Running Head: COMPETITION IN ENERGY DRINKS 1
Competition in energy drinks, sports drinks and vitamin enhanced beverages
Kyle Holloway
Spring Hill College
COMPETITION IN ENERGY DRINKS 2
INTRODUCTION
Alternative beverages such as sports drinks, energy drinks, and vitamin-enhanced
beverages developed into an important competitor for the beverage industry and saw rapid
growth in the mid-2000s. Alternative beverages compete on the basis of differentiation from each
other in the market and traditional drinks, such as carbonated soft drinks and fruit juices. The
largest sellers of alternative beverages are the global food and beverage giants, such as Coca-
Cola and PepsiCo., that have already built respected brands in snack foods, carbonated soft
drinks, and fruit juices prior to joining the alternative beverage industry. Along with these global
giants, companies that utilized the blue ocean strategy, such as Red Bull GmbH and Hansen
Natural (now known as Monster Beverage), were able to develop respected brand images and a
decent share of the alternative beverage market. Success in this industry is based on companies
that exploit innovation, capitalize on consumer trends, and have brand loyalty.
IDENTIFICATION
When the U.S. saw an economic recession starting in the year 2008, the premium-priced
alternative beverage market was hit hard. While the alternative beverage segment of the beverage
industry provided opportunities for bottlers, the poor economy decreased demand for higher-
priced beverages, with sales of sports drinks declining by 12.3 percent and flavored and vitamin-
enhanced water declining by 12.5 percent over 2008 and 2009 (Gamble, 2011, p. 264). A great
deal of the industry’s growth was stunted in these years but the industry is projected to grow at a
rate of 5.88% on average for the next five years (Appendix 1). Industry analysts believe that
“carbonated soft drinks would remain the most consumed beverage but would continue to see a
decrease in annual sales due to a consumer preference for bottled water, sports drinks, fruit
juices, vitamin enhanced drinks, ready to drink tea, coffee, and other beverages,” suggesting that
COMPETITION IN ENERGY DRINKS 3
the alternative beverages are likely to keep growing in the maturing beverage industry (Gamble,
2011, p. 264).
Global beverage companies, such as Coca-Cola and PepsiCo, have struggled to reverse
the decline in carbonated soft drinks consumption in the U.S and have relied on the alternative
beverages in order to maintain volume growth in mature markets where consumers were
reducing their intake of carbonated soft drinks due to consumer health concerns, such as diabetes
and obesity (Esterl, 2013). Coca-Cola, PepsiCo, and other companies expanded the alternative
beverage market through introducing energy drinks, sports drinks, and vitamin drinks into
international markets. In addition, companies, such as Hansen Natural Corporation and Red Bull
GmbH, have seen high profits as well through their development and sales of alternative
beverages. Sports drinks are most frequently purchased by those who engage in sports, fitness, or
other strenuous activities, where vitamin enhanced beverage are mostly purchased by the adult
consumers interested in increasing their intakes of vitamins. While the profile of the energy drink
consumer is presented as teenagers, in earlier years, teenagers were the face of carbonated soft
drinks’ traditional target market (Gamble, 2011, p. 266) Today’s youth are “often turning to
water, energy drinks and coffee instead” of carbonated soft drinks (Esterl, 2013).
Of the five competitive forces, the strongest in the alternative beverage industry is the
competitive force associated with rivalry among competing sellers to attract customers. With
many competitors fighting for market share, competition between rivals has become fierce. This
rivalry, mixed with many different substitutions – which include bottled water, carbonated soft
drinks, etc. – drive the alternative beverage industry.
The weakest of the five competitive forces is competitive pressures stemming from buyer
bargaining power. While there are numerous substitutes, strong brand loyalty keeps customers
COMPETITION IN ENERGY DRINKS 4
from switching to lower-cost substitutes. The quality can be judged via taste preferences, the
effectiveness of the drink (i.e. the amount of energy the consumer gains from the energy drink),
or what certain companies endorse (i.e. Monster and Red Bull endorse extreme sports and Coca-
Cola endorses healthy lifestyles). These preferences help support an extremely loyal consumer
base making the market hard to enter and gain market share from other established companies.
This combined with the already higher costs of alternative beverages – energy drinks costing
nearly 400 percent higher by volume than equivalent carbonated soft-drinks – leads to weak
competitive pressures from buyer bargaining power.
ANALYSIS AND EVALUATION
One of the most important factors for success in the alternative beverage industry is
