Report on VITHIT’s strategy and the industry in which it competes

by Mykola Babiy

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Introduction.

 

Vithit is currently the fastest
growing brand in the soft drinks industry in Ireland. With over 850,000 cases
sold in Ireland last year of their flagship product, which is a 500ml ‘hybrid
health’ beverage consisting of ‘water, tea, juice’ and a ‘hit’ of vitamins (Blair-White et al 2017).

 

Gary Lavin and Ian O’Rourke, the two co-founder meticulously examined the
soft drinks market both in its domestic market Ireland, and all external
international markets which specifically include “Iceland, Norway, Sweden, Holland, US, Spain…Slovenia
and Hungary” and
of course the UK (Blair-White et al 2017). Throughout the examination of these markets VITHIT
had to find suitable and sustainable methods of penetrating and adapting to all
the different industries. Along with this there was an endless amount of
competition, as O’Rourke mentioned in an interview “Anything that is low calorie…and up-and-coming.” (Blair-White
et al 2017).

 

It’s very interesting to see how VITHIT was at the right
places at the right time during to emerging trend of health-consciousness among
consumers, which occurred a few years after the recession when Irish economy had
begun recovering and was slowly improving.

 

In this introduction I will be going
into detail about the soft drinks industry in which Vithit operates, the
competition which Vithit competes against and finally the internationalisation
strategy which the company adopts. All three of these specific areas plays an
extremely important role in the functionality of the corporation and its
progress.

 

The soft drinks industry and its influences.

 

The soft drinks industry will be
analysed using a Pestle analysis in order accurately identify the details of
the industry in which Vithit operates. All six factors of the Pestle analysis
have a significant impact on the industry, these factors include: political,
economic, social, technology, legal and environmental (Frue, K. 2017).  Pestle analyses have tremendous advantages as
they help with the “idea phase, product development , product launching ,
content marketing strategies, and other factors to increase success.” (Frue, K.
2017). It is a very cost effective way of analysing an industry as all it costs
to carry out is time.

 

Political

Popular trends have a large impact
on the soft drinks industry and soft drinks are creating healthier options in
recent years, such that have zero sugar and less calories for example. This is
done not only to appeal to health-conscious buyers in the recent times, but
also to abide to newly proposed policies and laws to improve the quality of
beverages and also to avoid the sugar tax that has yet to be imposed in the
year of 2018. It is clear that brands that heavily depend on sugar will suffer,
unlike natural juice brands such as Vithit, “Tax of 30 cent per litre on drinks with over eight
grams of sugar per 100 millilitres will be introduced, along with a reduced
rate of 20 cent per litre on drinks with between five and eight grams of sugar
per 100 millilitres” (RTE News
2017). It has been a common trend in many different economies in the world to
impose these new regulations and legislations against sugary drinks in order to
ultimately benefit the public, in turn making the general public most aware of
the health benefits of reducing sugar consumption. An article online outlined
that “the global soft drinks industry
has faced unprecedented scrutiny from public agencies and regulators over the
impact soft drinks have on global health. Further excise taxes on soft drinks
are likely over the forecast period, as brand owners urgently transition their
portfolios towards healthier options.”
(Euromonitor 2017).

 

There is a beneficial and positive motive behind
the government imposing the sugar tax. Primarily it hopes to reduce the
consumptions rates of sugar in the Irish economy which they hope will further
reduce obesity and overweight individuals in the economy. As a whole this doesn’t seem like such a major problem, however obesity
and being overweight “is a clinical
condition that can contribute to the risk of developing a preventable long term
chronic disease.” (Department of Health 2016). All this backlash
against sugary drinks recently has shifted demand to soft drinks which contain
a low amount of sugar and incorporate natural juices and flavours, rather than
depending on sugar to appeal to consumers, “As the selling price of
competitor’s sugary offerings are likely to increase to levels comparable with
Vithit’s, sales for Vithit are expected to rise.” (Blair-White et al 2017). This
growing momentum of the health-consciousness movement is yet another
opportunity for Vithit to take advantage and drastically increase sales.

 

Environmental

In recent years, businesses and organisations are
focusing much more attention on the environmental impact their business have.
It’s clear that consumers tend to fend off and boycott business engaging in
environmentally damaging operations, according to the Ethical Consumerism
Report 2012 “boycotts have gone up 123 percent over 2010-2012” against
corporations that are harmful in some way towards the environment (Coles, H.
2012). This acts as a big indicator for all businesses to become more
environmentally friendly and also encourages them to point out and shame
competitors who openly abuse the environment. Vithit chose to exploit this idea
of environmentally-conscious consumers simply by producing a product that has a
fraction of a carbon footprint compared to its substitutes; “Vithit
specifically decided to use aseptic filling because of its environmental and
product packaging benefits. An aseptic fill removes the need to heat the liquid
and so a thinner plastic can be used in bottling.” (Blair-White et al 2017). By reducing the plastic required per bottle
Vithit appeals greatly to consumers.

