National Beverage Corp SWOT Company Analysis Report

National Beverage Corp

· Innovation – National Beverage has a strong focus on innovation and is at the forefront of developing new products to meet changing consumer demands, especially in response to health concerns relating to soft drinks.

· Presence in New Markets - the company has increasing sales of brands in high growth sectors including energy drinks, where sales have exceeded industry expectations each year, and flavoured water. The company has strong brand presence in these segments on which to develop line extensions and innovative new products as part of a brand family.

· Local Flavour – the company actively researches and tailors product variations to the local market in some areas, increasing brand loyalty. National Beverage has become an established player in the US, the world's largest soft drinks market.

· Brand Loyalty – some of National Beverage’s best-known brands have strong loyalty on which to build increased sales and leverage new products off.

· Financial Performance – the company has strong cash reserves which allows for a strong culture of innovation and investment in development, which can be aggressively pursued.

· Resilience - the company has proven itself highly resilient and able to compete successfully in the North American carbonates sector. During the 2000-05 period, National Beverage has achieved modest off-trade volume growth at a compound annual growth rate (CAGR) of nearly 5% in carbonates compared to the industry CAGR of 0.3%, even though the market is largely stagnant and fiercely competitive.

Weaknesses

· Single Market Presence - National Beverage is limited to North America where it is a relatively minor player in the soft drinks industry and where its activities are dwarfed by the carbonates giants, The Coca-Cola Company and PepsiCo. Having products with a local focus means additional marketing and launch costs as marketing and awareness campaigns need to be tailored for local variations.

· High Product-to-Market Costs – as the company is actively involved in choosing and sourcing raw materials, this creates higher development costs to get a product to market.

· Reliance on Carbonates – a sector that performed poorly over the review period, particularly at the lower end of the market, has negatively impacted the company's sales and reduced its profitability. Carbonated soft drinks accounted for nearly 96% of value sales in 2005 for the company.

Opportunities

· Acquisitions – National Beverage’s strong financial position creates opportunity for acquisitions of additional brands in key markets.

· Innovation – by continuing to innovate and respond to changing consumer demands, strong sales will continue and the company will be in a position to aggressively pursue new market opportunities.

· Licensing - opportunities exist for the company to enter branding agreements in new markets, in particular energy drinks which finds many non-beverage companies entering the market, including clothing brands such as Von Dutch. The company recently announced a partnership with Jones Soda to bottle soft drinks.

· International Markets - many consumer trends are not limited to the US market and the company could take its products, brands and ability to think globally and act locally to enter new countries such as Mexico and Canada. Its range of products and flavours targeted to the Hispanic community may provide a ready entry point for expansion into Latin America.

· Investment – a number of flavoured and sparkling water products under the La Croix brand means the company is well placed, being the number three carbonated bottled water brand, to benefit from the strong growth potential of the North American carbonated bottled water segment. For the 2000-2005 period La Croix had an off-trade volume CAGR of nearly 6%, ahead of market growth of nearly 3%.

· Value-Added Product Variants – the company is increasingly targeting high-margin, rapid growth market segments with new and innovative, well-targeted and high-quality products such as its Rip It energy drink. Success for these new products and brands could deliver significant revenue gains.

· Fortification & Organics – by using soy protein, and vitamin or herbal fortification, the company could further develop its involvement in the very rapidly growing fortified soft drinks or organic soft drinks category. Also, by offering more nutritionally enhanced drinks options within its water and juice brand portfolios it could more efficiently target both children and health-conscious adults with these existing brands and hence maximise its return from them.

· Flexibility - the company's ability and willingness to make changes quickly to its brand portfolio and product flavours in response to changes in consumer tastes should give it a competitive edge over its larger, but less nimble, competitors.

Threats

· Raw materials – higher raw material costs have already resulted in increased costs and increased prices for consumers. If the trend of rising raw material costs continues it may be necessary to increase prices again which could impact sales.

