Although according to its website VITHIT is

Although
according to its website VITHIT is considered to be a “low-calorie vitamin
drink”, it competes in the soft drinks industry, against popular and well-loved
brands such as Coca-Cola and Pepsi. This industry is valued at approximately
€1.5 billion in Ireland alone, (Bord Bia, 2018), and approximately 685 million
litres of soft drinks are sold in Ireland annually (Russell 2017). Thus, the
soft drinks industry is highly competitive, and VITHIT have had to make very
strategic moves in marketing and distribution in order to gain and maintain the
level of popularity that the brand currently enjoys, both nationwide and
globally. To examine the effects of significant influences on this industry, I
will use a PESTEL analysis; I will look at political, economic, socio-cultural,
technological, environmental and legal influences on the soft drinks industry.

POLITICAL

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The
introduction of a sugar tax into a country or state would have a negative
effect on the soft drinks industry, as many of these beverages are extremely
high in sugar. These taxes are usually brought in in an attempt to curb the
obesity crisis that is gripping countries all over the world. For example,
according to Coca-Cola’s website, a 330ml can of Coca-Cola contains 35 grams of
sugar, however the American Heart Association recommends an overall daily
intake of no more than 36 grams of sugar for men, and 25 grams for women. A
sugar tax is expected to come into effect in Ireland in April 2018, and the
effects of this are expected to have harmful consequences for the Irish soft
drinks industry, mainly through cross-border smuggling. The Irish Beverage
Council in 2017 stated, “There is also a significant economic threat to
cross-border trade. With 231 entry points between the Ireland and Northern
Ireland and no customs controls at these points, any imports of soft drinks by
wholesalers would have to be subject to voluntary declaration and self-assessment.
This presents a real risk of cross-border smuggling and a risk of
non-controlled products entering the market.” We can also use Denmark as a
reference point for the weight of the problem; the state lost out on an
estimated €38.9 million in VAT after the implementation of its sugar tax due to
cross-border smuggling, and hence decided to abolish the tax. The state also
claimed it made no ‘measurable” change in public health nationwide (Irish
Beverage Council, 2017).

The
IBC estimated that the Irish soft drinks industry would make losses exceeding
€30 million through cross-border shopping should a sugar tax equating to 10c
per can of soft drink be brought in. This equates to approximately 11% of the
market’s value. Soft drinks are also changing their recipes to avoid being
heavily taxed; for example, Lucozade has announced they are reducing the amount
of glucose-based carbohydrates in their ‘original’ flavour beverage by 50% as a
direct result of the tax (Russell, 2017).

ECONOMIC

There
is a trend within countries with populations who have higher disposable
incomes, e.g. Ireland, to spend more on soft drinks, hence why the soft drinks
industry has prospered in Ireland. A good example of this is Chile, where the
population are among the highest consumers of soft drinks worldwide, drinking
an estimated 141 million litres of soft drinks per capita. This high
consumption is directly linked to the high levels of employment and stable
economic situation that is experienced here, giving the Chilean people a
relatively high disposable income (Sheth, 2017).

SOCIO-CULTURAL

A
great example when looking at the socio-cultural impact on the soft-drinks
industry is looking at the socio-cultural impact of Coca-Cola on the country of
India. In order to penetrate the rural market, the area with the highest
population but lowest consumption of carbonated beverages, and in order to
compete with other, more traditional drinks; the company released a bottle 50%
the size of the previous bottle, to make the drink more accessible to a
population with a lower disposable income (Karam, 2013). A factor that caused
huge concern to the Indian population was the discovery that pesticides that
are dangerous to human health were found to be present in fully manufactured
soft drinks. This led to bans across the country, and Coca-Cola were made to
agree to treat all water used in their manufacturing process with activated
carbon filtration and run the water through a purification process to ensure
there are no remnants of pesticide present in the product.