 

Legal

Even in
the soft drinks industry there are legal laws by which businesses and
organisations must abide. Each country has different laws which makes it
difficult to globalise and exploit economies of scale as products have to be
adjusted to respect the laws and regulations set in the given country. The US
is one of the most populated countries in the world with a current approximate
population of 325,869,363 (World Population Review 2017), and most businesses
outside of the US consider the US to be a good market to enter in order to
benefit from the large amount of consumers and the potential economies of scale
which can be exhausted. In order for Vithit to enter the US market they had to
tailor their product and make slight adjustments to their formula to avoid any potential
lawsuits, “reformulating it to remove L-carnitine, which is not permitted in
liquid products in the US.” (Blair-White
et al 2017). Ultimately even such a slight
adjustment will drive up the cost of production for Vithit, however it’s a
price they’re willing to pay as the market they will reach is so vast and full
of promising returns.

 

Social

Soft drinks trends shift purely
based on what the consumer wants. As mentioned several times throughout this
analysis, in recent times healthiness is the focus in many countries. This is
not only pushed by the government and its policies, but also by the consumer.
The power of the consumers is underestimated by many companies and this turns around
to bite them in the long run (Fray, K. 2017). It’s extremely important to
define the socio-economic class to which your target market belongs, Vithit on
the contrary decided not to specify a target market and in turn never
specifically had a set class of which their consumers will consist of.

In the provided case study, its
mentioned that “its market is very mixed, comprising both higher and lower
income socio-economic classes. Management believed that if Vithit succeeded in
such a mixed market, it would enjoy success in more affluent ones.” (Blair-White
et al 2017). This reinstates the tactical
yet unforeseeable method Vithit adopted. They’re confident that their product
will perform well in both a poor or rich economy and with this data and
observation they can further globalise their product, not stressing that the
socio-economic class will affect their sales in a major way.

 

Competition.

 

There are five forces that drive
competition according to Michael E. Porter, who was a Harvard Business School
professor. They include: Threat of new entrants, power of supplier, power of
the buyer, threat of substitution and competitive rivalry (Porter, M. 1979). These
can be applied to almost all industries, and are very beneficial to identify.  

 

Threat of New Entrants

Since Vithit were one of the first
to latch onto the healthy drinks trend they had a solid foundation when time
actually came around to make some revenue. This however didn’t stop new entrants from entering the market as it was
clear that some big money could be made from this new category of consumers. Some
of the most common brands that come to mind are Vitamin Water, Innocent, and
all of the heavily sugared soft drinks such as Coca-Cola, Fanta, Pepsi etc.
also have to be taken into account although they aren’t specifically part of
the healthy drinks trend. Statistically speaking, “In 2016, Vithit was the
fastest growing soft-drinks brand in Ireland” (Blair-White et al 2017). This
confirms that Vithit have had a successful 2016 in terms of growing brand
awareness.

 

Power of the Supplier

Vithit has a wide range of products
which helps the suppliers attract the customer in store through what Ian
O’Rourke referred to as the “rainbow effect” (Blair-White et al 2017),  this is beneficial to both Vithit as their
sales surge and also to the supplier as they then have a product that sells
generating revenue. Having the option of so many different appealing products
reduces the possibility of the consumer switching to a cheaper alternative such
as Innocent Smoothies, or Coca-Cola. Since there aren’t many health drinks
substitutes to Vithit, the suppliers can’t negotiate to harshly with Vithit to
reduce the price as they need to provide the consumers with what they want.

 

Power of the Buyer

Here it
is important for Vithit to ask how easy it is for buyers to drive their prices
down (MindTools). The customer exerts power through being able to simply
switch to a cheaper alternative, or by having certain preferences in mind.
Since Vithit has many buyers, specifically in 2016 they had “over 20 million
units sold” (Blair-White et al 2017), they have some sort of power over the buyers as
“power increases if you have many customers.” (MindTools). In other words, the
buyer doesn’t have such a large impact on the product if they don’t like it in
some way and purchase their competitor as this one loss of a sale accounts for
such a small percentage of overall sales.

 

Threat of Substitution

One of the main differentiators
Vithit has to the competition is the ‘aseptic fill’. This differentiates them
from competitors and solidifies their position in the market in terms of being
substituted (Blair-White et al 2017). Having a very specific mode of production however
means that they don’t have
much bargaining power when it comes to producers, as what they were demanding is
very specific and unavailable to produce in Ireland. In an interview Ian O’Rourke mentioned how specific their process of
production is for the main Vithit 500ml products, “It’s an
aseptic fill, which is cold fill, and it’s very technology dependent. Vithit don’t have preservatives in the drink so you either do a
hot fill like pasteurisation but the bottle has to be a very thick and ugly
one. This one is aseptic so it goes in cold, but it’s in a sealed environment so it takes out all the bugs. You
can’t do it in Ireland, it’s very specialised technology so you do it in the UK” (Blair-White
et al 2017). This once again
re-instates the idea that Vithit have a unique process and it’s unlikely
substitution will occur.

