The Soft drinks industry is a major contributor to the UK economy through investment in novelty and economic growth. In the Global retail drinks market, Sports and Energy drinks are amongst the fastest growing segments in the world. (http://www.bbc.co.uk/news/uk-33266792). Sale of Sports drinks in UK were worth £250 million in 2014 (UK soft drinks annual report 2015) Sport Drink is one of the most popular beverage amongst the youngsters as a result of increasing interest in sports activities. This report will focus on the relevant external environmental factors and trends that would affect the Sports Drinks sector in UK. There are various options in which an analysis can be performed. To completely comprehend this sector, Porters 5 forces (Appendix 1) and PESTEL analysis (Appendix 2) was conducted.
In the Sport drink sector, the bargaining power of the buyers is moderate as switching suppliers is easier and the price difference is relatively less. (https://sites.google.com/site/softdrinkindustrysaranalysis/porter-s-five-forces)As there are low input costs, the suppliers hold low bargaining power as most of the companies produce their own products.(1) The threat of new entrants would be moderately low due to the off chance that established brands like Lucozade, Powerade are basic to contend, then new entrants will need to) Even though it is a slow growing market, it is very competitive and concentrated.
Low contention rivalry
Even if the Soft drinks industry faces extreme rivalry from inside of its industry and also from substitutes, the Sports drink sector is dominated by oligopoly. Lucozade and Powerade cover 62% and 9% of the UK market respectively. Lucozade has a brand identity in terms of consumer perceptions and can possibly have great offering relationship as far as pulling in more clients, fulfilling their needs (Kotler, Keller & Brady, 2009) Customers would not bring high expenses from changing within brands as the costs in the business don't change much among the companies. As the entry barrier for new entrants is low,they are enhancing their image esteem and focusing to position by opting for natural ingredients. (Witcher and Chau 2014). (Mintel 2015)
Natural drinks appeal to alternate Sport Drinks
The rising consciousness of soft drinks and their negative repercussions on health have prompted different drinks like coconut water, fruit juices and smoothies to be considered. (Mintel 2015) (Appendix 3) However, sports powders, tablets and energy gels cannot be neglected as they provide similar benefits as a sports drink. As there are variety of readily available substitute drinks in the market, high-premium prices for alternative drinks, and consumer low switching cost to substitute drinks make the threat of substitute products very strong. (Thompson, 2012). As brand loyalty is a major factor, consumers can refuse to drink a particular sports drink but not refuse to consume another beverage. 44% of consumers prefer water to rehydrate where as 27% are inclined towards Fortified water. Sports drinks and substitutes are sufficiently comparative for the quality component to not be a grapple for existing buyers. (https://hbr.org/1979/03/how-competitive-forces-shape-strategy)
Increasing obesity calls for sugar tax
Sugar has been one of the reasons of the rise in obesity in UK. It is a growing health concern as 25% of adults are obese with significant numbers overweight.https://en.wikipedia.org/wiki/Obesity_in_the_United_Kingdom. As sports drinks contain sugar and artificial ingredients, manufacturers while have an uphill battle. With regards nearly 30% of consumers have stopped consuming Sports Drinks. As of March 2014, majority of people used sports drinks when they were at home. (Mintel 2014) As the government is targeting to reduce obesity, imposing sugar tax has made headlines. With the present situation of consumers being sceptic about the artificial sweeteners and ingredients, volume sales of sport drinks have started declining. Consumers have started shifting to alternatives, as negative media made headlines about switching to water while exercising. (http://www.portal.euromonitor.com.lcproxy.shu.ac.uk/portal/analysis/tab)
Low sugar drinks set new market
Focus on healthier and natural drinks is expected to increase in the next few years, as people are concerned of their health. The key patterns affecting the Sports drinks classification amid in 2012 exhibited a movement towards low-calorie, low-sugar and low cost variations.(http://www.companiesandmarkets.com/MarketInsight/Food-and-Drink/UK-Sports-Drinks-Market/NI8015)
Sports drink manufacturers are attracting consumers with new launches which focus on health. As concerns about artificial ingredients act as barriers, they are taking efforts to launch products which include natural ingredients. Low and no sugar drinks are blossoming. According to Lucozade Ribena Suntory, they have removed 2.2 billion calories from its Lucozade Energy range.(https://www.lrsuntory.com) But with more brands moving towards low sugar variants, new entrants are making their way in this sector. 16% of new sports drinks were launched in 2014, as they would appeal to the customers who don't mind paying more for natural ingredients. (Mintel 2015).
Even though consumer spendings are expected to grow in the next few years, the Sports drinks sector is on a slower decline. This indicates that the manufacturers of the Sports drinks will have to focus on engaging consumers with new products and development in this sector. The market share predicts growth of this sector from 78% to 85% till 2019. With regards to sales, market has predicted a fall from 218 million to 171 million till 2019. The challenges posed by the ageing population act as a threat, as Sports drinks sector which focuses on the age group of 15-24 are likely to be counterweighed by the growing age group of 24-35. (mintel 2014)
45% of the adults drink sport drinks where in men dominate as women are more concerned about sugar and calorie content.
Attitudes and lifestyles are very important trends that lead to change. Consumer spending is expected to grow over the next few years. Accordingly, volume sales of Sport drinks are anticipated to fall.(Mintel 2015) Soft drinks contribute over 11k billion to the UK economy. According to Mintel, volume growth of this sector will be about 4% by 2020.This sector supports wages of £5.6 billion.(ONS) The market us predicted to o
It urges you to consider the reasonable effect of the different variables on your business. You can do it all alone or with a gathering and the introductory conceptualizing should be possible moderately rapidly. It is something you can then add to after some
Porters 5 forces
From the analysis of the 5 forces (note 2) which have an impact on Sports Drinks sector, allowed us to see that despite the threat of new entrants and the threat they possess on a regional or local level they can't compete with Nike on a global scale as they don't have access to the same financial backing as Nike, this is evident in Nike's marketing budget for 2013 which was over $2.7 billion (Futterman, 2013), smaller organisations and brands cannot justify allocating anywhere near this amount of their revenue as they simply do not have access to it.
The bargaining power of buyers poses a potential problem with consumer now more price conscious then ever due to the a slow recovery from the global recession and less disposable income available, consumers may choose to change their buying habits and purchase cheaper products from one of Nikes main competitors (Adidas or Puma) who offer products are cheaper prices in comparison to comparative products (Swider, 2013).
A close relationship with their suppliers ensures the products they manufacturer are of superior quality compared to competitors, allowing them to charge a premium price.
Two strategic perspectives on the buyer-supplier relationship
B Leavy - Production and Inventory Management Journal, 1994
In the strategy field, the buyer and supplier as competitors perspective finds its most widely known form in Porters five force model for industry analysis. According to this model five competitive forces determine the long run potential of any industry and its participants: the threat of new entrants, the threat of substitute products, the bargaining power of suppliers, the bargaining power of buyers, and the intensity of rivalry among the core competitors. Each of these forces if strong will to drive profits out of the industry.
BEYOND PHILOSPHY (2014). Customer Loyalty. [online]. http://www.beyondphilosophy.com/customer-experience/customer-loyalty/
Thompson, A. A. (2012).
Strategy: Core Concepts and Analytical Approaches
.New York: NY.
(Kotler, Keller & Brady, 2009). https://books.google.co.uk/books/about/Marketing_Management.html?id=8VDYaWzc9MgC
...(download the rest of the essay above)