TECHNOLOGICAL

Technological
advances mean that soft drinks can be produced on mass for global distribution
and consumption, while social media means that drinks corporations can reach a
much wider audience with campaigns and advertisements. When Coca-Cola
implemented their ‘Share a Coke’ campaign in 2013, they created a social media
frenzy which encouraged Coca-Cola sales, with millions of people posting their
Coca-Cola bottles on social media, and the campaign trended; this created a sort
of ‘free’ (not including cost of printing) advertising campaign, and one which
probably reached many more people than a regular campaign would. Another
technological advancement that revolutionised the manufacturing process of diet
soft drinks was Pursuit Dynamics’ PDX Sonic 25 supersonic food processing
system, a system that claims to cut the cleaning time of artificial sweeteners
such as Aspartame by 80% by using shockwave technology. It won Technological
Development of the year at the 2005 Food Processing Awards (Mercer, 2005).

ENVIRONMENTAL

Coca-Cola
has had to confront multiple issues concerning its “quality, resource
exploitation and market exploitation along with price-quality trade-offs”
(Karam, 2013). Coca-Cola has polluted the ground water and soil in India due to
its waste extracts; due to this pollution, locals are suffering from a scarcity
of safe water. This issue especially concerns farmers, as it reduces the supply
of water that is needed for irrigation in the hot climate.   Locals also complained about the amount of
water that the production of these soft drinks requires, and because of this,
Coca Cola agreed to reduce their water consumption by 34%. Coca-Cola’s
exploitation of the water sources in India can clearly be seen in their 1908 slogan,
“Good Till the Last Drop.” Thankfully, Coca-Cola plans to be ‘water-neutral’ by
2020, meaning they plan to replenish every drop of water that is used in their
production process; this could have a knock-on effect within the soft drinks
industry, with other big corporations following suit.

LEGAL

Something
that has an impact on the soft drinks industry worldwide is legal restrictions
on certain substances in drinks within different countries and states. For
example, according to the FDA’s website, “Only food and color additives that
are determined to be safe, based on scientific information available to FDA,
may be used in carbonated soft drinks.”   
The FDA also have strict regulations on the containers the beverages are
stored in, and the labels used. These restrictions merited a lawsuit against
The Coca-Cola Company, PepsiCo and Doctor Pepper Snapple, as it was stated that
the use of the word ‘diet’ in the title of low-sugar drinks could cause their
misuse, and add to consumer weight-gain (Watson, 2017).

 

 

2.         Using the Porter 5 Forces framework
assess the forces driving competition in the industry.

The
‘Porter’s 5 Forces’ framework is a tool used to evaluate the competition faced
by a business within an industry. It comes under five headings: the Power of
Buyers, the Power of Suppliers, the Threat of New Entrants, the Threat of
Substitutes and the Intensity of Rivalry.

POWER
OF BUYERS

Soft
drink manufacturing, distribution and sale is a massive process, with Coca Cola
producing approximately 32 million cases of their beverages in Ireland alone,
and selling over 1.9 billion servings of their drinks in over 200 countries
every day (coca-cola.ie, 2017). Consumers are highly sensitive to price changes
within any market, but especially within the beverage market, as soft drinks
are consumed daily by millions of people worldwide. Despite many customers
having strong brand loyalties, a mark-up in price could shake a buyer’s faith
in a brand; this means competitors within the industry must keep prices low in
order to retain their customers. As the main buyers of soft drinks are large
retailers, they are highly price sensitive as they are looking to resell and
make a profit. Due to the industry being so competitive, it is very easy for
the customer to change suppliers, and the price mark-up is usually
insignificant. Firms can also incentivise a purchase by running competitions on
the labels. They also promote growth by sponsoring events; for example, Coca
Cola has sponsored the Olympic Games since 1928.

POWER
OF SUPPLIERS

The
main ingredients for soft drinks are water, sugars, carbon dioxide, juices,
preservatives, flavourings, colourings and acids (britishsoftdrinks.com, n.d.).
Each firm has a different formula and a different flavour for their beverages,
and so they require different ingredients in different quantities. As the
ingredients are easily sourced from many different manufacturers, these
companies do not have much bargaining power. The quality of the ingredients
used is very important for taste and consumer safety, e.g. as water is the main
ingredient in carbonated soft drinks, it must be from an unquestionably
sanitary source, and all flavourings and preservatives that make up the soft
drink must be approved by the FDA (or the equivalent within said country). As
the most expensive ingredient in the soft drink is the sweetener, companies
often try to find cheaper alternatives; for example, high fructose corn
sweetener (HFCS) is used as an alternative to sucrose, which is expensive.
(Northwestern Extract Co., n.d.)