 

Competitive Rivalry

The fast growing recent health trend
in Ireland has displayed an emergence of many new health drinks in the Irish
market (Blair-White et al 2017). Vithit has clear intentions of dominating its
domestic market and in order to do “intensified its marketing and PR efforts.” (Blair-White et al 2017). In
order to attract younger customer’s social media becomes a key tool, and Vithit
“has a strong online presence on Facebook, Instagram and Twitter.” (Blair-White et al 2017). It’s
clear that Coca-Cola is one of the main competitors as they dominate almost every
soft drinks market worldwide. The have an extensive soft-drinks portfolio of
Sprite, Fanta, Powerade, Simply Orange and one of Vithit’s biggest US
competitors which is Vitamin Water. (Coca-Cola
Product Description). The soft drink industry in saturated at such a level that
Coca-Cola being one corporation has “more than 3,500 beverages and 500 brands” (Bhasin,
K. 2011). Vithit are dominating their domestic market as they do “about 850,000
cases in Ireland.” (Blair-White
et al 2017). This is incredible as Ireland
has an approximate population of 4.75 million people (CSO 2016).

 

Internationalisation.

The question on whether Vithit is a
multinational or global corporation is simple to answer if we incorporate
Theodore Levitt’s definition of both. Levitt outlined that a multinational
corporation operates in a large number of different countries and adjusts its
products and practices in each at high relative costs. “Global corporations
operate with resolute constancy, at low relative costs, as if the world were
one entity; they sell the same thing in the same way everywhere.” (Levitt, T.
1983). Vithit being the multinational corporation tailors their soft drinks formula
to each different market to appeal to the laws and regulations as well as the
consumers, this drives up production costs, however appeals to consumers and
respects countries governmental laws. Vithit incorporated “mild tailoring of
both the product and their marketing campaigns in different countries.” (Blair-White et al 2017), this deemed to be extremely useful as Vithit to
this day performs well in many different markets where consumers have specific tastes
and preferences in relation to their soft drinks, for example “in South Africa,
Vithit was repackaged in slim cans to appeal to local preferences.” (Blair-White et al 2017).

 

One of the initial two co-founders,
Ian O’Rourke, had a lot of experience conducting business internationally
therefore he knew what needed to be done in order to successfully penetrate
markets all over the globe. O’Rourke talked with Gary Lavin the latter of the
co-founders about the previous brand name ‘Vitz’ and said it sounded too “germanic”
which was off-putting an unsuitable for internationalisation. Instead, “Vithit
is a nice short term, it says exactly what it does in the bottle. It also can
travel across cultures and across languages, which is important” (Blair-White et al 2017). This was the very first step to creating the
multinational corporation they were setting out to build.

 

One of
Vithit’s most successful markets is Iceland as the number of bottles sold in
2016 was 300,000 which may not seem like much, until we consider the population
size of 330,000 in Iceland (Blair-White et al 2017), to further solidify my point the ratio of bottles
sold to population size is 1:1.1. This is incredible and one of the reasons the
drink is so successful in Iceland is because the Icelandic population really do
enjoy the drink and truly want it, “You’d see on the social media all the
lagoon pictures, there are rappers up there, Icelandic supermodels love it,
tweeting about it.” (Blair-White et al 2017). Paul Graham who is one of the co-founders of
Silicon Valley’s most well-known seed accelerators for start-ups, coined a
powerful mantra which goes “Make something the people want.” (Paul
Graham 2008). It’s evident through this example that Vithit really did provide
Iceland with a product they really wanted, and in return Vithit are enjoying
current and foreseeable revenues from this one market.

 

After looking at how successfully
Vithit won over consumer’s in Iceland, its believable that Vithit carry out a
very critical and specific analysation over which markets they should enter,
and more importantly which markets to steer clear from. Gary Lavin mentioned that
their market expansion plans are very pernickety, “we’re growing carefully –
not just firing it at every country and seeing what lands.” (Blair-White et al 2017). When Vithit set its eyes on the US as a potential
market, knowing the scale of “Vithit’s success in the European market”, they agreed
upon a conservative approach, not to “go out all bells and whistles.” (Blair-White et al 2017). Their ‘conservative
approach’ consisted of a plan to “treat the first state like a country” (Blair-White et al 2017), this
was very intelligent as most of the markets Vithit previously entered were a
fraction of the size of the US. Vithit have successful experience with entering
small scale markets.

