Alternative Beverages Industry - Case Study Example

? Alternative Beverages Industry Alternative Beverages Industry Introduction At the beginning of the second millennium, a new trend emerged as beverage companies diversified into production of alternative beverages in order to increase their market share. These alternative beverages included energy drinks, sparkling waters, sports drinks, bottled water, ready-made teas and enhanced waters among others (Esterl, 2013). They became vital competitors in the beverage industry and have continued to grow rapidly especially in present times due to the health concerns raised against soft drinks (Datamonitor, 2007). People who associate with strenuous activities and sports are inclined to purchasing sports drinks, which are said to help them reenergize and enhance their capability to participate in their respective activities. The ‘mature’ or adult consumers have the vitamin-enhanced beverages, which are said to boost their health as they help them supply the body with vitamins. Energy drinks’ and readymade teas’ target the teenagers, as they seem to assist improve their concentration. In the alternative beverages industry, Pepsi faces stiff competition from its rival company, Coca Cola, and other players with a smaller market share. These include Monster Beverage and Red Bull, which are companies that developed unique brands and advertised them well to earn a fair share of the market (Esterl, 2013). Alternative Beverage Market in the U.S The economic recession back in 2008 dealt a heavy blow to the alternative beverages market. Though there were many opportunities for key players in the alternative beverages segment, demand for the highly priced commodities decreased due to the poor economy. In between 2008 and 2009, sports drinks’ sales declined by thirteen percent and the sale of vitamin-enhanced drinks declined by twelve percent. In 2009, sixty percent sales of alternative beverages were made from sports drinks, followed by sales of energy drinks at twenty-three percent and finally vitamin-enriched drinks, which accounted for eighteen percent. 2008 and 2009 were slow years for the alternative beverages industry in the United States as they did not experience growth but market forecast experts predicted a six percent growth by 2015 (Harder, 2013). Organizations lobbying for health diets attributed conditions such as obesity and diseases like diabetes to the overconsumption of carbonated soft drinks. This has influenced many Americans to consume healthy food thus shying from carbonated soft drinks and moving to alternative beverages. This trend saw companies such as Pepsi create several brands of alternative beverages and this helped cushion the company from dropping sales of carbonated soft drinks (Datamonitor, 2007). Global Alternative Beverage Market In 2005, the alternative beverage market experienced growth that resulted to a value increase of twenty seven billion dollars. In 2009, the industry’s value increased to reach a global value of forty billion dollars and the experts projected a fifteen billion dollar increase by 2014. Consumer preferences had changed due to emphasis on healthy diets thus reducing the market share of carbonated soft drinks, which held forty-eight percent of the market. Data shows that consumers preferred alternative beverages to carbonated soft drinks, which translated to a two percent decline for the latter in 2009. From 2005 to 2009, the global market value of alternative beverages had grown by nine percent and forecasts targeted a nine percent growth by 2014. The United States held a forty-two percent market-share of the alternative beverages, followed by Asia with a thirty one percent and finally Europe with twenty three percent (Harder, 2013). Five Forces Model Firms in other industries offering substitute products There are many companies offering alternative beverages besides PepsiCo. These are Coca Cola, Monster beverages, Red Bull and other smaller players. With all these competitors and their substitute alternative beverages, PepsiCo has to consider its brands’ prices, marketing strategy, endorsements, packaging designs and taste to ensure consumers maintain brand loyalty. With the huge amount of money, that PepsiCo spends on marketing and advertisements, the brands have loyal customers (Thompson, 2012). Entry of new competitors In the global market, new competitors can enter the market but with strong marketing strategies and advertisements that will make people want to try their alternative beverages. PepsiCo provides great discounts to distributors and retailers, thus making it hard for a new player to get the same distribution networks. New competitors would also find it hard to compete with well-established market players such as PepsiCo as they could lead to creation of new product lines or even price wars that would phase out the competitor. A new competitor would have to invest a lot of money building a bottling plant since the key players own the bottling plants, while others have contracts that forbid other business contracts (Thompson, 2012). Supplier of Raw Materials, Parts, Components, or Other resources Inputs The raw materials needed to manufacture alternative beverages are easy to obtain, as there are many suppliers in the market. PepsiCo has the bargaining power, therefore, can influence the price. There are no substitutes that can be used in the manufacture alternative beverages but since suppliers are numerous, this does not pose a big challenge. Switching from one supplier to another is easy, thus making the switching cost low (Thompson, 2012). Buyers Some examples of PepsiCo’s buyers are restaurants, convenience stores, supermarkets and vending machines among others. Some of these buyers have high bargaining power as they buy in large bulks, for example the supermarkets and the restaurants but due to the brand’s popularity, the pressure remains normal. Others like the vending machines and convenience stores have no bargaining power (Thompson, 2012). Rivalry among competing sellers PepsiCo’s has a big market share, which is as big as Coca Cola’s, its main rival. In the United States, both Red Bull and Monster Beverages possess quite a significant market share, but cannot match PepsiCo’s market. The main competition is on differentiation and advertising but rarely on price as Pepsi has loyal brand customers. After all, the prices of competing products from these companies, varies with an insignificant small margin (Thompson, 2012). Key Success Factors PepsiCo has excelled well in marketing its product and successfully gaining a large market share. This is because PepsiCo’s brands are superior in taste, nutritional contents thus attracting a wide array of customers. The company uses relevant endorsements such as athletes and celebrities to market its products to the target markets. The company has an excellent distribution network that is very efficient and owns a bottling company. Venturing into global markets has helped the company make more profits and increase its market share (Esterl, 2013). Drivers of Change and Industry Dynamics Two main factors have brought about changes in the PepsiCo Company. These are the need to compete effectively and health concerns. PepsiCo competes with the global giant, Coca Cola, thus invention of new substitute products, quality advertisements to promote the products, and production of superior products is necessary to enable effective competition (Johnson, 2013). PepsiCo’s alternative beverages were introduced after carbonated soft drinks seemed to be losing market. The need to bring new products into the market rose and the alternative beverages came into being. The company came under scrutiny due to controversial caffeine levels in energy drinks and the health implications. The need to regulate the ingredients in the products arises in order to ensure healthy products are distributed. Recommendations A few issues face PepsiCo when it comes to effectiveness. These are health concerns, provision of low priced substitutes, reducing cost in distribution, and enhanced innovation in order to capture the global market share. The greatest issue is on health where every consumer is moving towards purchasing products that promote health (Johnson, 2013). PepsiCo needs to do more research on its products and provide high nutritional alternative beverages in order to increase its market share (Esterl, 2013). PepsiCo also needs to find innovative ways of entering into the global market and increasing its market share, thus doubling its profits. PepsiCo needs to provide efficient distribution networks that will cut the cost and enable it offer lower priced products. References Esterl, M. (2013). ‘Is this the end of the soft-drink era?’ The Wall Street Journal. Retrieved November 2, 2013, from http://online.wsj.com/news/articles/SB100014241278873237837045782459730.html Harder, R. (2013). Beverage industry case study. prezi.com. Retrieved November 1, 2013, from http://prezi.com/4q6jrkdnrvuk/beverage-industry-case-study/ Johnson, J. (2013). Pepsi vs. Coke: The power of a brand. Design Shack - Web Design Gallery, Articles & Community. Retrieved November 2, 2013, from http://designshack.net/articles/graphics/pepsi-vs-coke-the-power-of-a-brand/ PepsiCo case study taking advantage of changing market conditions. (2007). S.l.: Datamonitor. Thompson, A. (2012). Strategy: core concepts and analytical approaches. (2nd ed.) Tuscaloosa: University of Alabama. Read More