Analysis of Energy Drink Industry in Australia using Porter's Five Forces Framework

This report analyses the energy drink industry in Australia using Porter's Five Forces Framework. It discusses the market size, growth opportunities, and challenges faced by the industry. The report also provides recommendations for the improvement of the market.

FOOD MARKETING

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Executive summary
The overall energy drink industry in Australia is growing continuously and the forecast
drink sale for the next five years is at the high level. Customers are the main source for
future opportunities and challenges in the competitive world. The main aim of the energy
drinks market is to give the fresh drinks that satisfy the customer needs. Innovation and
variety of flavours attract the consumers toward the energy drink. These methods help to
expand the market. Porter’s five forces framework is used to analyse the environment. It is
observed that the quality and packaging will be necessary for the growth.

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Contents
Introduction..................................................................................................................3
Description of the industry...........................................................................................3
Porter’s five forces framework.....................................................................................4
The threat of the new entrant....................................................................................4
Bargaining power of supplier....................................................................................5
Bargaining power of buyer.......................................................................................5
The intensity of the competitive rivalry....................................................................6
Substitutes.................................................................................................................6
Opportunity and Threat................................................................................................7
Recommendations........................................................................................................7
Conclusion....................................................................................................................8
References....................................................................................................................9

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Introduction
Many tools are used to analyse the threats and opportunities of the industry. Porter’s five
forces framework is used to analyse the external environment of energy drinks. In this
report, the Energy drink is taken into the consideration to analyse the product market
whether it will have a strong position in future or not. At the beginning of the report, market
share and the size of the market of the product is discussed. After that, Porter's five forces
framework has been taken to analyse the external environment of the market. At the end of
the report, the recommendation is given for the improvement of the market. At the end of the
report, the conclusion has been reported based on the analysis.
Description of the industry
The first energy drink of the Australia is launched in August 1999 with the name of Red
Bull, it was one of the most popular drink in the Australia market(State Library, 2018). It
has the packaging of the ‘Tin green can’ which is also famous in the market. Vitamin B,
caffeine, carbonated water, and taurine are the ingredients of its energy drinks. There are
number of brands of energy drinks in Australia such as Red bull, monster, and others. The
energy drinks brands in Australia have strong goodwill and large market share in the market.
Energy drink market is expanding continuously; each brand of energy drink of Australia is
highly innovated and has unique features in the marketplace. By increasing, the health
awareness among the consumers demand of the energy drinks is increasing as well as
revenue. Consumer of Australia is addicted to these beverages such as 60 % of the male and
40% of female are addicted of these energy drinks and it can be said that it will boost in
future.

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(Source: Roy Morgan, 2013)
The annual revenue of the energy drink is 3.9% over the five years. Australia is one of 10th
highest energy drink consuming country (Australian Bureau of Statistics, 2014).
(Source: Grand View Research, 2018)
Porter’s five forces framework
New entrants- Low Threat
High cost requirement
Bargaining power of Buyer- High power
Various options
Bargaining power of supplier- High Power
Less raw material
Substitutes- Fresh juice
Protein bars

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Competitors- Protein bars or fresh juice
The threat of the new entrant
It has been an emphasis that the energy drink has a low threat of new entrants because the
existing brands have the strong brand name. New entries are not a strong competitive
pressure for the energy drink industry because the few brands have their strong brand name
in the market. Red Bull and other drink companies have a large market share and great
distribution channel in the market; it is a very difficult task for the new entrant to compete
for the existing firms of the market. Exiting firm considered, as a barrier for the new
entrants, the other barriers for the new entrants is the high fixed cost of warehouses,
economies of scale and other expenses. The high-cost requirement and the market situation
make it impossible for the new companies to enter into the energy drinks market. The
existing firms have less threat of new entrants and they can focus on their development
(Worthley et al., 2010).
Bargaining power of supplier
It has been evaluated that the energy drink market has the high barraging power of supplier
just because of a large number of suppliers. Suppliers of the energy drink market have high
competition in the market. There is a large number of manufacturer companies of energy
drink market; most of them are using the tins and aluminium cans for the packaging of the
product. Many energy drinks companies use these tins and aluminium cans for the
packaging, which is rarely available in the market. Due to lack of availability of raw
material, the bargaining power of supplier increases. There are very few suppliers in the

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market of tins and aluminium cans, which is the reason of high bargaining power of
suppliers, and it is very difficult for the company to deal with the other supplier. To deal
with the new supplier is difficult because it takes a lot of time to supply and deals.
Bargaining power of buyer
It has been analysed that the energy drinks are the high bargaining power of the supplier
because there is a large number of grocers, stores, and department who give the discounts on
the products. Due to a large number of suppliers of energy drinks, the bargaining power of
the buyer is increased in the market. The energy drinks companies give the beverage to these
stores to increase the sale of the product. Low prices attract the customers towards the
products, for the promoting the sale of the products these stores give beverage to the
customer. Different brands have the different price of the same product thus, the buyers have
many options to select the best option (Francis et al., 2017).
The intensity of the competitive rivalry
In the present situation, it has been that the intensity of the competition is high and strong.
Energy drink industry has the high pressure from the rivalry because red bull energy drink
grabbed the large market share of the market and other companies are growing fast. Red
bull, cloud, monsters, and rockstars are the main players of the product. Greatest brand
loyalty has a large customer thus the band name loyalty is also a competitive pressure for the
existing companies. Red bull has acquired a 26.4-market share in the market; it increases the
competitive pressure on the other companies. The new companies enter into the market by
adding the new flavours in the energy drinks or by adding new qualities in the drinks
(Dobbs, 2014). There are many new products launched by the other companies that can
easily replace the product. Protein shakes and bars are the substitute or competitors of the
product.