 

Conclusion.

 

The soft drinks industry is seeing
large shifts and changes due to consumer consciousness and changing tastes and
preferences. A recommendation I would make to Vithit would be to try increase
their brand loyalty in order to get consumers to repeat purchases rather than
having to constantly attract new customers. This will also allow Vithit to
sustain profits and maintain the market share. This could be achieved through
solid and persistent marketing campaigns, similar to Coca-Cola’s and Pepsi’s. A
few years back statistics showed that “Diet Coke had the second highest brand
loyalty of all the soft drinks competitor’s brands” (Zeigler Paper 2006).

 

Based on previous concepts I’ve mentioned
in this report, Vithit are performing exceedingly well in their industry of ‘soft
drinks’. It’s important that Vithit continue to make smart and specific choices
about the markets they plan on entering. This will save them time and energy as
the product will potentially flourish with minimal marketing rather than enter
every large market, one after the other hoping that it sticks and the people
enjoy the product. Markets who are late on global trends are good examples of
markets to avoid. Ian O’Rourke mentioned that they avoid “the likes of Germany
and France”, two huge markets, however these are “price conscious countries with
different flavour profiles.” They also tend to be fairly behind on trends blossoming
in other countries around them, “France is at least 5 years behind on trends.” (Blair-White et al 2017).

 

All in
all, Vithit are dominating in the industry of ‘healthy’ soft drinks and will
continue to do so if they stick to their roots with regards to market selection,
eliminating competitors, and being an environmentally conscious organisation.

 

Bibliography.

 

Bhasin, K. (2011). “15 Facts About Coca-Cola That Will Blow
Your Mind”, Business Insider, 9th June 2011. http://uk.businessinsider.com/facts-about-coca-cola-2011-6?r=US&IR=T/#31-of-all-beverages-consumed-around-the-world-are-coca-cola-products-1

 

Blair-White
et al (2017). Blair-White, H., Byrne, N., Collins, A., Crowe, L., Earley,
A., and Greene, C. (2017) “VIT-HIT Strateg-Tea: TBS Case Study”, Dublin: Trinity Business School, Trinity College

 

Coca-Cola Product Description. “Product Description – Coca Cola”, Website.http://www.coca-colacompany.com/brands/product-description

Coles, H. (2012). “Are consumers becoming more aware of environmentally sound business?”,
BusinessGreen. https://www.businessgreen.com/bg/sponsored/2364029/are-consumers-becoming-more-aware-of-environmentally-sound-business

 

CSO (2016). “Census
of Population in 2016 – Preliminary Results”, Central Statistics Office, 14th
July 2016. http://www.cso.ie/en/releasesandpublications/ep/p-cpr/censusofpopulation2016-preliminaryresults/

 

Department of Health (2016). “Introducing a Tax on Sugar Sweetened Drinks”, Department of Health
Ireland, October 2016. http://health.gov.ie/wp-content/uploads/2016/10/INTRODUCING-A-TAX-ON-SUGAR-SWEETENED-DRINKS-FINA.pdf

 

Euromonitor (2017). “Soft Drinks Global Overview: Key Trends in 2017”, Euromonitor,
April 2017. http://www.euromonitor.com/soft-drinks-global-overview-key-trends-in-2017/report

 

Frue, K. (2017). “PESTLE Analysis, PEST Analysis Example or
the Food Industry”, 8th February 2017. http://pestleanalysis.com/pest-analysis-example-for-the-food-industry/

 

Graham, P. (2008). “Be Good”, April 2008. http://www.paulgraham.com/good.html

 

Levitt, T.
(1983). “The Globalization of Markets”,
World Population Review, May 1983. https://hbr.org/1983/05/the-globalization-of-markets

 

MindTools. “Porter’s Five Forces, Understanding Competitive Forces to Maximise
Profitability”, MindTools Website. https://www.mindtools.com/pages/article/newTMC_08.htm

 

Porter, M. (1979). “How Competitive Forces Shape Strategy”,
Harvard Business Review, March 1979. https://hbr.org/1979/03/how-competitive-forces-shape-strategy

 

RTE News (2017). “Sugar Tax from April 2018, VAT increase
for sunbeds”, RTE News, 10th October 2017. https://www.rte.ie/news/budget-2018/2017/1010/911256-sugar-tax-on-soft-drinks-set-to-be-introduced-from-apri/

 

World Population Review (2017). “United States Population 2017”, World
Population Review, December 2017. http://worldpopulationreview.com/countries/united-states-population/

 

Zeigler Paper
(2006). Deichert, M., Ellenbecker, M., Klehr, E., Pesarchick, L., and Ziegler,
K., “Industry Analysis: Soft Drinks”,
22nd February 2006. https://www.csbsju.edu/Documents/libraries/zeigler_paper.pdf

 

 

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