Strategic Analysis of the Energy and Sports Drink Industry

Strategic Group Map of the Energy and Sports Drink Category

The strategic group map for the energy and sports drink category should focus along the axes of energy and sport. An energy drink is essentially a caffeine and sugar combination, intended to provide a burst of energy and alertness. A sports drink also tends to contain a lot of sugar, but not necessarily caffeine; instead, it relies on salt as a means of boosting electrolytes. The two categories can therefore be quite different from one another, though they can also share some overlap. The strategic group map below examines how the industry is structured along these two axes (Ketchen & Short, 2014).

A drink with no caffeine but focused on electrolytes and sugar would be viewed as a sports drink, placed in the upper right quadrant of the map. Examples include Gatorade, Powerade, and numerous other competitors in that segment. In the lower left quadrant are the energy drinks, including the likes of Monster and Red Bull. Along the strategic map there are also outliers. For example, Mountain Dew contains a lot of caffeine and a lot of sugar, fitting the profile of an energy drink, but sits more in the upper left quadrant — somewhere between a soda and an energy drink. The lower right quadrant lacks the attributes of energy drinks and also lacks the defining elements of sports drinks, yet still offers some benefit as a sports beverage. Water is a good example here: it is used by many as a sports beverage but without the typical attributes of other products in the category. The map thus illustrates both sports and energy drinks, with beverages in the middle of the chart capable of serving as both, and substitutes as outliers on the continuum.

Key Success Factors in Alternative Beverage Markets

There are several key factors that drive success in these alternative beverage categories. Marketing is critical. Companies that have developed strong brand names — particularly those with first-mover advantage — have been able to build out significant market share. Two early entrants, Red Bull and Monster, dominate the category, illustrating the value of entering the business early. Latecomers typically either seek out a niche (such as VPX Redline) or they struggle as industry also-rans (such as Full Throttle) (Caffeine Informer, 2014).

One key success driver, beyond effective marketing and the ability to craft a powerful brand story, is distribution. For a new product, gaining distribution is a challenge given the number of players already in the market. A notable success story is 5-Hour Energy, which secured distribution through a differentiated bottling format. Most other new entrants, however, have typically been owned by major beverage companies as a means of gaining shelf access. Without distribution, no consumer can purchase the product, and there will be no economies of scale in production. Looking at strong recent entrants like NOS — which has been increasing sales at a time when most secondary brands are declining — it is worth noting that NOS is owned by Coca-Cola (Ibid.).

For sports drinks, taste matters considerably. That is not necessarily the case in energy drinks, which tend to taste medicinal and are not especially appealing on their own. For sports drinks, with their fruity flavor profiles, having a taste that suits consumers' palates is important. That said, having an established brand, strong distribution, and solid marketing capabilities are all key success factors in both segments, which is why the brands that dominate the industry tend to be those that have been around the longest. Notably, companies with the financial resources to market heavily will find it immensely easier to secure distribution, because strong marketing support gives retailers confidence that the product will sell — and that certainty is critical for a new product to earn shelf space.

References

Caffeine Informer. (2014). Top selling energy drinks. Caffeine Informer. Retrieved November 16, 2014, from http://www.caffeineinformer.com/the-15-top-energy-drink-brands

Euromonitor. (2014). Sports and energy drinks in the U.S. Euromonitor. Retrieved November 16, 2014, from

Ketchen, D. & Short, J. (2014). Mastering strategic management 2.0. Flat World Knowledge. Retrieved November 16, 2014, from