CASE Change Programme [incl. cit]. This acts as an

CASE STUDY ASSIGNMENT (SEMESTER 1)

Jonathan White 17327237

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A PESTEL Analysis of the Health
Beverage Industry

 

Political
Influences

The health beverage
industry is significantly influenced by a variety of political factors. These
factors include government policies, trade policies, available grants, and political
lobbying, to name a few. In Ireland, Bord Bia make grants and funding available
to food, drink and horticulture producers with their Step Change Programme
incl. cit. This acts as an encouragement to health drink producers, offering
them grants up to €50,000 considering they meet the criteria.

 

Groups such as the Irish
Beverage Council, have attempted to lobby the Irish Government, calling for the
deferral of the soft drinks tax. Such groups influence policy and regulations
put in place, which in turn influence the health beverage industry.

 

BREXIT is an example of
how the industry will be affected in the future. Health beverage companies will
face challenges while importing/exporting from the UK, once they leave the
European Union. VITHIT, who now carry out their production in the UK, will be
significantly affected incl. cit.. In their ‘Food and Drink – International
Action Plan’, the UK Government outline their plans & policies to create
international trade opportunities incl. cit.. How these policies will affect
the industry is yet to be seen.

 

Economic
Influences

The health beverage
industry is largely affected by taxation. A prime example of this is the
forthcoming sugar tax in Ireland, decided in the 2018 budget incl. cit.. Drinks with over eight
grams of sugar per 100 millilitres will be taxed at 30c per litre, along with a
reduced rate of 20 cent per litre on drinks with between five and eight grams
per 100 millilitres incl. cit..

Although known for low sugar amounts in their drinks, the health beverage
industry will still be affected. For example, the company Alo produces a drink
called ‘Alo Original’, containing 6.25 grams of sugar per 100 millilitres incl. cit.. It appears that VITHIT
will be unaffected, with all its drinks containing a sugar content of below
five grams incl. cit..

 

Such taxes may influence
companies in the health beverage industry to even further reduce the sugar
content of their drinks. However, arguably the tax’s greatest effect will be to
increase the industry’s competitiveness against the soft drinks industry. Due
to this tax, soft drinks will rise in price, narrowing the price gap between
them and health drinks.

 

 

 

Social
Influences

Without doubt, this
industry is significantly shaped and influenced by the changing views and
tastes of our society. In recent years, our culture has become a lot more
health conscious. This has given rise to the popularity and success of the health
drinks industry. Healthy drinks as an alternative to soft drinks, is a trend
which has boomed in Ireland only in recent years. This is arguably why VITHIT
struggled as much as it did in its infancy incl. cit.. As the popularity and
demand grows for health drinks, the industry will grow also. VITHIT have
forecasted its sales to double year on year for the next few years in the
current markets it occupies.

 

Technological
Influences

As technology improves,
production techniques and equipment will become more cost and time efficient. This
is allowing the health beverage industry to expand even further. Aside from
production, new distribution techniques allow producers to export & deliver
products more efficiently. For example, modern GPS Navigation systems allow
distributers to use more economical routes on their journeys incl. cit..

 

With the dawn of the
internet and social media, marketing has become a lot more accessible. The
health beverage industry produces products that are purchased primarily by
younger people. Therefore, it is no surprise that social media is heavily
utilised by the industry when it comes to promoting and advertising its
products.

 

Environmental Influences

Due to regulations and outside
pressure, companies are encouraged to reduce their carbon footprint. As a
result many health drinks companies use recycled plastic in their bottles. For
example, Innocent openly advertise that their bottles contain 100% recycled
plastic incl. cit..

 

Another overlooked factor
is the country’s climate in which companies operate. VITHIT is based in the UK
now, a country whose climate and surrounding countries’ climates, allow the
growth of materials needed for their drinks. This makes the needed ingredients
a lot more accessible and feasible to use. Hence transportation costs are a lot
less, seeing as they don’t need to transport ingredients from across the globe.

 

 

Legal
Influences

A prime legal influence
is government regulation. For example, the Food Safety Authority of Ireland
have various regulations placed on the nutritional and health claims of
products. “It is important that claims on foods can be understood by the

consumer and it is appropriate
to protect all consumers from

misleading claims.” incl. cit.. This prevents players in
the health beverage industry from using misleading slogans, descriptions and
titles in their branding.

 

Assessment of the Forces Driving
Competition in the Health Beverage Industry

 

Bargaining
Power of Buyers

The bargaining power of
buyers is best described as the ability of buyers to pressure companies, by
demanding lower costs and improved quality of products. In the health beverage industry,
this competition is rather high. The low price difference between brands allows
customers to switch easily. For example, according to SuperValu’s online store,
a 500 millilitre bottle of VITHIT ‘Berry Boost’ costs €1.50 while a 500
millilitre bottle of Robinson’s ‘Refresh’d Apple & Kiwi’ costs the same
incl. cit.. Prices are extremely similar across the different brands, causing
a lot of competition.

 

Buyers are highly
sensitive to the price of health drinks. They are willing to switch brands if
one goes up in price, or another reduces in price. Health drinks are not a
need, and due to the existence of various substitute products, customers will
not pay any price for them.

