Question

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THE ENERGY BAR INDUSTRY

In 1986, PowerBar, a firm in Berkeley, California, single-handedly created the energy bar category. Positioned as an athletic energy food, it was distributed at bike shops and events that usually involved running or biking. The target segment was the athlete who needed an efficient, effective energy source.

Six years later, seeking to provide an alternative to the sticky, dry nature of the PowerBar, a competitor, also located in Berkeley, developed an energy bar with superior taste and texture and branded it the Clif bar. About the same time, another competitor introduced the Balance bar, which offered a blend of protein, fat, and carbohydrates based on the nutrition formula associated with the “Zone diet.” Faced with these challengers, PowerBar responded with Harvest (a bar with a much more accessible taste and texture) and ProteinPlus (an entry into the high-protein subcategory closely related to that defined by Balance).

The makers of the Clif bar observed that many women were athletes and many more were involved in fitness. They further observed that this half of the population had unique needs in terms of vitamins and supplements and that the energy bar industry had yet to recognize or fill them—a classic case of unmet needs. As a result, they introduced Luna as the first nutritional (not energy) bar for women, using media and promotions targeting active females. The bar had a light, crunchy texture; came in flavors like “lemon zest” and chai tea; and contained nearly two dozen vitamins, minerals, and nutrients. The target market consisted of time-strapped women who wanted both taste and nutrition and would appreciate a bar tailored to their needs.

Both in reaction to Luna’s success and to expand the segments for which the category was relevant, PowerBar studied why women did not buy its products, which the firm considered to be nutritious, convenient, tasty, and able to provide a quick pick-me-up in mid-morning or mid-afternoon. One answer was that the calorie hit from any member of the PowerBar family was simply too great. In response, the firm created the almost indulgent PowerBar-endorsed Pria. With only 110 calories, Pria was designed to respond to Luna while attracting new users into the category.

The Balance strategy was to introduce a series of products, all of which stuck to the original bar’s 40/30/30 nutritional formula but had different taste and textures. These spinoffs included Balance Plus, Balance Outdoor (with no chocolate coating to melt), Balance Gold, Balance Satisfaction, and the Balance-endorsed Oasis, a bar designed for women. The big success was Balance Gold, which was positioned close to the candy bar category (indeed, its tagline was “like a candy bar”) by containing ingredients such as nuts and caramel. Such a bar probably risked some of Balance’s perceived authenticity as being an energy bar. However, because Balance entered the category from the diet perspective anyway and probably was never considered in the center of the energy bar world, the risk may have been acceptable.

In addition to the major brands, challengers from a variety of small and large firms advanced subcategories by positioning themselves around such factors as age (bars for seniors and kids) and health (products to fit dairy-free, diabetic, and heart-conscious diets), to say nothing of numerous textures, flavors, sizes, and coatings. Over a 10-year period, some 450 products were introduced. For example, the popularity of low-carbohydrate diets has prompted a host of entries, including Atkins Advantage, developed by the Atkins organization, which gained a substantial market share that peaked in 2003 and fell off sharply thereafter. Other participating brands include Zone- Perfect, Met-Rx, GeniSoy, EAS, CarboLite, Carb Solutions, and Gatorade energy bars. Masterfoods’ Snickers Marathon—a candy bar with a blend of vitamins, minerals, and protein— has blurred the division between candy and energy bars by seeking to gain share in the latter market. One concern of the energy bar industry is the skepticism among some quarters as to how qualitatively different its products are from candy bars in the first place.

The motivation for using an energy bar is primarily to provide a convenient energy boost. The original heritage of being a product to enhance the performance of top athletes engaged in demanding physical activities (like Lance Armstrong, a PowerBar endorser) created credibility and self-expressive benefits in the category’s early years. Because household penetration was still under 20 percent, however, the major firms worked to generalize “performance” to be relevant to anyone who needs to perform well during the day. In fact, the industry dream is to get people to label the category “performance nutrition” and think of it as enhancing one’s ability to complete any task.

New products in the category are going in several directions. A trend toward indulgent icings, coatings, and coverings has led some to morph toward candy bars. Others go the opposite way, using whole-grain ingredients for products somewhat like the original Clif bar and Quaker’s Oatmeal Squares for women. The makers of the Clif bar also have introduced a Mojo line of salty snack bars to provide alternatives to sweet-tasting bars and the Clif Nectar bar, an entirely organic nut and fruit bar. PowerBar introduced Nut Naturals, a low glycemic index bar. There are bars positioned around ingredients such as protein or soy bars. A major Japanese brand of soy bars, SoyJoy is now in the market with a dry bar that will not be confused with a candy bar.

The energy bar category has gone mainstream, moving from the bike shops to the grocery stores and exploding from just over $100 million in revenue in 1996 to an estimated $2 billion or more a decade later, with expected future growth exceeding 10 percent per year. It is fueled both by the confluence of trends toward low-carb, portable, nutritious snacks and meal replacements (along with a general concern for health and weight control) and by the introduction of new products. Along the way, it became large enough to attract the attention of major packaged-goods firms. In 2000, Nestle purchased PowerBar, which has remained the leading player, with the Clif bar (which has remained independent) emerging as its most formidable competitor. The Balance line of products was bought by Kraft, also in 2000.

