ECON 387 - Foundations of Business: Energy Drink Industry Report

This economics assignment analyzes the energy drink industry, focusing on Red Bull and its new product, Red Bull Vito. The report begins with a product description, detailing the composition and consumer perspective of energy drinks. It then delves into a market analysis, examining the economic, social, cultural, and competitive contexts, and presents a business strategy. The analysis employs PESTLE and Porter's Five Forces frameworks to assess the market's attractiveness and competitive landscape. The report also discusses the scale and nature of the market opportunity and touches upon organizational management aspects. It highlights opportunities in emerging markets, the advantages of state-of-the-art production facilities, and Red Bull's less masculine image. Furthermore, it evaluates the competitive rivalry, threats of new entrants, and bargaining power of suppliers and buyers within the industry. The assignment demonstrates a comprehensive understanding of the energy drink market and strategic business considerations.

Running head: ECONOMICS ASSIGNMENT 1
Economics Assignment
Student’s name
Institution affiliation
Date

ECONOMICS ASSIGNMENT 2
To fathom the industry for energy drinks, it is essential to understand what an energy
drink is and an energy drink is a carbonated beverage that has caffeine as the primary ingredient.
However, it may contain other components such as Taurine and Ginseng intended to raise the
consumer's energy levels. It has been archived that the production of mass-energy drinks began
in 1904 (Deegan, 2016). That energy drink turned out to be one of the most popular brands on
earth, Coca Cola. At that time, Coca Cola was the first drink that was advertised as an energy
booster, and one of its primary ingredients was cocaine. Before the launch of Coca-Cola, the
only stimulant drinks that were available were tea and coffee. However, over time the market for
energy drinks has changed dramatically, it is in 1987 that the first modern energy drink was
introduced in the market and until today, its manufacturer has continued dominating the market,
Red Bull.
New product-Red Bull Vito
Red Bull has been launching new products in the past decade and is yet to innovate new
flavors. Red Bull Vito is the new product line within their brand. One of the marketing objectives
is to recognize Red Bull Vito as a unique flavor with stevia syrup and has extra energy. This
brand also comes with several tastes, for instance, mango, lemon, apple, and citrus. This is to
cater to the tastes and preferences of different people; thus, it will assist the company serves a
broad market based on different flavors that it will serve. The primary objective is to encourage
the purchase of Red bull products. Thus, the launch of Red Bull Vito will increase brand loyalty
among the existing buyers who prefer consuming energy drinks and also among the upcoming
clients hence ensuring a lifetime product value. Red Bull Vito will be strategic in increasing the
number of consumers and make it an alternative beverage to regular products, thus drawing
consumers’ attention increasing the company’s share of the market.

ECONOMICS ASSIGNMENT 3
Red bull’s product diversification
Red bull compared to its competitors has a limited variety of products. This has turned
out to be a grave challenge due to the declining market share of the initial flavor energy drinks in
the market. Thus, Red Bull strategized and produced a limited product variety in the U.S. that
entailed three different flavors that is Red-cranberry, silver-lime, and blue-blueberry. Such new
products are still fresh in the market to assess their success as the launching of new products did
not go well in the past as a brand such as Red Bull Cola got discontinued.
PESTLE
Political
The industry for energy drinks has been under tight regulations and scrutiny following
incidents where Red Bull or other energy drinks have led to the loss of lives usually coupled with
consumption of alcohol (Dudovskiy, 2016). While such deaths are few and within acceptable
limits, they have gone further drawing attention from the media. It is the occurrence of such rare
incidences that have led to legislators to react by starting to restrict the sale of such drinks. Since
most of Red Bull’s political matters are embedded in the restrictive legislation, it would be
prudent to look at from the legal perspective.
Economic
The market for energy drinks has continued to expand and grow at two-digit figure pace
in the past decade. Such growth, however, remains unshaken by downturns and has gone a mile
further to outperform other comparable industries (Haseeb, 2017). Thus, this a great testimony to
the popularity of energy drinks mainly as they tend to be exorbitant compared to other substitutes
such as coffee and mineral beverages. The fascinating thing is that it would be anticipated that
due to the declining individual expenditure globally as a result of the 2008 financial crash, the

ECONOMICS ASSIGNMENT 4
market for such energy drinks would decline, but that was not the case. It is a fact that global
figures seem to be impeding the growth of sales in developed economies that are now way below
the 10% mark, such statistics are high, and real growth for a product such as Red Bull Vito in
BRICS and the Middle East will be high.
Social
Companies in the energy drinks industry have an active role and platform where they are
super active on social media platforms such as Twitter and Facebook. Red Bulls, in particular, is
always mentioned in almost half of all energy drink associated tweets. Looking at this from the
social side perspective, energy drinks such as Red Bull Vito will perceived as cool based on the
extreme sports image and team sponsorships, they are seen taking part in across the globe
(Shakarishvili, 2016). It is such cool images that have helped companies such as Red Bull
become popular among clubbers, drivers and even students. However, energy drinks receive
criticisms through digital media such as blogs, particularly with regards to the deaths arising
from excessive consumption of energy drink combined with the spirits. As for students and
clubbers, the use of both alcohol and energy drink is a common practice aimed at generating
energy boost. Thus, such a practice is a double-edged sword for companies in the energy drinks
industry. Energy drink enterprises are also being affected by the ongoing general wellness trend
that has been gaining momentum for decades, and this has led to the launch of low carbonation
and sugar-free choices for instance Red Bull Vito.
Technological
The advent of technology has led to technological forces that impact on such an
environment and within the limits of improved manufacturing and transport abilities. Innovation
in the energy industry stems from product segmentation (Shakarishvili, 2016). However, the

