J2-External Analysis
A. Out of the entire United States beverage industry, the soft drink industry is by far the
largest segment. The domestic soft drink industry employs over 300,000 workers and
overall the jobs have better wages than the average wage in the country which makes jobs
in this industry attractive. The overall economic climate for this industry is good but
factors such as rising fuel prices and a global economic slowdown could create
difficulties. Out of the entire global soft drink market, the United States makes up for
forty-eight percent of it. The international market for soft drinks is very large, with the
largest growth rates taking place in the Middle East and South America. Although the
Middle East has a high growth rate, business could be difficult there due to the political
chaos currently occurring there. These events could also cause oil prices to rise which
would lead to higher costs for all firms. The global and domestic soft drink markets are
dominated by “the Big 2” firms. These are two firms which account for about two thirds
of all soft drink sales. Although these two firms dominate the industry, there is still a
very large and competitive market for the remaining sales.
Technological change is a key factor in making companies more efficient and if a
soft drink company wants to succeed, they must have a moderate to high level of
computerization in their supply chain management and a high level of automated
activities in the bottling and production processes. Innovations (aluminum can, vending
machines, artificial sweeteners) constantly change the soft drink industry, and firms must
at least stay on pace with industry changes to have success. The overall soft drink
industry crosses over to practically all age groups, ethnicities, and income levels. As for
the high-energy drink market, the target market is trendy and upscale 15-35 year olds.
The increase in people who desire to keep up with the fast paced world helps the energy
drink market to grow. Another cultural trend which helps the energy drink industry is
that energy drinks are very popular when combined with alcoholic beverages. Claims
that these drinks help people enjoy a stronger “buzz” and help people stay alert while
drinking make them very
Technological Change
Demgraphic Trends
•Production is very
computerized
•Aluminum can innovations
(self chilling can)
•New sweeteners
•Trendy and upscale 15 to 35
year olds are energy drink
target market
•Highest consumption of soft
drinks come from ages 6-18
•Soft drinks cross almost all
demographics
Specific International Events
Cultural Trends
•Middle East has seen recent
political turmoil also has
one of the biggest growth
rates for soft drinks
•Middle East chaos may
cause rise in oil prices
•Energy drinks are often
mixed with alcohol
•People want quick boost and
energy in fast paced world
Legal and Political
Conditions
•Energy drinks banned in
France, possibly other
locations in the future
•There could be states
which ban sodas from
public schools
Economic Climate
•Soft drink industry
dominates U.S. beverage
industry
•Large international market
•Middle East and South
America have largest
growth rates for soft drinks
popular choices at drinking establishments. Energy drinks may run into some legal
challenges due to the unknown long-term effects of the product. France has a ban on
them and many industry executives think energy drinks will have to transform into a
more health conscious product in the future.
B. Threat of Entry: Sun River may face lots of competition from new companies in the soft
drink and energy drink industries. In the past five years, over 550 new products were
introduced into the energy drink market. This shows that it is relatively easy for firms to
enter the industry, but being successful is another story. The successes of other energy
drinks have made it very tempting for other firms to get a piece of the market share. Sun
River may benefit from learning-curve cost advantages because their other products,
sodas, are similar to energy drinks. The threat level of entry is low because the dominate
firms have economies of scale and make it very hard for new firms to compete.
Threat of Rivalry: Sun River will face the threat of rivalry from other brands outside of
the top tier brands, such as Buzz, Jazz, and Excelor. All of these brands and Synergy had
revenue market share between 2.9 and 3.5 percent. These will be the main competition
for Synergy. The threat of rivalry may be less strong if the market for energy drinks
continues to grow as it has in the past decade. Because of the other second tier brands
that Sun River will be competing against, the threat of rivalry will be high.
Threat of Substitutes: Substitutes for energy drinks can include soda, coffee, and the
newly popular energy shots. Sales of energy shots almost doubled in 2009 and are an
easier way to get a boost than drinking an entire energy drink. Sun River will have to
make sure Synergy’s effects are as good as or better than these shots. Substitutes for
energy drinks are very popular so the threat of substitutes is very high.
Threat of Suppliers: The threat of suppliers for Sun River should not be a problem
compared to some of the other threats to the company. Most of the ingredients for
Synergy are commodities which greatly diminishes the threats of suppliers. The taurine
used will be bought from one of three chemical companies who all compete with one
another. Due to these factors, the threat of suppliers is low.
Threat of Powerful Buyers: The threat of buyers should be low because Sun River will
be selling to lots of small “mom and pop” type shops and cafes. The threat of buyers is
high when a firm sells to a small number of buyers, the product sold is undifferentiated,
and when the products being sold are a large portion of the buyer’s overall costs. All of
these things do not pertain to Sun River’s case and should almost eliminate the threat of
buyers. Sun River eventually relies on grocery and convenience stores for most of their
sales, but since they have enjoyed healthy relationships with the firms they do business
with, there should not be a big threat.
Threat of Entry
Threat of Rivalry
•Over 550 new
energy products
in last five years
•Threat may be
lowered due to
Sun River's
learning-curve
cost advantages
•Dominate firms
have economies
of scale
•Threat level is
low
•May face strong
rivalry from
energy drinks
outside the "top
tier"
•If energy drink
market keeps
growing, threat
of rivalry may be
weaker than it is
now
•Threat level will
be high
Threat of
Substitutes
Threat of
Suppliers
•Soda and coffee
will always be
strong threats to
energy drinks
•Energy "shots"
have become
increasingly
popular in
recent years
•Energy "shots"
are a quick and
healthy way to
get a boost of
energy
•Threat level will
be high
•Most of raw
materials are
commodoties so
threat should be
small
•Have a choice of
three suppliers
for taurine
•Threat level
should be low
Threat of Buyers
•Sun River is
selling to lots of
small cafes and
eateries which
should create a
low threat from
the buyers
•The energy
drinks should
not be a
significant cost
for these places
which also will
create a low
threat from
buyers
•Threat level will
be low