 

As the industry is not as
long established as the soft drinks industry for example, brand loyalty is not
as strong. Due to this and the price similarity of many of the products,
companies attempt to obtain buyers through other methods. For example companies
may develop their product portfolio to include new drink flavours, or they may
advertise how their packaging is eco friendly. Brands may also promote various
special offers and discounts available by buying their drinks. A good example
is how Innocent advertises that its bottles contain 100% recycled plastic.

incl. cit.

 

Bargaining
Power of Suppliers

The bargaining power of
suppliers in the health beverage industry can be described as a market of
inputs. To understand the extent of their bargaining power, we must ask how
easy is it for them to drive up prices. This depends on the number of suppliers
of each input used in the production & distribution process. In the
production of health drinks, fruit and vegetables are a key resource. The
number of suppliers of fruit and vegetables is extremely high incl. cit..

Therefore, suppliers have a low bargaining power, and will be more likely to
adjust pricing and terms to suit the company. This causes a lot of competition
between suppliers.

 

The number of packaging
and distribution companies are not in short supply. Therefore, there is a
natural competition between suppliers already. A company producing a beverage
can easily switch between, and select suppliers that do the most efficient job
at the most economical price.

 

Threat
of New Entrants

It is only recently, that
the health beverage industry has properly taken off. Due to the growing success
of health drinks & similar products, it has become a very attractive
industry to compete in. Companies can charge premium prices and capitalise on
the current demand for health beverage products.

 

However, in the industry
there is a high barrier to entry. Establishing a brand from scratch can be
difficult and challenging. A large amount of capital is needed to enter the
industry due to the high cost in developing drink recipes and setting up
production lines efficiently. After that there are significant costs in bottling,
packaging and distribution. It’s also a challenge for new entrants to the
market to develop an appealing brand identity, and then to market it
successfully. Therefore, it is likely for new entrants to emerge from already
established companies. For example, Coca Cola have several health drink product
lines in their portfolio incl. cit..

 

Another barrier to entry,
is that companies must get licenses and approval of their products from food
safety authorities within the country they reside. In Ireland, companies must
have a food traceability system so as to identify from where they have received
ingredients incl. cit.. In the health beverage industry, a threat of new
entrants does exist, but it is not extreme.

 

Threat
of Substitutes

There is a high threat of
substitutes in the health beverage industry. This is due to a mixture of two
factors: there is no cost incurred if a customer switches to a substitute
product, and there are a large amount of substitute products available on the
market. If a customer switches to a substitute, the difference they’ll pay is
very little. For example, customers have the option of switching to cartons of
fruit juice. They even have the option of making their own smoothies and juices
at home from purchased fruit and vegetables. Vitamin tablets can be bought off
the shelf, and dissolved in water as an alternative to vitamin drinks.

 

For an industry that is
not as long established as others (such as soft drinks), brand loyalty isn’t as
strong. Therefore, brands such as VITHIT and Innocent, do not have as strong a
pull as Coca Cola over Freeway Cola. Therefore to tackle the threat of
substitutes, health drinks companies must make a huge effort to make their
drinks affordable and convenient. The convenience factor is of most importance.

 

Intensity
of Rivalry

Companies compete
intensely in the health beverage industry due to a variety of reasons. There is
little differentiation between competing products; many drink flavours are very
similar and only differ in branding. This causes price rivalry amongst
competitors, battling to make their drinks the most affordable and attractive
to customers.

 

As the market grows, more
and more brands are entering the market, looking to get their cut of the market
share. This drives up rivalry significantly. With the large number of
competitors each offering equally attractive drink products, buyers have more
options to choose from. This gives companies less power. To battle this, producers
extend their product portfolios and introduce new flavours and types of drinks
to expand their market and increase revenue. A good example of this is how
VITHIT have introduced a line of kids health drinks – ideal for packing in
school lunch boxes incl. cit.. There is an increasing rivalry amongst health
beverage companies which will expand as the industry grows.

 

An Assessment of VITHIT’s
Internationalisation

 

VITHIT have taken
carefully planned steps to internationalise their products. Rather than rushing
in an attempt to populate multiple foreign markets at once, they have taken slow
and concise steps breaking into new markets. The company branched out from
Ireland, 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. Gary
Lavin believed – “if you get a good foothold in the UK, a lot of other
countries around Europe take their lead from that.” incl. cit.. This was a
good 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 the
shelves of UK retailers incl. cit.. In 2013, Tesco took notice of VITHIT and
began stocking their products. During this time, VITHIT expanded their product
portfolio to include a new drink flavour. Widening their product line would
expand their market opportunities. After impressively stocking VITHIT drinks in
Superdrug and Sainsbury’s stores, one could say that Lavin and O’Rourke had
conquered the UK market.

 

With a strong base in the
UK & Irish market, Lavin and O’Rourke began the careful planning of their
European expansion. At this time, plans slightly changed with VITHIT expanding
into several markets outside Europe, namely South Africa, Bahrain and United
Arab Emirates. A key part to VITHIT’s international success, is the attitude of
Lavin towards new market opportunities – “each market is different and they should
be treated differently.” Acting upon this vision, VITHIT cleverly tailored its
products & marketing for each country. Rather than shipping a standardised
product to all its markets, VITHIT localised packaging & adjusted recipes
when needed. For example, in South Africa VITHIT “was repackaged in slim cans
to appeal to local preferences.” incl. cit..

 

With VITHIT’s successful
expansion across the European market, the US was next in line for Lavin and
O’Rourke. Due to the sheer scale of the US market, they treated each state like
a 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.