Red Bull SWOT analysis

Introduction

Red Bull GmbH is an Austrian-headquartered business developed and founded by Dietrich Mateschitz in the mid-1980s (Red Bull, 2014). Mateschitz was a

traveller and a technician who developed the formula for a new energy drink based on those he had sampled while in the Far East. Red Bull energy was first

introduced into the market in April, 1987, when it was launched in Austria. By 2014, over 4 billion cans of the energy drink had been sold in more than 166

countries worldwide (Euromonitor, 2014). To date, the company has been highly successful, reporting large year-on-year growth figures in terms of both

sales volumes and company value. However, in recent years, it has encountered a number of challenges. Competitive rivalry in the industry is growing, and

there are concerns that the key product is deleterious in terms of health, adolescent behaviour and use of materials. In this paper, the strengths,

weaknesses, opportunities and threats facing the business are outlined and discussed through the application of a SWOT analysis. A PEST analysis is used to

examine the political, economic, social and technological aspects of the business environment affecting the company. The paper concludes by outlining the

competitive advantage of the business and expectations for its future.

SWOT analysis

In figure 1, the SWOT analysis for the company is outlined. The key elements are discussed below.

Figure 1: SWOT analysis for Red Bull GmbH

STRENGTHS Standing and status within the industry Dominant player Massive net growth in sales and volume Broad geographical presence Sports event marketing	WEAKNESSES Inability to compete in the broader soft drinks industry Market share has shrunk over the past five years Concentrated production facilities High shipping and production costs Little variety in terms of the product portfolio High sugar content
OPPORTUNITIES The Asian Pacific Market The Chinese Market Diversification of the basic product portfolio	THREATS Dominance of the Red Bull energy drink brand is threatened by the entry of Coca Cola into the industry Growing health concerns among the public

Strengths

Red Bull has several strengths:

• A major strength of the company is its status and standing within the energy drink industry. Red Bull was the first energy drink to be developed,

  sold and popularised in the West (Euromonitor, 2014). This means that today, the Red Bull name is synonymous with energy drinks in the cognition of

  consumers, in much the same way as Sellotape is to sticky tape, and Hoover to vacuum cleaners (Heckman, Sherry, Mejia, Gonzalez, 2010). Analysts

  have described this as a “marketing triumph” for the brand (NPR, 2012, online).

• Red Bull’s marketing triumph translates to strong and rising net sales. Since the company is privately held, it is not required to report its

  financial information, however, data is available for the period 2011-2013. According to market research analysts Euromonitor (2014) during the

  period 2011-2012, net sales grew by 16 per cent and the number of cans of the energy drink rose by 13 per cent. In the period 2012-2013, these

  figures were lower, at 2 per cent and 3 per cent respectively, but still reflect significant levels of growth. In 2013 alone, Red Bull reported net

  sales of 5 billion euros.

• Although the company is best known for its energy drink, it is a highly diversified conglomerate that operates in many other sectors. Red Bull owns

  and operates a number of lifestyle magazines, covering issues such as motor racing, football and celebrity gossip. In addition, the company has

  established mobile phone service operations in a number of nations, including South Africa, Poland, Hungary, Belgium, and its home nation, Austria

  (Tech Radar, 2009; Red Bull, 2014). In fact, the company can be found in a number of sectors, from TV broadcasting, to youth academies and football

  clubs (Euromonitor, 2014).

• Another strength of the company is its presence across the world. Red Bull is sold in 166 markets worldwide (Red Bull, 2014). In volume terms,

  sales are dominated by the US and North American markets (Euromonitor, 2014) Furthermore, growth in many overseas and emerging markets has

  outstripped overall growth. For instance, in 2013, Red Bull reported that it had boosted net sales in the Indian market by a massive 55 per cent

  (Red Bull, 2014). Growth was also robust in Scandinavia (16 per cent), Turkey (18 per cent), Japan, (32 per cent), Russia (13 per cent) and Brazil

  (12 per cent).