ECONOMICS ASSIGNMENT 5
most crucial technological aspect of the energy drinks industry is majorly the internet. Such an
invention has allowed individual across the globe to interact with various brands at the comfort
of their homes. Irrespective of whether such advertisements are viral aiming to create buzz, for
instance, the Red Bull Stratus event that had the largest live audience on YouTube than ever or
just interacting with fans in their social media fan page, such events always leave a significant
impact.
Environmental
Environmental aspects are vital to the modern consumer. It has been reported that some
types of pollutions arising from the manufacturing of energy drinks are mainly focused on
package recycling. The aluminum can is the most common form of packaging for the Red Bull
Vito and is 100% recyclable. However, some of the cheap brands employ plastic packaging for
large commodities such as the 1-liter bottles; however, these are recyclable and only account for
a small percentage of the sales.
Legal
Several measures are being employed against any unhealthy product for instance soft
drinks particularly with regards to advertising for children (Deegan, 2016). Energy drinks are the
ones being affected mostly due to political establishments that are aiming to impede their sale
point. Such impediments arise from the reported rising obesity among children and adults and
also deaths that are a high profile associated with consumption of energy drinks. Even though
illegal regulators are employing measures such as sugar taxes to assist in reducing the use of
such products, such ideas remain futile (Dudovskiy, 2016). Also, some restrictions are being
imposed on advertising for the sake of children who have been reported to be prime targets for
companies aiming to become identified by consumers prior to spending habits being established.

ECONOMICS ASSIGNMENT 6
Opportunities
Emerging markets
The extensive presence with regards to Red Bulls market presents many opportunities in
emerging economies such as BRICS, but also regional markets, for instance, the Middle-East and
Latin America have recorded growth of sales that are exceptionally high irrespective of premium
pricing in low-income countries (Deegan, 2016).
State of the art production facilities
The new manufacturing facilities established across the globe by Red Bull not only
enables Red Bull to position itself but also to anticipate the high regional demand (Deegan,
2016). With such investment in place, it is clear that Red Bull Vito has an absolute advantage
over its rivals.
Less masculine image
Red Bull Vito has associated with a less masculine image compared to its rivals; thus,
this is an advantage to Red Bulls as it may use to make advancements into the female market
niche where energy drinks have conventionally not done well as characterized by little
competition.
Porter five forces of Red Bull
Red bull is a beverage of an Austria based firm Red Bull GbmH. Red Bull is an energy
drink, and in the energy drink industry, Red Bull commands the largest market share globally
having more than 6 billion cans sold as per 2016 data (Adamkasi, 2017). The concept of Red
Bull was inspired by Thailand’s based energy drink by the brand Krating Daeng. Thus, Red Bull
comes as a modification of Krating Daeng to fit the taste of Western consumers. Red Bull also
comes in 19 different assortments that are of different flavors. Red Bull continues to engage in

ECONOMICS ASSIGNMENT 7
the sports industry through sponsoring sports events for instance air races and cliff diving among
others. Red Bull continues becoming popular across the globe and is continually striving to
venture emerging markets enabling the company to grow and increase its share of the market for
energy drinks.
Rivalry among competitors
Many beverage firms produce energy drinks for instance Monster, Full Throttle, and
Rockstar (Adamkasi, 2017). However, Red Bull commands a large share of the market compared
to the agglomerate of competitors market share. The energy drinks industry continues to exhibit
growth at a reasonable rate providing opportunities for rival companies as well. The competitors
are emulating Red Bull by diversifying their businesses and engaging in several sports. However,
despite Red Bull being the market leader with regards to share of the market it commands, the
presence of many competitors translates to intense competition rivalry experienced by Red Bull
is high.
Threats of new entrants
The ease of venturing into the energy industry is hard unless the new player has
innovative ideas that will make the company stand out as unique in the industry fast enough
(Lenst, 2013). The market barriers to entry are substantially high. It also evident that the existing
players in the energy industry have put a massive amount of resources in terms of investment to
get where they are today, thus, new companies will have to invest heavily as a start off to enable
them to have a say in the market. In asserting economies of scale also takes time for new
entrants. Establishing a global chain of distribution or even a regional channel of delivery is a
barrier itself for new players. Commanding a markets share could be the toughest part as existing

