Alternative Beverage Industry - Paper

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1. What are the strategically relevant components of the global and U.S. beverage industry macro-environment? How do the economic characteristics of the alternative beverage segment of the industry differ from that of other beverage categories? Explain. The strategically relevant components of the global and U.S. beverage industry macro-environment are Market Size, Market Growth, Markets Segmentation, and Intensity of Rivalry. Market Size:

The beverage industry serves an incredible large market. In 2009 alone, the beverage market consumed more than 458 million liters of beverage, resulting in over $1.58 trillion in sales for the industry. Although there is a declining trend in the consumption of carbonated soft drinks in the United States, as of 2009, carbonated soft drinks still accounts for the lion share of the U.S. beverage market with 48.2% of the market; while bottle water and fruit juice account for 29.2% and 12.4%, respectively. The remaining market space was occupied by the alternative beverages segment, which includes sports drinks, flavored or enhanced water, and energy drinks with 4.0%, 1.6%, and 1.2%, respectively Market Growth:

While U.S. beverage market saw a decline of 2.1% and 3.1% for the years 2008 and 2009, respectively, due in large part to the economic recession, the global market dollar value as well as volume sales saw an increase year-after-year, from 2005 to 2009. The industry is expected to maintain a growth trend, with sales forecasted to reach approximately $1.78 trillion in 2014, as beverage producer enter new market and develop new types of beverages to accommodate the shifting consumer preferences—and capitalize on the growing and profitable alternative beverage segment. Market Segmentation:

The global beverage market is categorized as carbonated soft drinks (soda), bottle water and alternative beverages, which includes sports drinks, energy drinks, vitamin-enhanced water, energy shots, and relaxation drinks. Sports drinks accounted for nearly 60 percent of alternative beverage sales in 2009, while vitamin-enhanced drinks and energy drinks were approximately 23% and 18% of sales in the U.S., respectively. Scope of rivalry: There has been a long lasting rivalry in the carbonated beverage market segment between the two largest producers—PepsiCo and Coco-Cola. However, in the alternative beverage segment, other than Red Bull and Hansen Natural Corporation which also have international presence, most of the other sellers are specialty or regional brands, with distribution limited to a small geographic region.

2. What is competition like in the alternative beverage industry? Which of the five competitive forces is strongest? Which is weakest? What competitive forces seem to have the greatest effect on industry attractiveness and the potential profitability of new entrants? Competition in the alternative beverage industry is low to moderate. Although there are many sellers, the high profit margin in the alternative beverage segment allows for everyone to earn respectable profit. In addition, the leaders, PepsiCo, Coca-Cola and Red Bull appear to understand the importance of maintaining the stability of the industry as a whole, as opposed to aggressively jockeying for individual strategic advantage at the expense of the industry. Although the five competitive forces in the beverage industry are quite favorable, threat of substitute product is the strongest force. This is evidence by the fact that branding and taste are the primary strategic differentiations in the segment. Additionally, the cost of switching is undiscernibly low; and there were many substitute alternative beverages such as tea, soft drinks, fruit juices, bottled water and tap water, which made it easier for consumers to easily switch from one brand to another. The bargaining power and leverage of suppliers was the weakest competitive force because, with the exception of few rare ingredients, there are many suppliers...
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