Red Bull Analysis

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General Analysis, Recommendation, and Implementation Industry: Energy Drinks Company: Red Bull

By: Thomas Domenjoz Olivier Courtemanche Nouadir Yiteng Ma Jayme Donohoe

Part I: External Analysis General Environment The Canadian population is virtually stagnant (0.83% growth) and prospects from our key demographic [15 to 24 years] are even worse: their numbers are actually expected to decrease from 4,469,300 in 2007 to 44,653 in 2011. The legal environment is also expected to worsen as health concerns regarding energy drinks are likely to cause tougher regulations such as limits on caffeine and taurine per drink. The economy is expected to suffer from the current troubles in the United States and other dependent and related nations, as the interdependent global marketplace enters into a recession. Because Canada is so dependent on trade from the US, the recession is sure to cause problems for the industry as consumers’ disposable income decreases over the coming years. The energy drink industry generated sales of $8 billion in Canada in 2006, with Red Bull controlling around 67% of the market. The industry is moderately attractive and there are many small players entering the market. Other strong competitors include Monster, Rock Star, AMP and Guru; many of which are also international. Energy drink consumption grew by 20% this year and growth is expected to remain strong. Five Forces -Buyer Power: There are two kinds of retailers in the industry: proximity retailers and large supermarket chains. The former have little power because they are small and there are many of them. Supermarket chains, however, are more powerful as they represent large portions of our sales. Furthermore, switching costs are low and they might try to integrate backwards by selling their own brand of energy drinks. The fact that there are many competitors in our industry and limited shelf space increases buyer power, but we are somewhat strengthened by our product’s differentiated image. Buyer power is therefore weak for most accounts, but significantly stronger for critical accounts. -Supplier Power: There are many suppliers in the industry for both raw materials (water, sugar, etc.) and unfinished products (cans), and supplies aren’t complex to manufacture. Industry players have therefore a lot of power over their potential suppliers. Switching costs are limited but suppliers are strengthened by the fact that they aren’t dependent on the industry and can supply others, like the soft drinks industry. Hence, supplier power is weak.

-Threat of new entrants: The energy drinks industry is growing very fast and maintains high margins, which makes it likely that players are going to attempt entrance into the market. Although products are quite differentiated (mostly through their image), it is possible to enter the market through a niche, build an image and then grow. High margins also mean that new entrants can afford to be less efficient than competitors when they start. By using suppliers, new players can reduce their capital requirements. However, small entrants can have problems accessing distribution channels, while larger ones can expect strong retaliation. The threat of new entrants is very high. -Threat of substitutes: Although energy drinks are new products, there are some traditional substitutes such as coffee or tea that have similar features (caffeine drinks). Yet these are not perfect substitutes: they are not as powerful and they do not replace the image that is very important to energy drinks. Therefore, the threat of substitutes is moderate. -Rivalry: Competition is fierce in this developing market and players are engaged in intense rivalry to grab and secure shares of an increasingly profitable industry. Established players retaliate against competitors owned by financially strong industry outsiders (from the soft drinks sector). In the meantime, start ups try to "out-niche" existing players. Rivalry is fierce. -Conclusion: Due...
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