This is a very competitive industry dominated by big multinationals. As an industry, it is also very volatile and is subject to many external factors, which can make it difficult for a small start-up business to succeed without a solid business plan. These factors include, but aren’t limited to, consumer brand loyalty, economic and financial fluctuations, both at corporate and consumer level as well as environmental and legal implications which limit their ability to produce products and provide barriers to production. Vit-Hit was founded due to a gap in the market for healthy tasty soft drinks because the majority of popular energy drinks and soft drinks are full of sugar and calories, something consumers no longer want (Students, 2017). Vit-Hit made this healthy vitamin drink their USP and exploited the gap in the market and growing consumer to demand to become the main health drink provider in Ireland and a significant presence overseas, especially in the UK (Students, 2017). While they struggled to make a profit at the beginning, due primarily to unfocused direction from the management and a lack of consumer demand due to a different consumer mindset at the time, they have managed to turn their fortunes around due to a focused business and expansion plan and are now forecasting unprecedented growth for the coming years (Students, 2017). This represents a dramatic change in fortunes and also reflects the volatility of the industry in which they are operating. This change in fortunes without changing the actual product shows how essential good leadership and marketing is and without it, a product is doomed to fail, regardless of how good it is.
There are a number of political factors which affect the production of drinks in the Health Drinks and Soft Drinks industry. Firstly the issue of tax is obviously a key concern for any business and this is especially true for companies in the Health Drinks industry. The issue of corporate tax is key when setting up a business as the rates vary massively between countries. Vit-Hit was very lucky to be set up in Ireland as it has one of the lowest corporate tax rates (12.5%) in the world and has been classed as a “tax haven” by some. As well as this taxes affecting products such as the new “sugar tax” in Ireland is a key concern and affects different companies differently depending on the sugar content of their drinks (Students, 2017).
For example, Vit-Hit has benefited from this tax as their products are low in sugar and the tax means the price of alternative drinks with more sugar in them has risen to match the price of Vit-Hit products. Secondly, the issue of Recommended Daily Allowances (RDA) which vary in different countries and are set by the governments have to be considered. For example, Vit-Hit had to reformulate their products for Scandinavia because the RDA of vitamins in Nordic countries is lower than in Ireland (Students, 2017). Economic Factors Like any industry that supplies consumers with products, the Health and Soft Drink industry is affected by economic factors. In order to sell large amounts of their products companies require the economy to be doing well in order for their customers to have a larger disposable income to be able to afford to buy their products. This is especially true if the product in question, such as Vit-Hit, is slightly more expensive. If the economy isn’t doing well and consumers don’t have as much disposable income more expensive products will lose out in favor of cheaper alternatives. The challenge of obtaining finance can also be difficult depending on the economic climate. This is especially true for start-ups trying to break into the industry as they are classified as a Small and Medium Enterprise (SME) which find it hard to obtain finance from the mainstream financial institutions. This directly affected Vit-Hit as they couldn’t obtain a loan from the regular sources and had look at alternative sources in order to get the necessary finance to fund the growth and development of the business (Students, 2017). This issue doesn’t affect the larger multinationals as much as they are large enough to be able to fund their own expansion with their own capital.
Consumer attitudes have changed in recent years and the Health and Soft Drinks industry has had to change to keep abreast of these changes. These changes have primarily led to the explosion of the Health Drink sector and the change in the Soft Drink industry to produce more “Diet” and low-calorie versions of popular drinks. This is primarily due to the change in consumer attitudes that took off in Ireland and the rest of Europe around 2010, and a few years previously in America. Also, companies have to tailor their target markets to the image of their product. For example, Vit-Hit has a young product image so they targeted countries with a young image such as the Scandinavian countries and Iceland. They purposely avoided expanding into France and Germany as these countries have an older, more traditional mindset and wouldn’t find the Vit-Hit range of products as appealing. They also tailored their products to the social preferences in South Africa. They did this by repackaging their products in slim cans instead of bottles to meet consumer preferences (Students, 2017). Technological factors Technological advancements and developments are key to this industry and companies must keep aware of developments in new technology in order to keep up to date. This is essential to avoid stagnation. It’s also essential to keep the production facility up to date in order to maximize production and minimize cost and make the production line as cost-effective as possible. New technological developments can also make it easier to develop new products that previously wouldn’t have been possible, e.g. products with a longer shelf life or low sugar versions that taste the same as the original products.