THREAT
OF NEW ENTRANTS

The
two main competitors in the soft drinks industry are The Coca-Cola Company and
PepsiCo. Coca Cola owns four out of the five most popular soft drinks: Coca
Cola, Diet Coke, Sprite and Fanta. New entrants to the market are not usually
much concern, with these firms dominating the market, as between them they
control over 70% of the market.

THREAT
OF SUBSTITUTES

Coca
Cola and Pepsi (original) are probably the two best-known substitutes within
the soft drinks industry, along with other almost interchangeable beverages
such as ‘7up’ (Schweppes), and ‘Sprite’ (The Coca Cola Company); ‘Fanta’ (The
Coca Cola Company) and ‘Club Orange’ (Britvic Ireland), and ‘Dr. Pepper’
(Snapple) and ‘Coca-Cola Cherry’.

INTENSITY
OF RIVALRY

The
Coca-Cola Company and PepsiCo. have been in brutal competition with each other
for over 50 years. Engaged in what has been dubbed the ‘cola wars’, they have
produced countless advertising campaigns against each other, including ‘The
Pepsi Challenge’, in which Pepsi won over Coke in a taste test. This led Coca
Cola to produce a sweeter, more citrusy drink they called “New Coke” in 1985,
to compete with Pepsi’s lighter taste, but sales plummeted, and they abolished
the product in July 2002, (Bhasin, 2011).  Although Coca Cola controls more of
the cola market (42% compared to Pepsi’s 31%), Pepsi’s multiple products and
expansion into the snack industry and its focus on healthier drinks (such as
VITHIT), mean it brings in more revenue ($58.7 billion in comparison to Coke’s
$35.2 billion) (Cnntees.com, 2011).

 

 

 

 

 

 

3.         Assess VITHIT’s strategy of
internationalisation in the light of your analysis.

Internationalisation
is defined as the process in which a business becomes more actively involved in
the international market, or essentially, the expansion of a brand into the
global market (Azuayi, 2016). VITHIT’s strategy of internationalisation has
essentially been a slow and steady creeping of its products into carefully
chosen markets worldwide. First, the brand focused on the expansion of its
domestic market; it struggled for a number of years after the property crash of
2008, it faced closure as it became insolvent, and its distribution processes
were dated and expensive. They were not focusing on any market strategy; they
were simply trying to keep the company afloat. They also began attempting to
sell in Belgium, Holland and the UK simply to generate much-needed revenue;
however, they enjoyed little success with inefficient market strategy or advertisement.
VITHIT fixed its sights on perfecting the product, the manufacturing and
distribution process and reducing the general cost of operations before even attempting
to break into the harsher international markets, “we’re growing carefully – not
just firing it at every country and seeing what lands,” (O’Rourke, 2017). O’Rourke
and Lavin’s overall aim is to become “one of the biggest global independent
brands in the soft drinks category without a big backing from Coke or Pepsi”
(O’Rourke, 2017).

VITHIT
had realised early on what many corporations fail to realise altogether – “each
market is different, and they should be treated differently,” (Lavin, 2017). The
company are attempting to break into a very specific market – the healthy
‘detox’ craze which hit America first and eventually came to Ireland hasn’t yet
reached all corners of the globe, hence why they are very strategically
planning which countries to begin distribution. “VITHIT was created because of
a lack of healthy drinks available in our fridges today. ‘Most drinks contain
buckets of sugar. Sugar means calories, and people no longer want calories in
their diet'” (addictedtoeverything.com, 2015). His words have carried through
into his product, as every flavour of VITHIT contains 35 calories or less, with
the least calorie heavy choice being just 15 calories, and one drink contains
100% of the RDA of a variety of vitamins and minerals. This is an important conclusion
to come to, with recent evidence stating that 90% of Irish adults will be
overweight by 2030, (O’Rourke, B, 2016). In the grips of an obesity crisis,
VITHIT came to Ireland at just the right time, and coupled with the foresight
of Lavin and the expertise of O’Rourke, it was gently guided to success.

