Industry Analysis - Energy Drinks

INDUSTRY ANALYSIS 1
Industry Analysis
Name
Unit
Tutor
University
Date

INDUSTRY ANALYSIS 2
Introduction
Energy drinks are fascinating. This stems from the fact that they are used in making
individuals alert when, on the contrary, they would be ready for sleep. However, energy drinks
have failed to provide the same positive vibe as the nootropics could do. Rather, energy drinks
have led to several deaths. However, amidst such challenges, big brands such as Red Bull,
Monster Energy and Rockstar energy drinks still have the platforms that they use in pushing their
goods and services to their niche audiences. There are various reasons for this. However, just as
there are many strengths associated with these drinks, there are many weaknesses and threats that
are unfounded.
Porter five forces
Competitive rivalry-high
There are several beverage companies that manufacture energy drinks, for instance,
Monster, Red Bull and Rockstar, among others. However, Red Bull’s market share is larger than
that of competitors when combined (Businesswire, 2019). The energy drink industry is growing
and expanding at the same time, providing opportunities for rival companies also. The
competitors follow the footsteps of leading companies such as Red Bull and are constantly
diversifying their businesses by engaging in a number of sporting events. Despite Red Bull being
the market leader with regards to the share of the market in the energy drink industry, the
increasing number of rival companies means that a company venturing such an industry will be
high.
The threat of new entrants-low

INDUSTRY ANALYSIS 3
Penetrating the energy drink industry is a daunting task and hard only if the new entrant
possesses an innovative idea that will map it out in the entire industry. It is also true that entry
barriers in such an industry are sufficiently high. The existing companies in the energy drinks
industry have made significant investments to establish their positions in the industry. Thus, a
new entrant will be compelled to invest significant investments as a start off. Hence, reaping
from massive economies of scale will take time for new entrants. Also, new entrants will be
faced with the challenge of establishing an international distribution, or a local distribution is a
barrier for entry for new companies. Obtaining a significant market share in the energy drink
industry would be the hardest part as the existing companies have established robust brand
images. Thus, the threat of new entrants for a company such as Red Bull, a market leader, would
be low.
Bargaining power of suppliers
Most of the companies in the energy drink industry utilize a production process that is
simple that only needs a few manufacturing raw materials. Companies such as Red Bulls use
massive raw materials, making it conducive for any company to become a supplier of such
companies. The switching cost for such companies is also low if a company decides to switch
suppliers. Hence, the suppliers are left with no bargaining power or the capacity to attempt to
have an influence on the prices of companies operating in this industry. Most suppliers are
known following their history with suppliers. This demonstrates the low bargaining power of
suppliers against dominant players such as Red Bull and Monster.
Bargaining power of buyers-medium

INDUSTRY ANALYSIS 4
Despite having many competitors in the energy drink industry, the market is small
recognized for brand loyalty. A company such as Red Bull, due to its large share in the market,
commands particular bargaining power over its buyers. Hence, companies in such an industry
can raise their prices moderately and still not lose its market share due to extensive brand
loyalties in such an industry. Energy drinks are priced higher compared to other normal
beverages; the consumers of such drinks are high-income earners and are thus are insensitive to
changes in prices. A brand such as Red Bull contains caffeine, which has been found to make the
consumer become an addict to a certain level. Hence, the bargaining power in this context is
moderate.
Threat of substitutes-low
Coffee and fruit smoothies are substitutes for some of the energy drinks. However, in the
case of fruit smoothies, the commodity is natural, high caloric intake and convenience are the
pros. However, some companies have been faced with controversies, for instance, Red Bull.
Despite such controversies, average consumers still consume Red Bull and fail to shift towards
substitutes. Thus, the threat of substitution for a dominant player such as Red bull ends up being
low.
PESTLE Analysis of energy drink in Singapore
Political
Singapore is a state characterized by a stable political system. Singapore’s free trade
agreements with more than 30 trading partners across 20 regions have led to imports becoming
cheaper due to the reduction of import tariff facilitating easier and faster penetration is
Singapore’s markets. However, some initiatives by the government, such as a limited amount of

