CASE STUDY ASSIGNMENT (SEMESTER 1)Jonathan White 17327237 A PESTEL Analysis of the HealthBeverage Industry PoliticalInfluencesThe health beverageindustry is significantly influenced by a variety of political factors. Thesefactors include government policies, trade policies, available grants, and politicallobbying, to name a few. In Ireland, Bord Bia make grants and funding availableto food, drink and horticulture producers with their Step Change Programmeincl. cit.
This acts as an encouragement to health drink producers, offeringthem grants up to €50,000 considering they meet the criteria. Groups such as the IrishBeverage Council, have attempted to lobby the Irish Government, calling for thedeferral of the soft drinks tax. Such groups influence policy and regulationsput in place, which in turn influence the health beverage industry. BREXIT is an example ofhow the industry will be affected in the future.
Health beverage companies willface challenges while importing/exporting from the UK, once they leave theEuropean Union. VITHIT, who now carry out their production in the UK, will besignificantly affected incl. cit.. In their ‘Food and Drink – InternationalAction Plan’, the UK Government outline their plans & policies to createinternational trade opportunities incl. cit.. How these policies will affectthe industry is yet to be seen.
EconomicInfluencesThe health beverageindustry is largely affected by taxation. A prime example of this is theforthcoming sugar tax in Ireland, decided in the 2018 budget incl. cit.. Drinks with over eightgrams of sugar per 100 millilitres will be taxed at 30c per litre, along with areduced rate of 20 cent per litre on drinks with between five and eight gramsper 100 millilitres incl.
cit..Although known for low sugar amounts in their drinks, the health beverageindustry will still be affected. For example, the company Alo produces a drinkcalled ‘Alo Original’, containing 6.25 grams of sugar per 100 millilitres incl. cit..
It appears that VITHITwill be unaffected, with all its drinks containing a sugar content of belowfive grams incl. cit.. Such taxes may influencecompanies in the health beverage industry to even further reduce the sugarcontent of their drinks. However, arguably the tax’s greatest effect will be toincrease the industry’s competitiveness against the soft drinks industry. Dueto this tax, soft drinks will rise in price, narrowing the price gap betweenthem and health drinks. SocialInfluencesWithout doubt, thisindustry is significantly shaped and influenced by the changing views andtastes of our society.
In recent years, our culture has become a lot morehealth conscious. This has given rise to the popularity and success of the healthdrinks industry. Healthy drinks as an alternative to soft drinks, is a trendwhich has boomed in Ireland only in recent years. This is arguably why VITHITstruggled as much as it did in its infancy incl. cit..
As the popularity anddemand grows for health drinks, the industry will grow also. VITHIT haveforecasted its sales to double year on year for the next few years in thecurrent markets it occupies. TechnologicalInfluencesAs technology improves,production techniques and equipment will become more cost and time efficient. Thisis allowing the health beverage industry to expand even further. Aside fromproduction, new distribution techniques allow producers to export & deliverproducts more efficiently. For example, modern GPS Navigation systems allowdistributers to use more economical routes on their journeys incl. cit.
. With the dawn of theinternet and social media, marketing has become a lot more accessible. Thehealth beverage industry produces products that are purchased primarily byyounger people. Therefore, it is no surprise that social media is heavilyutilised by the industry when it comes to promoting and advertising itsproducts. Environmental InfluencesDue to regulations and outsidepressure, companies are encouraged to reduce their carbon footprint.
As aresult many health drinks companies use recycled plastic in their bottles. Forexample, Innocent openly advertise that their bottles contain 100% recycledplastic incl. cit.. Another overlooked factoris the country’s climate in which companies operate.
VITHIT is based in the UKnow, a country whose climate and surrounding countries’ climates, allow thegrowth of materials needed for their drinks. This makes the needed ingredientsa lot more accessible and feasible to use. Hence transportation costs are a lotless, seeing as they don’t need to transport ingredients from across the globe. LegalInfluencesA prime legal influenceis government regulation. For example, the Food Safety Authority of Irelandhave various regulations placed on the nutritional and health claims ofproducts. “It is important that claims on foods can be understood by theconsumer and it is appropriateto protect all consumers frommisleading claims.
” incl. cit.. This prevents players inthe health beverage industry from using misleading slogans, descriptions andtitles in their branding. Assessment of the Forces DrivingCompetition in the Health Beverage Industry BargainingPower of Buyers The bargaining power ofbuyers is best described as the ability of buyers to pressure companies, bydemanding lower costs and improved quality of products. In the health beverage industry,this competition is rather high. The low price difference between brands allowscustomers to switch easily. For example, according to SuperValu’s online store,a 500 millilitre bottle of VITHIT ‘Berry Boost’ costs €1.
50 while a 500millilitre bottle of Robinson’s ‘Refresh’d Apple & Kiwi’ costs the sameincl. cit.. Prices are extremely similar across the different brands, causinga lot of competition. Buyers are highlysensitive to the price of health drinks. They are willing to switch brands ifone goes up in price, or another reduces in price. Health drinks are not aneed, and due to the existence of various substitute products, customers willnot pay any price for them. As the industry is not aslong established as the soft drinks industry for example, brand loyalty is notas strong.
Due to this and the price similarity of many of the products,companies attempt to obtain buyers through other methods. For example companiesmay develop their product portfolio to include new drink flavours, or they mayadvertise how their packaging is eco friendly. Brands may also promote variousspecial offers and discounts available by buying their drinks.