• Another strength of the company lies in its marketing efforts. Red Bull has pursued an entrepreneurial marketing approach, focusing particularly on

  sports events sponsorship, like motorcycle racing. As well as enabling such events to survive and thrive, sponsorship offers considerable benefits

  to sponsors like Red Bull. Event sponsorship is a key brand positioning and image management activity (Farrelly, Quester and Burton, 2006);

  importantly, it enables companies to reach extraordinarily large audiences that could not be reached through more conventional methods (Farrelly et

  al, 2006). The huge awareness and press publicity created by event sponsorship means that this promotional method is able to target both broad

  swathes of the population as well as specific target niches. Concluding a case analysis of Red Bull, Gorse, Chadwick and Burton (2010, p. 351),

  state that “the use of sport and innovative marketing and branding strategies [have been] integral steps in building the company into one of

  the largest, most diverse sports empires worldwide”.

Weaknesses

Despite the strengths outlined above, the company has suffered a number of setbacks in recent years:

• Although Red Bull is the dominant player in the energy drinks market, in the broader soft drinks industry, it is faring less well. Market share in

  the soft drinks market is dominated by Pepsi Co, which claims 10.7 per cent of market share, and the Coca Cola Company, which holds over 25 per

  cent (Euromonitor, 2014). The dominance of these two companies in that industry has traditionally posed a significant barrier to new entrants. In

  terms of market share, Red Bull GmbH ranks seventh – a position it has held since 2008 – with just 1.6 per cent of the overall global

  soft drinks market (Euromonitor, 2014). A number of reasons have been advanced to account for the failure of Red Bull to grow its market share in

  this market. Importantly, both the Coca Cola Company and Pepsi Co have very strong brands and widespread and robust distribution networks.

• In spite of consistent growth in terms of volume sales and corporate value, Red Bull has experienced a decline in market share since 2009.

  Euromonitor (2014) attributes this decline to the entry of new competitors to the market, as well as the international expansion of established

  brands.

• The ability of the brand’s competitors to rapidly acquire market share within the energy drinks market has also been attributed to their

  diversified product portfolio. Monster, a key competitor, always offered a variety of flavours of energy drinks to consumers. Under the Monster

  umbrella, there are more than 30 different brands, such as Rehab and Java Monster, and each of these brands are available in a variety of flavours

  (Euromonitor, 2014). Red Bull was slow to respond to this competitive threat, taking almost 25 years to introduce three new Red Bull flavours (The

  Grocer, 2012).

• A further weakness of the company can be found in its production methods. Analysts suggest that the company’s reluctance to extend its

  production facilities beyond the Austrian borders act as a constraint on its ability to boost its production volumes (Euromonitor, 2014). Although

  Red Bull products are sold in 166 countries worldwide (Red Bull, 2014), all production occurs in Austria, which means that the company must expend

  considerable shipping costs in exporting and distributing its offerings (Stevenson and Hojati, 2007). While it was reported in 2012 that the

  company was to invest in a new production facility in Manaus (Brazil), there is little indication of this intention becoming reality in the near

  future (Euromonitor, 2014).

Opportunities

In spite of the weaknesses outlined above, there are a number of opportunities for growth and development for the company:

• The Asian Pacific market has recently surpassed North America in terms of growth in sales volume of energy drinks (Zenith International, 2013). One

  of the reasons for this increased demand is the general trend of that region towards increased prosperity: between 2008 and 2013, the region

  recorded compound annual growth of 16.3 per cent, with China alone growing by a record 277 per cent (Euromonitor, 2014). Despite this, in terms of

  market share, the Asian Pacific market is still the weakest for Red Bull. An opportunity for global growth is therefore available for the energy

  drinks giant in this market. This may take some time, however, has there are some markets to which Red Bull energy has only just entered, and it

  may take time for the brand to build its identity in that region.