INDUSTRY ANALYSIS 5
sugar in beverages, could become a threat, and this will reduce the revenue of companies in the
energy drink industry (Indika, 2012). Thus, a company venturing such an industry will be
compelled to make significant improvements in their products if it is to overcome such a threat.
Economic
As per Trading Economics, it is apparent that Singapore’s GDP and purchasing power
parity have been increasing annually. This entails considering other elements such as the cost of
living and inflation. Such an analysis indicates that Singapore’s economy is characterized by
high purchasing power. Thus, such a favourable economic environment translates to companies
in energy drinks enjoying increased growth because of the potential market and numerous
opportunities in Singapore.
Social
The increasing concern regarding health challenges in Singapore has led to the
government creating awareness to promote and motivate Singaporeans to indulge in healthier
lifestyles. Hence, many products in the Singaporean economy have a more vigorous choice
mark, enabling consumers to make informed decisions regarding the products they are
purchasing. The increasing consciousness with regards to health and changing consumer
preferences poses a threat to companies in the energy drink industry. For instance, the sales of
carbonated drinks were reported to have grown by less than 5%, whereas non-carbonated drinks
only increased by less than 10%. Despite such declines, this may provide opportunities for
companies in the energy drink industry to make significant improvements in their product
portfolio to address such issues.
Technological

INDUSTRY ANALYSIS 6
Enterprises in the energy drink must consider having an international Research and
Development department in a country such as Singapore. This will play a pivotal role in
propelling their businesses and sustaining strategic positions in the energy drink market. Thus,
new firms will have to recruit technically skilled individuals to help produce beverages that are
nutritious and enjoyable for consumers. Using such a strategy will lead to a company attracting
more consumers through improved products and anticipating the changing tastes and preferences
of the consumers. Singaporean millennials are characterized by being active in social media
platforms as they spend approximately 3.4 hours on average daily via their mobile devices.
Hence, a company could make substantial efforts by assuming a lead role by utilizing such
advanced technologies to reach out and increase marketing of their energy drink product through
brand engagement and recognition of the brand.
Competitor analysis
The market for energy drinks in Singapore contributed revenues amounting to $82.4
million as of 2014, and this accounted for a compound annual growth of about 7.3% from 2011
to 2015 (Market Line, 2016). The volume of market consumption also increased with a CAGR of
2.5% from 2011-2015, reaching more than 9.1 million litres as of 2015.
Energy drinks contain caffeine, which is vital as it contains caffeine responsible for
stimulating an individual both mentally and physically. The presence of caffeine makes energy
drinks to be in high demand as it assists consumers to rejuvenate due to energy gains and also
boost their stamina. However, energy drinks face competition from rival products such as
packaged juice, health drinks that are malted and aerated beverages. Some of the major
competitors in the energy drink industry include Red Bull, which has a leading market share,
followed by Monster beverage. Other competitors include Rockstar Energy drink Full Throttle

INDUSTRY ANALYSIS 7
and Adrenaline Rush. However, other rivals that offer beverages in soft drinks include Coca-
Cola and Pepsi Company.
The energy drink industry is also witnessing the entry of new players intensifying rivalry
in such a market. Companies in this industry offer energy drinks that are highly differentiated,
identified as energy shots. This can be identified from the concentration ratio, where since the
launch of a 5-hour energy shot by Living Essentials, this energy shot turned out to be one of the
leading shareholders overtaking Rockstar and PepsiCo. Thus, the supply of energy drinks is
anticipated to increase. Also, despite most firms in an oligopoly market structure, having the
ability to hold profits longer, the entrants of new firms will adversely impact the economic
profits of leading players that is Red Bull and Monster Beverage Corporation.
There are indirect competitors in this market who play a vital role in setting the demand
for energy drink products. Thus, competitive pressure from substitutes such as coffee and other
functional beverages could lead to energy drinks to lose market share or encounter erosion of
prices, and this could adversely impact business operations. For instance, coffee could serve as a
direct substitute for energy drinks as it has the same level of caffeine as the energy drinks and
could appeal to the same market.
Dominant economic features
The global market for energy drinks is projected to grow with a CAGR of about 7.1% in
the forecasted 2019-2024 period (Mordor Intelligence, 2019). The energy drinks have shifted
from being niche commodities to become those fastest-growing commodities in the drinks
market. Such a change has been attributed to the growing concerns of consumers to enhance
fitness while being healthy.

