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United Beverage Case Analysis

Eric Diamond
MBA595 Strategic Business Consulting September 2011

ediamond@id.iit.edu

Eric Diamond

United Beverage Case Analysis

Strategic Business Consulting

United Beverage Case Analysis

United Beverage (UniBev) is a company that manufactures novelty soft drinks that are contained in bottles that have licensed characters molded into the bottles. Many of the bottles have moveable arms and heads. Called interactive beverages UniBev markets their product under the brand name Gangbusters. Gangbusters is at the top of their game, the number 6 in sales in the Juice/Fruit Drinks category (According to ACNielsen Retail Measurement Insights). But while sales are good, growth remains flat. Gangbusters growth depends on finding new retail outlets to sell the drink and in a steady stream of licensed characters to introduce. The lack of growth might be due to the ephemeral nature of the popularity of licensed characters or it may be a sign that most of the retail establishments that carry drinks targeted at children either already carry Gangbusters indicating market saturation. This is a problem for Paul Diaz, UniBevs CEO and founder. Diaz is used to rapid growth and now that the market is seemingly mature, growth has slowed to a trickle. This is making Diaz very nervous. He feels that a new innovation is needed to recapture UniBevs growth momentum.

UniBev has brought three options to the table to try and recapture their growth mojo. Each project has strengths and challenges associated with them. Diaz is advocating a new product concept that involves a bottle with a split down the middle and a different flavor in each half of the bottle. When

13 September 2011

Eric Diamond

United Beverage Case Analysis

Strategic Business Consulting

the drink is sipped, the flavors mix and create a third flavor. This Dual-drink product concept is the most innovative, with the most market potential, but is the most expensive to develop and the riskiest to pursue. A second option is to develop an energy drink targeted at kids who are in the same demographic as the Gangbusters target market. This one is less expensive, has a better chance of succeeding in the marketplace, but the opportunities have less market potential than the Dual Drink concept. A third option seeks to enhance the market position of Gangbusters through an expansion program. This option is the least expensive but yields only marginal market impact, even under the best circumstances. Diaz and his team must decide which course of action to take. If the choice is between only these three options, the choice is clear. Based on sheer personality alone it is already clear that the safe option is the least attractive to Diaz and crew, but given the flatness of sales investing $300,000400,000 per month (which represents roughly 7-10% of monthly sales) to protect a 6% risk of loss is a losing bet. Even so, there is no real evidence that Gangbusters has any real competition yet. The third option of creating a dual drink is an expensive gamble. Given the sparse market research data (some focus groups) there is no clear indication that there would be market acceptance. Mixed flavors are not a new concept. Brands like Snapple, Lipton and Vitamin Water all offer products with two or more flavors combined. Based on the prototype of a complicated dual drink bottle it is not clear what the value of the new product would be as the drinker cannot actually see the flavors mixing, they can only taste them, which removes the functional benefit of the dual chamber bottle. Experiments have already been tried with dual flavors of the type UniBev is evaluating. 7 Eleven for example rolled out a dual Slurpee with a special straw that mixed the two flavors inside the straw. How did it do? Given the $1,800,000 price tag of development, the project has a high likelihood of failing if UniBev goes to market with the idea as is. The second option of creating an energy drink targeted to kids has the best chance of succeeding compared to the other two projects. In the best case, the expected revenue will increase UniBevs overall sales by roughly 25% for a relatively modest product development budget. Market research indicated that the product was well-understood which might translate into a more appealing product. To say however that the Energy Drink project is the best of the three is not to say that it is the recommended course of action. UniBevs problems run much deeper than Paul Diazs wish to do something quickly.

A Lack of Understanding
The founders of UB created a clear winner in Gangbusters. But it is increasingly clear that Diaz and his team do have an understanding of precisely why Gangbusters is successful in the first place. Since

13 September 2011

Eric Diamond

United Beverage Case Analysis

Strategic Business Consulting

the vast majority of their resources go into designing and manufacturing the bottles with colorful characters on them, one has to wonder how much effort is put into the drink itself. While they have a designer on staff who designs the bottles, they do not have a nutritional chemist on staff who designs the stuff that goes into the bottle. An energy drink for children is fraught with risk in the marketplace. Do kids even need an energy drink? Energy is code for calories and a highly caloric soft drink might not gain the market acceptance anticipated especially in an environment where the first Lady of the United States has taken childhood obesity as her cause celeb. There might be regulatory hurdles to overcome if nutritive additives are added to the drink. UniBev might be entering an arena that has competitive brands like Gatorade, Powerade and Sobe that are well-poised to take advantage of UniBevs innovation and duplicate it. In the case of the dual drink, there has been no discussion around the experience of mixing and why it is superior to other forms of combining flavor. More data is needed to know whether this innovation is the right one. UniBevs strength has always been in packaging juice drinks in innovative containers that have appealed to children. Might not that be UniBevs secret sauce? Diazs has an entrepreneurial mindset, but assuming that one hit will follow another simply because it is innovative is a dangerous precedent. Gangbusters succeeded because it had the right need (highmargin juice drinks for kids) in the right market (theme parks) at the right time. To make another hit they need to understand what about the company is successful and how to leverage their core competencies to fully take advantage of their strengths. UniBev is also targeting childrenwhy? Just because Gangbusters succeeded in that market? It might be that while the childrens beverage market is saturated, new markets might be easier to enter than developing a whole new product. For example, is it possible that interactive beverages can be successful in the adult beverage market? Light alcoholic drinks with likenesses of sports figures, characters from famous movies or politicians might be successful. Red State Punch along with Blue State Cooler could be sold with the satirical likenesses of popular public figures. Skull heads and Zombies could adorn bottles of vodka and Zombie mix. A cocktail party screwdriver kit could contain screwdriver cocktails that actually look like screwdrivers. Or screws. Market research needs to be done to explore what can be done with a interactive bottle. Another possible application for UniBevs capability is to design packaging for childrens drinks that light up at night using LEDs or nontoxic chemical lume sticks. UniBev could also expand into overseas markets with the same basic strategy and different licensed characters, like popular Anime characters in Japan. The possibilities are wide open but will succeed on when UniBev understands why they are successful

13 September 2011

Eric Diamond

United Beverage Case Analysis

Strategic Business Consulting

Recommendations
This is not simply a case of risk management. UNiBev seeks to be a company based on innovation and growth. To do that, Diaz and his team must find more systematic ways to innovate, not just reach for the first idea when panic sets in. They should develop more market research and design research to learn more about why gangbusters was successful. Was it the licensed characters? If so that suggests that anything in a Powerpuff Girls bottle will sell and that means that UniBev should continue to expand its line of licensed products. Is it the drink itself? Success here might support Diazs flavor mixing idea. Is it the packaging? If so then UniBev should find other product categories (like milk, ice cream or toothpaste) to package in ways that appeal to children. Doing this will reduce the risk associated with these problems and help the company set a strategic direction that is more sustainable, will help UniBev grow aand help Paul Diaz sleep better at night.

13 September 2011