• There are opportunities also in the Chinese market. Market research agency Zenith International (2013) predicts that by 2018, the Chinese market

  will lead in terms of value and volume growth. Red Bull has already taken steps to capitalising on this growing market. In 2013, Red Bull entered

  into a subsidiary agreement with a Chinese manufacturer, launching an international version of Red Bull energy into select urban areas (Food

  Navigator Magazine, 2013). The company also established a small office in Shanghai in 2014. This will support its expansionary efforts and enable

  it to become acclimatised to the Chinese market (Euromonitor, 2014).

• A key weakness of Red Bull relative to its competitors is its failure to introduce alternative variants of its major product. There are some

  indications that the company is using the Chinese market to test a diversification of its basic product portfolio. In China, two versions of Red

  bull energy are sold – the standard blue can, which is sold internationally, but also a gold can: a non-carbonated variant which was targeted

  at lower income consumers (Food Navigator Magazine, 2013). If this step at diversifying is successful, it could offer greater opportunities for

  growth in the future.

• The Chinese market also offers opportunities for Red Bull to expand its sports event marketing activities. Several sports attract very large

  audiences in China: examples are badminton, table tennis and gymnastics (Masterman, 2014). One way that Red Bull could start to build its brand

  identity in that market is by sponsoring these events. The company has already started to undertake some sports marketing activities in the Chinese

  market, sponsoring the Red Bull Badminton Tournament in 2013 and 2014 (Euromonitor, 2014).

Threats

The success of the company has brought with it a number of threats:

• When the Red Bull energy drink was first developed in the mid 1980s, it was a unique product. Indeed, Red Bull has been described as the instigator

  of the entire energy drink sector (Gorse, Chadwick and Burton, 2010). However, more recently, its success has attracted interest from a number of

  key competitors, especially Pepsi Co. and The Coca-Cola Company (TCCC). The latter acquired a 16.7 per cent equity stake in Monster Beverage

  Company in August 2014 (Fortune Magazine, 2014). This is an important strategic move, because through this deal, TCCC expects to “transfer

  ownership of its worldwide energy business, including NOS, Full Throttle, Burn, Mother, Play and Power Play, and Relentless, to Monster.”

  (Fortune Magazine, 2014, online). Coca-Cola and Monster have already capitalised on their extensive distribution network to launch push

  ‘Burn’, a direct competitor to Red Bull in emerging markets in Latin America (Euromonitor, 2014), while in the US, another energy drink

  produced by Monster Beverage Company, ‘Monster’ has now overtaken Red Bell in terms of volume sales (Euromonitor, 2014). The latter

  product is also enjoying huge gains in Eastern Europe, the United Kingdom and Australia (Euromonitor, 2014). Given the large number of markets in

  which the energy drink sector now has a presence, the development of the Monster/Coca-Cola collaborative project should be considered a significant

  threat to the dominance of Red Bull.

• Another threat to the company is posed by the decline of the North American economy, which has traditionally been the company’s stronghold.

  That region’s Compound Annual Growth Rate (CAGR) – a measure of economic growth- which was 9.9 per cent in the period 2008-2013, is expected

  to half in the period 2013-2018 (Euromonitor, 2014). The likely outcome of a lower rate of growth is a reduction in consumer demand, especially for

  premium priced products like Red Bull.

• There is also a threat posed to the company by the growing concern for health. Red Bull is packed with sugar, an ingredient that is increasingly

  coming under fire given the growth in obesity in the West (Clauson, Shields, McQueen and Persad, 2008). If this development continues, Red

  Bull’s sales could be harmed.

PEST analysis

Political

• As a direct response to increasing health concerns among the populace, governments globally have begun to inspect the energy drinks industry

  (Hoflander, 2011). For instance, at the local level in the USA education administrators have started to ban the sale of Red Bull and other similar

  products from sale within schools, as a response to increasing incidences of diabetes Type II among school-aged children (Babu, Church and

  Lewander, 2008). In New Zealand in 2006, a high profile agreement was signed by regulators to prohibit the sale of energy drinks in schools

  (Rockell, Parnell, Wilson, Skidmore and Regan, 2011). There is even a growing lobby against the sale of Red Bull on University campuses (Attila,

  and Çakir, 2011).