INDUSTRY ANALYSIS 8
Geographical distribution
North America has been ranked as the dominating the market for energy drinks globally.
The millennial population constitutes the largest segment of consumers of energy drinks, mainly
between the ages of 18-35. The increasing demand for energy drinks globally means that the
energy drink industry is in the growth phase; this is due to the rising concerns and awareness
regarding health. Thus, Asia-Pacific exhibits a growing market because of evolving
demographics and rising disposable income.
Importance of economies of scale
Significant economies of scale for firms in the energy drink industry mean that they have
a high bargaining power, which translates to lower prices when purchasing raw materials. This
reduces the cost of production, and when consumers buy products, they will buy them at lower
prices. Economies of scale will ensure that the advertising costs are spread over many units.
Thus, expenses associated with advertising will not be felt by the company, and this also
translates to reduced cost of production, enabling firms in the energy drinks industry to
maximize their profits.
Opportunities and Threats
Opportunities
Companies in the energy drinks industry can opt to diversify and provide alcoholic
products. This is a smart move, as there is a more significant niche that awaits. Consumers
interested in energy drinks could be inclined to attempt an equivalent of alcohol and vice versa.
This could primarily be attributed to brand loyalty. Such changes are vital in connecting with
more individuals.

INDUSTRY ANALYSIS 9
Another opportunity also exists in the health sector. Despite concerned health consumers
cringing from energy drinks, companies in energy drinks could make use of complaints by
consumers. For instance, they could encourage consumers to purchase zero types of energy
drink, which contains ten calories but no sugar. Such drinks provide an energy boost eliminating
the cases of bloated calories and unwarranted sugars.
Threats
Most energy drinks are associated with death. The high levels of ingredients, such as
caffeine, are blamed for deaths (Frue, 2018). It is from such cases that children and pregnant
women are discouraged from consuming energy drinks as they could have catastrophic effects on
their bodies. This has stirred public debates concerning the consumption of energy drinks. The
state departments may also regulate such an industry thoroughly due to such tragic incidences.
Ageing target markets. A good illustration is that of Red Bull, which marketed generation
Y who are as of now ageing who may not value such drinks. Thus, such changes could affect
companies in energy drinks since other competitors could offer healthy substitutes characterized
by wacky flavours stealing attention.
Currently, people are going for bottled water and drinks characterized by low calories.
The emergence of cheaper alternatives that provide more energy is also another threat. For
instance, a cup of coffee could go for a few dollars, whereas an energy drink could go as high as
$ 10 based on the location.
Conclusion
The consumption of energy drinks has recorded a significant increase in the last two
decades, specifically among young adults and millennials. The aggressive marketing of energy

INDUSTRY ANALYSIS 10
drinks is backed by the fact that companies producing these beverages claim that their products
are an anecdote to energy for mental and physical performance. The caffeine in energy drinks
gives the consumer the desired feeling of improved memory, high alertness and a positive vibe.
Thus, the demand for energy drinks is surging, providing enormous opportunities for firms
considering in such a market as the industry is growing.
References

INDUSTRY ANALYSIS 11
Businesswire, 2019. Global Energy Drinks Market Opportunity Analysis & Industry Forecast, 2019-2026.
[Online]
Available at: https://www.businesswire.com/news/home/20190822005407/en/Global-Energy-Drinks-
Market-Opportunity-Analysis-Industry
[Accessed 17 December 2019].
Frue, K., 2018. SWOT Analysis Of Energy Drinks. [Online]
Available at: https://pestleanalysis.com/swot-analysis-of-energy-drinks/
[Accessed 17 December 2019].
Indika, D. R., 2012. Enrgy Drinks. [Online]
Available at: https://fr.slideshare.net/derurindika/1-energy-drinks-14612036
[Accessed 17 December 2019].
Market Line, 2016. Energy Drinks in Singapore. [Online]
Available at: https://store.marketline.com/report/ohme9552--energy-drinks-in-singapore/
[Accessed 14 December 2019].
Mordor Intelligence, 2019. Energy Drinks Market-Growth,Trends and Forecast. [Online]
Available at: https://www.mordorintelligence.com/industry-reports/energy-drinks-market
[Accessed 14 December 2019].