A good exampleis how Innocent advertises that its bottles contain 100% recycled plastic.incl. cit.
BargainingPower of Suppliers The bargaining power ofsuppliers in the health beverage industry can be described as a market ofinputs. To understand the extent of their bargaining power, we must ask howeasy is it for them to drive up prices. This depends on the number of suppliersof each input used in the production & distribution process. In theproduction of health drinks, fruit and vegetables are a key resource. Thenumber of suppliers of fruit and vegetables is extremely high incl. cit..Therefore, suppliers have a low bargaining power, and will be more likely toadjust pricing and terms to suit the company.
This causes a lot of competitionbetween suppliers. The number of packagingand distribution companies are not in short supply. Therefore, there is anatural competition between suppliers already. A company producing a beveragecan easily switch between, and select suppliers that do the most efficient jobat the most economical price.
Threatof New EntrantsIt is only recently, thatthe health beverage industry has properly taken off. Due to the growing successof health drinks & similar products, it has become a very attractiveindustry to compete in. Companies can charge premium prices and capitalise onthe current demand for health beverage products.
However, in the industrythere is a high barrier to entry. Establishing a brand from scratch can bedifficult and challenging. A large amount of capital is needed to enter theindustry due to the high cost in developing drink recipes and setting upproduction lines efficiently. After that there are significant costs in bottling,packaging and distribution. It’s also a challenge for new entrants to themarket to develop an appealing brand identity, and then to market itsuccessfully.
Therefore, it is likely for new entrants to emerge from alreadyestablished companies. For example, Coca Cola have several health drink productlines in their portfolio incl. cit..
Another barrier to entry,is that companies must get licenses and approval of their products from foodsafety authorities within the country they reside. In Ireland, companies musthave a food traceability system so as to identify from where they have receivedingredients incl. cit.. In the health beverage industry, a threat of newentrants does exist, but it is not extreme. Threatof SubstitutesThere is a high threat ofsubstitutes in the health beverage industry. This is due to a mixture of twofactors: there is no cost incurred if a customer switches to a substituteproduct, and there are a large amount of substitute products available on themarket.
If a customer switches to a substitute, the difference they’ll pay isvery little. For example, customers have the option of switching to cartons offruit juice. They even have the option of making their own smoothies and juicesat home from purchased fruit and vegetables. Vitamin tablets can be bought offthe shelf, and dissolved in water as an alternative to vitamin drinks. For an industry that isnot as long established as others (such as soft drinks), brand loyalty isn’t asstrong. Therefore, brands such as VITHIT and Innocent, do not have as strong apull as Coca Cola over Freeway Cola.
Therefore to tackle the threat ofsubstitutes, health drinks companies must make a huge effort to make theirdrinks affordable and convenient. The convenience factor is of most importance. Intensityof RivalryCompanies competeintensely in the health beverage industry due to a variety of reasons. There islittle differentiation between competing products; many drink flavours are verysimilar and only differ in branding. This causes price rivalry amongstcompetitors, battling to make their drinks the most affordable and attractiveto customers. As the market grows, moreand more brands are entering the market, looking to get their cut of the marketshare. This drives up rivalry significantly.
With the large number ofcompetitors each offering equally attractive drink products, buyers have moreoptions to choose from. This gives companies less power. To battle this, producersextend their product portfolios and introduce new flavours and types of drinksto expand their market and increase revenue. A good example of this is howVITHIT have introduced a line of kids health drinks – ideal for packing inschool lunch boxes incl. cit..
There is an increasing rivalry amongst healthbeverage companies which will expand as the industry grows. An Assessment of VITHIT’sInternationalisation VITHIT have takencarefully planned steps to internationalise their products. Rather than rushingin an attempt to populate multiple foreign markets at once, they have taken slowand concise steps breaking into new markets.
The company branched out fromIreland, beginning with their nearest neighbouring market – the United Kingdom.They did this with the view of it being a good vantage point to expand from. GaryLavin believed – “if you get a good foothold in the UK, a lot of othercountries around Europe take their lead from that.” incl. cit.
. This was agood first step to attain a foothold in the international market. To do this,he moved over to the UK for two years, working to get VITHIT products on theshelves of UK retailers incl.
cit.. In 2013, Tesco took notice of VITHIT andbegan stocking their products. During this time, VITHIT expanded their productportfolio to include a new drink flavour. Widening their product line wouldexpand their market opportunities.
After impressively stocking VITHIT drinks inSuperdrug and Sainsbury’s stores, one could say that Lavin and O’Rourke hadconquered the UK market. With a strong base in theUK & Irish market, Lavin and O’Rourke began the careful planning of theirEuropean expansion. At this time, plans slightly changed with VITHIT expandinginto several markets outside Europe, namely South Africa, Bahrain and UnitedArab Emirates. A key part to VITHIT’s international success, is the attitude ofLavin towards new market opportunities – “each market is different and they shouldbe treated differently.” Acting upon this vision, VITHIT cleverly tailored itsproducts & marketing for each country. Rather than shipping a standardisedproduct to all its markets, VITHIT localised packaging & adjusted recipeswhen needed. For example, in South Africa VITHIT “was repackaged in slim cansto appeal to local preferences.
” incl. cit.. With VITHIT’s successfulexpansion across the European market, the US was next in line for Lavin andO’Rourke. Due to the sheer scale of the US market, they treated each state likea country. They expanded one state at a time, or in the words of O’Rourke –”didn’t go out all bells and whistles”. incl.
cit.. Unlike European markets,they were up against major brands that were well-established.