· Health authorities and consumer trends – changing consumer trends are impacted in a large way by the focus of health authorities on certain health issues, in particular on soft drinks. National Beverage is likely to suffer from further stagnation in sales of sugar-laden carbonates as increasingly health-conscious consumers seek "good-for-you" products for themselves and their families.

· International competitors – the company could see market share decline as large international drinks companies put their full resources behind entering new markets such as energy drinks, flavoured water and other soft drink alternatives.

· Reliance on North America – complete reliance on this highly competitive market may hinder future growth and expansion if National Beverage cannot grow its market share in the face of the increased competition, market strength, financial muscle and powerful distribution networks from larger multinational competitors such as PepsiCo and The Coca-Cola Company.

Prospects for the Soft Drinks Business

Carbonates not dead

· National Beverage is highly focused on the carbonates sector, which accounted for nearly 96% of value sales in 2005, and is present in the US market only. With expected off-trade value sales of over US$4 billion by 2010 and a CAGR of more than 2% in the US market over the 2005-2010 period, the carbonates category is far from dead. The company took up the challenge of changing consumer demands and has launched a line of children’s carbonated drinks and a line of carbonated juices. National Beverage continues to look at new ways in which it can provide a variety of options to consumers.

· Developing carbonate variants around the growing organic and functional drinks categories provides further expansion opportunities and new revenue streams for soft drinks producers. Alone, functional drinks has an estimated off-trade volume CAGR of above 6% over the 2005-2010 period. Low-calorie colas will continue to grow at an estimated off-trade volume CAGR of more than 4% over the forecast period.

· Already with a range of Hispanic flavours on which to leverage, new markets such as Mexico, Canada and Latin America provide additional growth opportunities. In Mexico, the off-trade volume CAGR for carbonates is estimated at 3.4% compared to the US market, at 0.4%. Latin America also shows potential in some countries such as Argentina and Chile, where the off-trade volume CAGR is estimated at 2.8% and 3.6% respectively. In Canada, the carbonates market is expected to decline over the forecast period at a negative off-trade volume CAGR of -0.1%, while certain segments offer strong off-trade volume CAGRs such as 6.7% in carbonated bottled water.

Energy drinks - high growth category

· Energy drinks represents one of the fastest growing segments, with a forecast off-trade volume CAGR of 12% over the 2005-2010 period in the US market. In Canada, for example, this growth trebles with an estimated off-trade volume CAGR of 37%. While offering a broad range of energy drink products under the Rip It, Chic and Freek brands, the company had a negligible share of energy drinks in the US in 2005. Opportunity also exists to produce branded products under licence from other companies, in particular non-beverage companies which are looking to expand their image, such as Von Dutch (clothing label).

Bottled water opportunities

· Growth in US sales of bottled water will remain steady at an off-trade volume CAGR of 5% over the forecast period. In Canada, for example, growth is expected to be greater with an off-trade volume CAGR of 13% over the same period. Particular segments including functional and flavoured bottled water will grow the most as consumer demand for healthy, nutritious beverages grows. This demand will see the off-trade volume CAGR reach around 15% and 9% respectively over the forecast period in the US market for functional and flavoured water. In 2005, the company had a negligible share in bottled water in the US with brands such as Mt Shasta and Cascadia, but has the number three carbonated bottled water brand in the US with La Croix. The company can leverage this position with the brand’s off-trade volume CAGR of nearly 6% during the 2005-10 forecast period, which is ahead of market growth.

Crossover product opportunities

· Crossover products are starting to appear on the market and include products such as the combination of coffee and carbonated cola beverages. Further opportunity exists to develop this concept and apply it to other products such as fruit juices and energy drinks, such as the newly launched energy drink from Rockstar which contains 70% juice. Consumers are more open to trying new products based on brand loyalty and this opens up a brand to an entirely new set of consumers.

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Thursday 1 May 2014