Vit-Hit took advantage of technological developments in their production facility by using an aseptic filling. This had a twofold effect of preserving the added vitamins in the drink and allowing them to use a thinner plastic in their bottles. This had a positive effect on both their costs and their environmental concerns (Students, 2017). Environmental factors Environmental factors and their implications are a key concern for businesses operating in the Health and Soft Drinks industry. This is especially important at the moment as people are very aware of the delicate balance of the environment at the moment and want to see large businesses care about the impact of their products and their production processes on the environment. Nowadays people will actively avoid products if they find out that the producer is damaging the environment or hasn’t taken the necessary precautions to prevent affecting the environment in a negative way, either in the production process or by using packaging which isn’t recyclable. Vit-Hit could follow this by using fruit juice grown in a natural, environmentally friendly way and by using recyclable packaging.
Legal factors are a huge issue for any business, but especially for ones that create and supply products for human consumption. It is so important that their products aren’t harmful and don’t cause sickness for consumers that there are many legal requirements for companies to fulfill. Firstly there are health and safety requirements in the workplace that the company must obey to ensure the safety of its employees and to prevent the contamination of products during the production process. In order to stop contamination, there are stringent hygiene laws that must be obeyed by all members of staff that come into contact with the product at any time before it is put on the shelf for the consumer to buy. There are also strict regulations on what additives, such as colorings and sweeteners, can be put in the products (FSAI, 2015). These regulations can vary from market to market and these variations affected Vit-Hit as it looked to expand into America. An issue arose due to the fact that their range of products included the amino acid L-Carnitine which was allowed under the regulations in Ireland but is banned in America (Students, 2017). This led to added costs for their expansion into America as they had to spend additional time and money on reformulating the product without L-Carnitine in order to obey the US legal requirements.
Porter’s Five Forces
The threat of New Entrants: The threat of new entrants to the market isn’t a huge factor to already competing companies in the sector, due to the already strong competition and brand rivalry that exists in the Soft Drink and Health Drink industry at the moment. A major issue or concern for new young companies entering the market is the strength of these well-established companies. They are, for the most part, large multinationals who have large financial power behind them and have the ability to squeeze small start-ups out of the market. They also have an established consumer base who maintain a high level of brand loyalty which makes it difficult for start-ups to gain market share (Patrick Lucas, n.d.). This means start-ups must have a well-planned and organized growth strategy in order to even get a foothold in the market. This is good for Vit-Hit as even though it posed a problem for them when they were starting out, it prevents potential rivals from getting off the ground and taking customers off them. The competitive nature of this industry meant that Vit-Hit had to find a marketing strategy that both differentiated their product from the competition and appealed to their target market (young health-conscious people).
The threat of Substitutes: This is a major issue in this industry and one that companies all have to take into account. Vit-Hit relies on the mindset of younger people nowadays being one of a health-focused person that will avoid unhealthy soft drinks and looks for a tasty, healthy alternative. If people were to start to care less about their health, Vit-Hit would face a major issue and would lose market share as people would choose cheaper, more well-known alternatives such as 7up or Pepsi instead of trying a newer more expensive product. Vit-Hit is also at risk of substitution and relies on people preferring convenience. Many people nowadays prefer to create their own smoothies from scratch at home and bring them to work. This reduces the demand for Vit-Hits products. The soft drink industry as a whole is also at risk of substitution as their poor value means that consumers are more likely to drink alternatives such as MiWadi which represents much better value and is relatively healthy. (Patrick Lucas, n.d.) (Students, 2017)
Vit-Hit operates in a very competitive industry area. This is because they are trying to carve out a market niche in the well-established soft drinks sector and health drinks market with a product that is the first of its kind and doesn’t really fit into one sector. Vit-Hit has many competitors, from well-established soft drink brands such as Coca-Cola, Pepsi, and 7up to more recent healthier alternatives such as Innocent Smoothies and Fruice fruit juices. The quantity and variety of competitors create a healthy level of competition which benefits the consumer. Having said that there is no product which directly rivals Vit-Hit by providing a healthy vitamin rich, low sugar tasty drink. Even so, they need to market themselves aggressively and keep their prices low in order to stay in touch with their soft drink competitors, whose prices tend to undercut those of Vit-Hit. (Patrick Lucas, n.d.)
