Political:Taxesincrease the cost of sales, meaning businesses will have to raise their prices. The more expensive the product, the lesslikely consumers are to buy it. However,current health trends in Ireland will benefit Vithit with the introduction ofsugar taxes in 2018, “The tax will apply at a rate of 30 cent per litre ifdrinks have over 8g of sugar per 100ml while 20 cents per litre tax will applyif drinks have between 5g and 8g of sugar per 100ml. Drinks with less than 5gof sugar will not be taxed” (Pope, 2017). Vithit lean & green has 1.3g of sugar per100ml (O’Connor, 2017) while 7up has 11.2g per 100ml (Kenny, 2012).
Vithit isn’t being taxed unlike itscompetitors. Consumers are turning awayfrom soft drinks towards healthier alternatives, leading to greater sales for Vithit. Economic:Ina bad economy, consumers have less money to spend on discretionary items,meaning sales for luxury products like Vithit fall. Being an expensive product makes it sensitiveto price change. Profits increase if theeuro is weak as the product is exported to sixteen foreign markets (Blair-Whiteet al 2017). They must considerinternational trade, import tax, exchange rates and foreign economies, whichinfluence the price Vithit sells their products. The use of aseptic filling means less plasticis required for bottling, cutting costs.
Although it’s within a niche for health drinksit still competes with the all other drinks in the beverages industry. Vithitmust consider the competitor’s prices, marketing techniques and market share. Securingfinance is difficult, Vithit is small and could pose a risk, so they turned toalternative sources like peer-to-peer loans from linked finance.
Social:Ireland is very health conscious, after risking becomingthe most obese country in Europe within the next decade (Cullen, 2016). People are making lifestyle changes to behealthier. At the time of Vithit’s establishment, “colas and sports drinkscontained 20-28g of sugar, yet the recommended daily total sugar intake perperson is only 25g” (Blair-White et al 2017), so Gary Lavin decided to develop ahealthier alternative. Using asepticfilling ensures all added vitamins and benefits survive but the product issterilised, this appeals to parents looking for alternatives to sugary drinksfor their children. They “worked theiryouthful, fun brand image into witty advertising slogans and self-deprecating humourfeatured on their bottles” (Blair-White et al 2017) using “punny” productnames, including ‘immunitea’ and ‘vitalitea.’ Vithit considers what consumers want, switchingto wider bottles in Ireland and slim cans in South Africa.
Technological:Vithit must consider its machines, do they need to beupgraded? Are they as efficient as theycould be or as their competitors? Theymust consider these questions when budgeting. Occasionally they will need to upgrade their machines which will beexpensive but in the long run the efficiency will enable them to save money,cut costs and make redundancies, allowing them to reduce their price andincrease sales. Regarding advertising, beingthe main sponsor of ‘Masterchef’ is good brand exposure along with a blog,Facebook, Instagram and twitter pages, to interact with its consumers “socialmedia has become a key means of engaging with its younger consumers”(Blair-White et al 2017). This lets themsee what consumers are looking for and appeals to the younger market throughwitty posts on a platform they will see and enjoy. Environmental:Because Vithit is a health drink containing fruitjuices, they need good quality fruits harvested from a clean environment. Other ingredients include water; therefore, itis in their interests to source a clean water supply, this will affectcompetitors as well as themselves. Vithitsells its product in a recyclable plastic bottle, which helps with advertisingas they can show themselves to be a green company who cares about theenvironment.
The business’ use ofaseptic filling has environmental benefits as well as social as it removes theneed to heat the drink, allowing for thinner plastic used for the bottles. Although Vithit seems to be veryenvironmentally conscious, like any business, they must make a conscious effortto reduce their factory fumes, reduce their carbon footprint and obey environmentallegislation. Legal:Vithit must obey the law of the country they areselling in, for example Sale of Goods and Supply of Services Act 1980 inIreland or the Consumer Protection from Unfair Trading Regulations (Jackson,2017) in the UK.