Energy bars can be considered a part of a larger food bar category which is also growing rapidly. The market is divided fairly equally between granola bars (positioned as a snack food that is healthier than candy bars), breakfast/cereal/snack bars (used as a meal replacement), and energy bars. Energy bars have a far lower household penetration than the other food bar forms. The top marketers of food bars are Kellogg’s (Nutri-Grain), Quaker Oats, General Mills, and Slim-Fast.

Answer the following DISCUSSION questions:

1. Conduct a thorough analysis of this category’s customers, competitors, market, and environment from the perspective of PowerBar. What are the key strategic questions? What additional information would you like to obtain? How would you obtain it? What are the threats and opportunities? In particular, address the following issues:

a. How is the market segmented? What are the key customer motivations and unmet needs? What are the similarities and differences among the segments? How might a company link customer motivations to value propositions?

b. Identify the competitors. Who are the most direct competitors? The indirect competitors? Substitute products? What are the strategic groups?

c. What are the market trends? The growth submarkets? The key success factors?

d. What are the environmental trends that will affect the industry? Generate two or three viable future scenarios.

2. How would you go about evaluating emerging submarkets? What criteria would you use to enter each? Consider PowerBar’s reaction to the Clif organic bar.

Answer 1

1. Analysis from the perspective of PowerBar:

a. The market is segmented as the product startlingly launched for only Athlete. Later this segment sub divided into Male and Female Athlete. Further the segmentation was done on the basis of nutritious value to the product. The key customer motivations and unmet needs are intake of vitamins and supplements. The similarities are that the product is changes by enhancing the nutritional values. All product is effective and same as they are nutritious and healthy. The difference is the level of intake of nutritional values. The male athlete needs different nutrients and energy calories than female athlete. The company link the customer motivations to value propositions as the customer likes the product without opposing it. It actually beneficiary to the customers. They increase the usage of the product and then they get motivated to purchase more.

b. The competitors are other energy drink making brands such as Clif bar, balance bar, Atkins organization, Zone- Perfect, Met-Rx, GeniSoy, EAS, CarboLite, Carb Solutions, and Gatorade energy bars. Masterfoods’ Snickers Marathon etc.

The most direct competitors are clif bar and the balance line. The indirect competitors are Atkins organization, Zone- Perfect, Met-Rx, GeniSoy, EAS, CarboLite, Carb Solutions,etc. (Small organization’s). The substitute are Candy bar, granola bars, breakfast/cereal/snack bars (used as a meal replacement), and energy bars. There are may more substitute also present. The strategic groups are Nestle, Atkin organization, Kraft, and the top product provider of food bars are Kellogg’s (Nutri-Grain), Quaker Oats, General Mills, and Slim-Fast.

c. The market trend is enhancing the energy levels of the product. The people think more about the healthy products usage than the normal energy drinks. The submarket come up with new ideas about making the new products which might be slightly changes with the main content of the product. The key success factors are targeting the submarket in a granularity level, enhancing the product specifications and quality, etc.

d. The environmental trends that will affect the industry are

1. Usage of organic products.

2. Nutritional and health conscious customers.

3. The level of energy the product gives to the customer after usage.

4. Change in the temperature.

The scenarios such as usage of organic products only will change the demand of the organic product only. Hence, the customer mainly focusses on these products other than this they may not use. This would change the behavior towards the inorganic energy drinks although they may be cheaper.

Another scenario, the usage of Healthy and nutritious product as the customers would be more conscious about the health related or nutritional values of the product.

The key questions are as follows:

Whether the changes in the nutritional values may affect the customer trend? There is a limit in the nutritional values addition, so what would happen if it reaches? What the changes would be added to the product so that it captures the Market trend?

The opportunities are

1. The change in the product quality would opens the market for the product.
2. Increase in the Number of Athlete across the countries.
3. Expansion of the product to the global market.

Threats are

1. Change in the customer preferences and tastes.
2. Change in the food content from inorganic to organic.

2. In order to evaluating emerging submarkets we need to consider the following points:

1. Analyze the trend in the Market.

2. What specific values the customers like in the product?

3. Who are the major buyers?

4. The Quality of the product.

5. The taste preferences of the product according to the location.

6. who are the major competitors and what changes they offer in the product.

7. Reasons for shifting of the customer preference in past from one product to another.

The criteria which I would use to enter each are as follows:

1. Provide the uniqueness in the taste of the product.
2. The shape I would change as it attracts the customer.
3. Should be Nutritious and Healthy.

The power bar reaction on clif bar was more competitive. They Faced with challengers, PowerBar responded with Harvest (a bar with a much more accessible taste and texture) and ProteinPlus (an entry into the high-protein subcategory closely related to that defined by Balance).