepsi Company must be capable of identifying supplier bargaining power. Of importance to note is that the production of alternative beverage is possible where there is presence of many competitive suppliers, and as a result the necessary products for such processes are standardized. In addition, the presence of concentrated purchasers makes the market less impacted by high bargains from suppliers (Gamble 77). According to statistics, threat is not possible for these companies because, there has been a continuous emergence of companies that sell substitute products thus lowering the supplier bargaining power. The Threat of New Entrants into the Industry It is worth mentioning that, profitable markets believed to bring forth high returns are known to attract many firms. In return, there is the presence of new entrants that automatically lead to decrease in profitability (Orcullo 50). In relation to this, the Coca Cola Company is the world’s leading brand in the production of drinks. Never the less, other companies have invaded the drink manufacturing market reducing the demand for these products drastically, although there has not been much competition from other producers pertaining to alternative beverages(Gamble 82). Companies who are currently concerned with the manufacture of alternative beverages such a Coca Cola Company, Pepsi Company, Red Bull GmbH should be able to handle the market in a professional manner to ensure that they retain their market position and gain profit as expected in any business. The Threat of Rivalry from Competitors The presence of rivalry in the industry depends on the number of competitors, rate of industry growth, diversity of competitors among other issues (Orcullo 49). As such, many rivalries have come up with the criticism that pertains to the production of alternative beverages. For instance, critics argue that excessive consumption of energy drinks, sport drinks and the vitamin enhanced drinks could lead to diseases such as insomnia. In addition, the mixing of these drinks with alcohol could lead to intoxification and other alcohol related issues. Some of the relaxation drinks are also purported to contain potentially harmful ingredients such as melatonin and kava. Needless to say, such kind of allegations may lead to creation of bad image from rivalries whose intentions are to reduce their competitive advantage. Hence, the threat of rivalry from competitors is high (Gamble 82). For The Period until 2015 As of now, it is obvious that the global market on beverage production have continually benefited from increased consumer demand for alternative beverages. Although the market has previously been hit by hard economic downturn especially in the United States, people have continually preferred energy drinks as compared to soft drinks. For instance, there was a notable decline is sales of soft drinks with a percentage of 12.3 in 2008 and 2009 (Gamble78). In addition, there has been immersing growth with saturated rate of beverage in developing countries. Similarly, there is steady growth in the purchasing power of consumers. To improve this, there is decline in consumption of carbonated drinks as compared to energy drinks in a span of five years (Hill and Jones 12). In a general sense, for the period unit 2015, this industry will have very attractive profit margin as the percentage of consumption will have increased. Works cited: Bangs, David and Henricks, Mark. Business Plans Made Easy.2005.Print. Gamble, John. Competition in Energy Drinks, Sports and Vitamin - Enhanced Beverages Cases in Crafting And Executive Strategy. 2010. Print Hill, Charles and Jones, Gareth. Strategic Management Theory. Mason, OH ; Australia ; Brazil ; Japan ; Korea ; Mexico ; Singapore ; Spain ; United Kingdom ; United States: South-Western, Cengage Learning. 2013. Print. Orcullo, Norberto. Fundamentals Of Strategic Management. Manila, Philippines: Rex Book Store. 2008. Print. Read More