ECONOMICS ASSIGNMENT 8
companies already have established brand images. Thus, for Red Bull, the threat of new entrants
is low.
Suppliers bargaining power
Red Bull Vito employs a simple production process that involves only a few inputs. As
such, Red Bull orders such materials in large quantities making it optimal for any company to
become Red Bull’s supplier. Also, Red Bull’s switching cost is low if Red Bull switches
suppliers making suppliers have no bargaining power or the power to influence prices by Red
Bull. Thus, suppliers have weak bargaining power against Red Bull.
Buyers bargaining power
Despite having competitors in Red Bull’s market, the energy drink market is small and
known for brand loyalty (Adamkasi, 2017). The large market share that is held by Red Bull has
enabled it to command a particular bargaining power over other buyers in the industry. Thus,
with Red Bull Vito, Red Bull can raise prices moderately and still retain its market share as it has
immense brand loyalty. Energy drinks are more expensive than other ordinary beverages, and
thus consumers of energy drinks are high-income earners of the society who are less sensitive to
price changes. The caffeine in Red Bull Vito makes the consumer addictive to a particular level.
Thus, the buyers bargaining power is moderate.
Threat of substitutes
Coffee and homemade fruit smoothies remain as the primary substitutes of Red Bull. The
case of fruit smoothies is that they are natural (Adamkasi, 2017). However, several benefits arise
with Red bull Vito such as its optimal caloric intake, take time to stimulate and its convenience.
However, Red Bull is not without controversies such as being cited as not healthy, and this can
lead to increased consumption of substitutes. Red Bull Vito has dealt with such a case by

ECONOMICS ASSIGNMENT 9
ensuring that the inputs used are of the best quality. However, despite such controversies being
cited, consumers continue taking Red Bull making the threat of substitution low for a beverage
such as Red Bull.
Organization management
The popularity of Red Bull has been attributed mainly to its slim-line can. However, there
is a rising trend towards larger cans directed towards taking advantage of low per capita
consumers of energy drink against consumers of soft drinks and coffee. Thus, this presents a
robust potential growth area following consumers’ familiarity with the brand.
Financial requirements
One of the financial objectives is to achieve sales of Red Bull products of about 50000 in
the first six months of the year. At the end of the year, the company should aim to sell
approximately 10000. Also, the company intends to achieve 30% of the energy market drink and
achieve a net profit of 15% by the end of the fiscal year.
Years Ending:
Revenue 2017 2018
Sales revenue $
150,000
$
175,000
(Less sales returns and allowances)
Service revenue $
50,500
$
75,000
Interest revenue
Other revenue
Total Revenues
$
200,500
$
250,000
Expenses
Advertising $
500
$
450

ECONOMICS ASSIGNMENT 10
Bad debt
Commissions
Cost of goods sold $
55,000
$
75,000
Depreciation
Employee benefits
Furniture and equipment
Insurance
Interest expense $
2,000
$
2,500
Maintenance and repairs
Office supplies
Payroll taxes
Rent
Research and development
Salaries and wages $
65,000
$
85,000
Software
Travel
Utilities
Web hosting and domains
Other
Total Expenses
$
122,500
$
162,950
Net Income Before Taxes $
78,000
$
87,050
Income tax expense $
15,600
$
17,410
Income from Continuing Operations
$
62,400
$
69,640
Net Income $ 62,400 $ 69,640
Conclusion
It seems that there are many opportunities for energy drinks making venturing in such a business
lucrative. Opportunities in such a market are huge despite stiff competition among the big market

ECONOMICS ASSIGNMENT 11
players in the industry. However, financial constraints are real due to limited initial capital
required to venture in the energy drink market.
References
Adamkasi. (2017, September 12). Porter Analysis of Red Bull. Retrieved from Porter Analysis:
https://www.porteranalysis.com/porter-five-forces-analysis-porter-analysis-of-red-bull/
Deegan, S. (2016). Strategic Marketing:An analysis of Red Bull. Retrieved from SCRIBD:
https://www.scribd.com/doc/224238148/A-Global-Strategic-Marketing-Analysis-of-Red-
Bull-the-Energy-Drinks-Industry
Dudovskiy, J. (2016, June 25). Red Bull PESTEL Analysis. Retrieved from Research
Methodology: https://research-methodology.net/red-bull-pestel-analysis/
Haseeb. (2017, March 21). PESTLE Analysis of Red Bull. Retrieved from Marketing Dawn:
http://marketingdawn.com/pestle-analysis-of-red-bull/

ECONOMICS ASSIGNMENT 12
Lenst. (2013, November 19). Red Bull vs Burn. Retrieved from wordpress:
https://redbullvsburn.wordpress.com/2013/11/19/an-analysis-based-on-porters-model/
Shakarishvili, S. (2016, July 1). Red Bull Analysis. Retrieved from LinkedIn:
https://www.slideshare.net/ShotaShakarishvili/redbullanalysis419