The Energy Drink Industry

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Competitive rivalry is high in the energy drink industry because of the presence of a substantial number of leading producers such as Red Bull, Monster, Lucozade, Full Throttle and Rockstar. Red Bull is the leader in this industry with a larger market share than all its competitors put together (Dudovskiy, 2016). However, the sector is growing and therefore offering opportunities for the existing competitors. Competing manufacturers have been observed to follow the footsteps of the industry leader to diversify their businesses and also engage in different sports. Despite the fact of Red Bull commanding a larger market share in the industry, the competitive rivalry facing all the players is high due to the high number of competing firms.

Threat of new entrants is low as entry into the industry is difficult especially when a new entrant lacks an innovative idea which can differentiate it from the existing players and make it to immediately stand out from the rest (Shakarishvili, 2016). The barriers to entry are very high and the existing competitors have invested heavily to reach their current status of operation. A new entrant has to spend a substantially large amount of capital to commence operations. To establish economies of scale may also take a long time. Developing a reliable and sustainable national or global distribution is a big entry barrier for start up businesses. Acquiring a sustainable market share is undoubtedly the toughest task since the existing companies have strengthened their brand images to an extend that it is difficult to sway customers to switch brands.

The bargaining power of suppliers is low since production of energy drinks requires few raw materials. To a manufacturer, these materials are needed in massive quantities thus making it easy for any company to be a supplier to Fit Juice. The cost of switching suppliers is also low. Therefore, suppliers will have neither a bargaining power nor the ability to influence Fit Juice’s prices.

Buyers have a medium bargaining power in the energy drink industry. Although competitors are many, the market is small and known to have a high level of brand loyalty. A brand with a larger market share commands a particular bargaining power over its customers. Such a brand can moderately increase its prices without the effect of losing its market share because of a strong brand loyalty. Since energy drinks have higher prices than common beverages, the majority of consumers are high income earners in the society and they also tend to be insensitive to price changes.

The threat of substitutes to Fit Juice is quite low. The unique mental fitness boost of the drink gives it a unique competitive advantage over its potential substitutes like homemade fruit juice and coffee. The time taken for such substitutes to stimulate the body is relatively longer and they are not convenient to consumers when they are away from home. The low sugar content in the drink is an attractive feature to consumers thus lowering the threat of substitutes.

Key Factors Affecting the Energy Drink Industry

The key factors and trends affecting this industry can be assessed and evaluated form the PESTEL analysis perspective. The social and ecological environments have high impacts on the industry. One of the social trends include aspects such as higher consumption of energy drinks in workplaces than any other place, therefore high levels of unemployment are likely to reduce consumption ("Energy Drinks Market - Global Industry Size, Share, Trends, Analysis and Forecasts 2016-2024", 2018). The ageing population forms the highest consumers. An increase in the consumption of energy drinks is attributed to the fashionable dimension associated with these drinks. However, there are looming concerns as consumers have doubts on the health aspects of the drinks. The ecological environment consitute an increasing need for natural ingredients among consumers. The economical, legal and political environments have moderate effects to the industry. Some of the economic factors include recession that have may cause a decrease in consumers’ purchasing power, high prices of energy drinks, competition from carbonated drinks and an increase in demand for alternative beverages. Political and legal factors include pressure on taurine and caffeine rates, government health concerns, and restrictive laws. Technological factors such as the internet and social media have minimal impacts on the industry.

The health concerns from both the government and consumers and an increase in the need for natural foods can threaten the image of energy drinks by considering them as industrial and therefore unsafe ("The general environment of the energy drink industry (PESTEL analysis)", 2018). Unfavorable economic conditions reduce customers’ purchasing power and therefore making them to switch to less expensive drinks. Although the current technological advancements have little impact on the industry, brands need to use social media platforms to engage the youthful market segment.

Classification of the External Factors and Trends as Opportunities or Threats

Opportunities

Threats

High prices of energy drinks.

Consumers’ and government health concerns.

Fashionable aspect of energy drinks.

Pressure on taurine and caffeine.

Restrictive laws.

The internet and social media.

Technological advancements.

Unemployment.

Ageing population.

Increase in the demand for natural foods rather than industrially processed ones.

Decrease in customers’ purchasing power.

Competition from carbonated drinks.

Increase in the demand for alternative beverages.

References

Dudovskiy, J. (2016). Red Bull Porter’s Five Forces Analysis - Research-Methodology. Retrieved from https://research-methodology.net/red-bull-porters-five-forces-analysis/

Energy Drinks Market - Global Industry Size, Share, Trends, Analysis And Forecasts 2016-2024. (2018). Retrieved from https://www.transparencymarketresearch.com/energy-drinks-market.html

Shakarishvili, S. (2016). RedBull Analysis. Retrieved from https://www.slideshare.net/shotashakarishvili/redbullanalysis419

The general environment of the energy drink industry (PESTEL analysis). (2018). Retrieved from https://abullburnedbymonsters.wordpress.com/2013/11/20/the-general-environment-of-the-energy-drink-industry-pestel-analysis/

January 19, 2024
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Business Economics

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Company

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