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Substitutes
It emphasizes that the energy drinks have a number of substitutes that can replace the energy
drinks. Fruit juice, protein shake, coffee and green tea are the substitute of the company.
Substitutes of the energy drinks have a strong brand name that is a risk for the energy drink.
It is observed that the tea market provides caffeine that is also providing by the energy
drinks. Tea and coffee are the main substitutes for the energy drink. Blend coffee becoming
famous in the world thus the coffee café opened and provides the different taste to the
consumers. Coffee and fruit juice are available at a cheap price as compare to the energy
drinks. Cost is also a reason for the high substitute of energy drinks, which is a threat to the
energy drinks.
Opportunity and Threat
Opportunity Growth of the market
Threat High competition
Opportunity
It has been analysed that the energy drink market has an opportunity to expand the market
by adding new flavours. Consumers becoming more conscious for their health which make
an opportunity for new firms to enter into the market.
Threat

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It has been evaluated that the energy drink firm has high threat of competitors. By
developing the market, new firms are attracting toward the market with the substitute
product (Ballard, Wellborn-Kim, and Clauson, 2010).
Recommendations
With the increasing manufacturer of the energy drinks, the competitive rivalry is at a high
level in the food industry that reduces the future attractiveness of the market. However, in
the energy drink market, the consumers are the main driver of the industry that can be
increased the demand for the drink. On the other hand, the trend toward the quality of life
helps the market to grow fast. Healthier and fresh drinks make a strong positioning in the
market. To add the new flavour it can attract the new consumers which also helps to grow
fast. Innovation tends to increase the focus of the customer toward the market. Optimisation
and collaboration within the value chain increase the customer values and attracts them
toward the energy drinks.

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Conclusion
From the above analysis, it has been concluded that the consumers are becoming more
conscious for their health thus the consumer consume energy drinks. It is observed that the
energy sector growing fast because of becoming popular in the market. Energy drinks sector
have low threats because the existing firms of the energy drinks have a strong brand value
that is difficult for the new forms to complete the exiting firms. Energy drinks are becoming
popular but the other healthy product is also growing fast and becoming popular thus the
energy drinks have a high threat of substitute products. Fruit juice and protein shakes are the
main competitors of the energy drinks that is also a reason for the high pressure of
competition. It has been seen that the energy drink market is growing fast thus the number of
firms are also increases which increase the bargaining power of buyers and suppliers. It has
been observed that the energy drinks market will grow fast due to increasing the customer
demand.

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References
Australian Bureau of Statistics. (2014) Australian Health Survey: Nutrition First Results -
Foods and Nutrients. [online] Available From:
http://www.abs.gov.au/ausstats/abs@.nsf/Lookup/4364.0.55.007main+features7102011-12
[Accessed 4/08/18].
Ballard, S. L., Wellborn-Kim, J. J. and Clauson, K. A. (2010) Effects of commercial energy
drink consumption on athletic performance and body composition. The Physician and
sportsmedicine, 38(1), pp. 107-117.
Dobbs, E. M. (2014) Guidelines for applying Porter's five forces framework: a set of
industry analysis templates. Competitiveness Review, 24(1), pp. 32-45.
Francis, J., Martin, K., Costa, B., Christian, H., Kaur, S., Harray, A., Barblett, A., Oddy,
W.H., Ambrosini, G., Allen, K. and Trapp, G. (2017) Informing intervention strategies to
reduce energy drink consumption in young people: findings from qualitative research.
Journal of nutrition education and behavior, 49(9), pp.724-733.
Grand View research. (2018) Energy Drinks Market Analysis By Product (Alcoholic, Non-
Alcoholic), Product Type (Non-Organic, Organic, Natural), Target Consumer (Teenagers,
Adults, Geriatric), Distribution Channel (On-Trade, Off-Trade & Direct Selling) And
Segment Forecasts, 2018 – 2025. [online] Available from:
https://www.grandviewresearch.com/industry-analysis/energy-drinks-market [Accessed
4/08/18].
Roy Morgan. (2013) Transport, Retail and Recreation workers are the industry leaders in
energy drink consumption. [online] Available from:

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http://www.roymorgan.com/findings/5712-energy-drink-consumption-by-employment-
industry-march-2014-201408010110 [Accessed 4/08/18].
State Library. (2018). Drug and alcohol information for PDHPE students. [online]
Available from: http://guides.sl.nsw.gov.au/c.php?g=671834&p=4729782 [Accessed
4/08/18].
Worthley, M.I., Prabhu, A., De Sciscio, P., Schultz, C., Sanders, P. and Willoughby, S.R.,
(2010) Detrimental effects of energy drink consumption on platelet and endothelial function.
The American journal of medicine, 123(2), pp. 184-187.