• Increased public concern for the environment has also been codified in regulatory arrangements in many economies. As a direct response to this

  development, Red Bull in 2003 (Marketing Magazine, 2003). In an effort to reduce waste, and accommodate the green lobby, the company was also

  forced to introduce slimmer cans that utilise less aluminum, and to promote a recycling programme via their website (Red Bull, 2014).

Economic

• In spite of the recent recession, generally the outlook for the world economy is positive. Technological developments, and increased efficiency and

  productivity in emerging markets in Asia and Latin America are likely to drive significant increases in global output over the coming years (The

  World Bank, 2014). This is good news for Red Bull, since rising incomes generally translate into rising demand.

• However, as the company expands into the Asian Pacific market, it will need to take adequate account of the fact that income disparities remain

  between households in the Low Income Countries (LICs), Middle Income Countries (MICs), and High Income Countries (HICs). Currently, prices for the

  energy drink are constant across markets, which has been highlighted as a weakness by analysts (Euromonitor, 2014). In terms of future development,

  the company might need to adopt a more diverse pricing strategy that takes account of rising demand for the product among individuals with lower

  income levels.

Social

• Generally, the attitude of the public towards Red Bull energy drinks is accepting. However, there is a growing campaign among educators and health

  groups against the possible toxic effects on adolescent and adult health, and negative impact on behaviours (Alford, Cox and Wescott, 2001; Seifert

  and Schaechter, 2011). Much of the criticism concerns the target market of the company and its efforts to court them. In Europe and the United

  States, Red Bull energy is particularly popular among young athletes and bar and club patrons, and it is argued that this group has been courted

  through Red Bull’s marketing efforts which are sports and culturally inclined (Seifert and Schaechter, 2011; Borg, 2010; NPR 2012). For

  instance, Red Bull sponsors junior basketball teams, and runs a music academy for aspiring musicians.

Technological

• A key challenge facing the company is not only how to deliver products that meet the changing demands of consumers, but also how it can itself

  stimulate demand through the development and offering of innovative products. Product innovation is a key strategy for business development for Red

  Bull, because its main product line, Red Bull Energy Drinks, has no variants aside from its sugar free alternative (Euromonitor, 2014). Regular

  innovation in product formulation and packaging is a key characteristic of the beverage industry (Ashurst, 2008). Thus, Red Bull could offset its

  lack of product diversification by adopting an innovation strategy.

Conclusion

The internal and external audit conducted above has yielded a number of insights about the current activities and future outlook of Red Bull. Firstly,

there is little doubt regarding the success of both the company and the brand. Red Bull was the first product of its kind, and largely as a result of

creative sports and event marketing initiatives, the Red Bull energy drink brand and energy drinks as a whole are synonymous. This has been translated into

vast growth in terms of both volume sales and company value. On the whole, and in the context of likely rising global demand, the outlook for the company

is good.

However, the analysis has raised some concerns. In terms of its formulation, the Red Bull energy drink has barely changed since it was first produced 26

years ago, and very few variants of the formula are available. This is a crucial weakness of the brand, particularly given the strength and growing sales

of key competitors like Monster and Burn, which are available in a range of flavours and formulas. Furthermore, Red Bull pursues an undifferentiated

pricing strategy, which may place the product out of the reach of low-income consumers in some of the markets to which it is expanding. Another challenge

facing the company is how to deal with criticisms of the key product by health groups and educators. In the future, it is possible that the key product

will need to be reformulated in order to counteract claims that Red Bull is linked with obesity, poor levels of concentration and bad behaviour among young

people. The company needs to be cognisant of these issues and respond to them appropriately if it is to remain the leader n the energy drinks market.

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