Indeed,
one of the greatest factors in VITHIT’s international success is the
perseverance and self-belief of the two CEO’s of the company in bringing their
product to the international marketplace. In an interview with addictedtoeverything.com,
Lavin tells of a UK retailer who had no interest in distributing the drink to
any of its London stores. Lavin made his way around London selling VITHIT to
customers all over the city within these shops, and just 22 weeks later they
had already become the number one health product in 50 stores. He states, “You
need persistence and to push and push until it happens. Make them remember you.
You can’t just be like every other person they have met.”
(addictedtoeverything.com, 2015).

The
company’s big break came in their deal with Tesco in the UK, as they claimed
that if a product successfully hits the UK, the rest of Europe will essentially
follow suit, (O’Rourke, 2017). However, the firm’s lacklustre approach to
selling the product, placing it on the back shelves of the dry stores, meant
the beverages performed poorly, especially in comparison to soft drinks. The
company’s strong characteristic of perseverance carried them through this
difficult time, and they proved themselves with sales within Tesco Express,
showing Tesco that they are an ‘on-the-go’ drink of sorts, that can be grabbed
by a busy worker along with their sandwich or lunch. Another huge success for
the brand was the signing of contracts with El Corte Ingles in Spain and
Shoprite Checkers in South Africa.

A
major drawback to this style of marketing is that VITHIT are set to miss out on
the prosperous and affluent French and German markets –  these are populations with high disposable
incomes and stable economies, but ones the healthy-eating trend appears to have
glossed right over. They have heavier palates, and prefer a drink that is
heavily juice-based. On the contrary, VITHIT is flourishing in more modern and
youthful Scandinavian markets,
with 2016
sales amounting to 300,000 in Iceland with a population of just 330,000
(O’Rourke, 2017), and 50,000 cases of VITHIT were sold within the first three
weeks of distribution. VITHIT is now available in Denmark, Iceland, Sweden,
Norway and Finland (as of December 2016).

The
beverages entered the US market in 2015 within just one state: Virginia. They
considered Virginia to be a mixed market as the population varied between
affluent and less well-off. They believed that if the product succeeded in such
a harsh market that it would thrive throughout the US. VITHIT is also now
available in 6 states in the US; this was a deliberate strategy to see how the
beverages would fare against more popular ‘healthy’ drinks such as Coca-Cola’s
smartWater and Bai. O’Rourke struck a clever distribution deal in these states with
PepsiCo., which reduces VITHIT’s costs drastically, and acts as a sort of safety
net, giving it a comfortable margin within which it can prosper or fail in its
US venture.

Something
that VITHIT have had to deal with is trying to adhere to the regulations of the
approved substances within various countries: to do this they have had to
change their recipe for distribution within these countries. For example, they
had to reformulate the beverages upon their launch into the US as they
contained L-carnitine – a substance that is prohibited by the FDA in liquid
products, (VITHIT case study, 2017). They have also changed the product to suit
different palates or to compete with rival products within certain countries;
for example, in order to gain the upper hand against contending products in
South Africa, VITHIT replaced their trademark wide-necked bottles with slim
cans to conform to the locals’ likings (Harrison-Dunn, 2015).

Although
they are not a vitamin water per se, these are their main competitors, and
Lavin has a theory as to why vitamin waters haven’t fully taken off in the
European markets. The answer is simple – taste. “I’ve never seen anyone taste a
functional water and say “Wow – that tastes incredible!”” Lavin claimed in an
interview with beveragedaily.com. Although popular in the US, watered down
juices simply do not appeal to the European palate, and so other brands have
failed to succeed where VITHIT have in terms of taste. Lavin stated, “I don’t
want to make any outlandish health claims, I just wanted to put as much health
into a bottle while it still tasted great.” (Harrison-Dunn, 2015).

To
conclude, VITHIT’s slow but steady approach to internationalisation has helped
them to overcome their early adversities and become a roaring success. Their
beverages are available in Iceland, Norway, Sweden, Denmark, Holland, the UK, Ireland,
Belgium, Malta, South Africa, Bahrain, the UAE, Slovenia, Hungary, the US and Spain.
(O’Rourke, 2017). Their persistence and determination as a company have
resulted in them becoming the fastest-growing soft drink brand in Ireland, and
as of 2016 they employed 20 people across 16 markets (O’Rourke, 2017). Their
timely deal with PepsiCo. has made easy pickings of the US market so far.

 

 

 

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