The majority of suppliers in the Soft Drink industry don’t have a lot of bargaining power. This is especially true for the bottling and packaging supplier that a lot of drinks companies outsource to. This is primarily due to the abundance of companies in this area and the ease with which a major company can change supplier. This puts pressure on the suppliers to lower their prices and provide a service that is both better and cheaper than their competitors (Patrick Lucas, n.d.). Vit-Hit could come under a bit of pressure from its suppliers as it uses fruit juice and tea as primary ingredients in its products. Due to the Irish climate, certain fruits and teas will have to be imported from abroad. This poses a challenge for Vit-Hit as its suppliers could charge them higher prices and they might not have any option but to agree to their supplier's demands. (Students, 2017) Buyer Power: The consumers hold all the power in the Soft Drinks and Health Drinks market. They have certain key demands that will stay constant and the drinks companies have no choice but to cater to these demands if they want to be successful. These demands are: to provide a product which tastes good, which represents good value, and which is safe and healthy to consume without any adverse side effects. There are other demands which can vary depending on the market or the time period.
For example, there was no demand for low sugar health drinks in Ireland in the early 2000s but there is now and there is a low demand for Vit-Hit type products in Germany and France due to their preference for drinks with a higher fruit juice content (Students, 2017). Customers are also highly sensitive to the price of products in this sector and do not hesitate to change brands if one product becomes more expensive than its competitors. This is due to the fact that soft drinks aren’t an essential need that consumers will pay any price for. (Patrick Lucas, n.d.) Vit-Hits Strategy of Internationalization: In light of my above analysis I have concluded that Vit-Hits strategy of internationalization was well thought out and well-executed expansion plan that maximized market share takeover whilst also minimizing downsides by avoiding expanding into challenging markets. I was particularly impressed by the following aspects of their plan for internationalization.
The decision to rebrand the old Vitz drinks label to a catchier name was a key decision in their strategy. This gave their product a name that resonated with customers whilst also reflecting on what their product contains. It also made the product more globally appealing as the old name sounded too Germanic and wouldn’t sell as well in certain countries. The decision to change to bright labels was also influential in increasing sales. Streamlining Distribution Channels: The decision to get rid of their sales reps and replace them with a streamlined delivery service had a dramatic effect, nearly doubling the number of cases sold per year. It had a twofold effect of reducing overheads as there were fewer employees to pay and also streamlining the purchasing process for customers, making it a more attractive product to purchase and stock instore.
Targeted Internationalization: Vit-Hit did not just decide to expand into random countries or the closest geographically. They targeted specific countries which their products had the best chance of being successful in, such as the UK, which allows you to gain a foothold in the European market and countries with a young mindset such the Scandinavian countries and Iceland. They also changed their product where necessary to appeal to specific markets, such as the decision to pack their products in cans in South Africa. This sort of targeted internationalization was very successful and allowed them to gain greater market share in their chosen markets and achieve greater sales overall.
Steady Expansion into America: Vit-Hit has been very careful in their attempt to crack the US market. They have treated each individual state like a country and only move into another state when they have been successful in the previous one. This was a very intelligent way of going about trying to crack the large US market where there is much more competition and it has been successful for them thus far.