Their products must beof merchantable quality and they must include specified information on theirpackaging, such as ingredients and any necessary warnings. There are many food regulators in place inIreland by the Food Safety Authority to ensure products are not harmful andconsumers know what they are buying. When Vithit expanded to the US they wereforced to remove L-cartinine from their products “which is not permitted inliquid products in the US” (Blair-White et al 2017). Vithit also reformulated their product to haveless vitamins for exporting to Nordic countries due to the lower vitamin RDAsthere.Vithitis in the beverages industry, as an alternative to sugary drinks but competesin the same market within the health beverages niche.
In this assignment I will apply PESTLE andPorter’s five forces to Vithit as well as the beverages industry. I will also analyse Vithit’s strategy forinternationalisation by looking at Greiner’s model of how organisations growand evolve and Mintzberg’s five natural configurations. PESTLEstands for political, economic, social, technological, environmental andlegal. Political is concerning theopportunities and threats placed on a business by political institutions suchas the government. The main influencesare government policies, trading policies, grants, lobbying, interest groups,political trends, taxes and bureaucracy.
Economic is regarding economic policies and economic structures. The main influences are the local economy,taxation, inflation, interest rates, economic trends, industry growth,international trade and exchange rates. Social refers to the cultural aspects of life, beliefs and trends thatwill affect a products sales and popularity.
The main influences are, demographics, media, brand, lifestyle trends,consumer attitudes and opinions, ethics and advertising. Technological is concerning the technologicalaspects of business, the barriers and incentives. The main influences are new technologies,legislation, research and innovations, ICT and competitor technologydevelopment.
Environmental is relatingto the opportunities and threats the environment has on the business. The main factors are environmentalregulations, reducing carbon footprint and impact of weather. Legal relates to the laws, regulations andlegislation that affect the running of Vithit. The main factors are Irish legislation, international legislation,consumer protection, health and safety regulations, competitive regulations andindustry-specific regulations. PESTEL isa way to analyse the strategic planning of a business. It looks at the external influences on abusiness, so they can plan accordingly and be successful in the long run. It helps the business with their strategicplanning, marketing planning, organizational change, research and productdevelopment. Porter’sfive forces framework consists of the main elements of competition, thebargaining power of suppliers, threat of substitutes, bargaining power ofbuyers, threat of new entrants and competitive rivalry.
The goal of the corporate strategist is tofind a position in the industry to best defend the company and to takeadvantage of these forces. The impact ofeach of the forces vary depending on the industry but their collective strengthdetermines the overall profit potential. They highlight the strengths and weaknesses of the business and showwhich areas need to be adjusted for maximum results.
The weaker the forces the greater theopportunities for higher performance.Bargainingpower of buyer:AsVithit is a relatively new business, buyers have a lot of bargaining power. With many alternatives in the beveragesindustry, Vithit must advertise its unique selling point as a hybrid healthdrink, “water, tea, juice into a single serve beverage with a ‘hit’ ofvitamins” (Blair-White et al 2017).
Whenexpanding into the UK, Tesco agreed to stock Vithit but only stored it in thedry shelves in the back. Vithit neededto show Tesco they deserve prime shelf space, as positioning greatly influence purchasingdecisions (Porter, 1979). Since productsin the beverages industry are hardly differentiated, Tesco would able to findcheaper alternatives that still meet their needs, giving them a lot ofbargaining power. (Porter, 1979). Consumers are generally more price sensitiveif the product is undifferentiated, expensive and quality isn’t their toppriority (Porter, 1979). Therefore,Vithit must work to differentiate itself, and reduce their price as much asthey can to entice on-the-go consumers to buy their product. Bargainingpower of supplier: Suppliershave some bargaining power as Vithit is looking for the best quality rawmaterials.
These raw materials aredifferent to other firms in the beverages industry as each recipe is different. Aside from ingredients, most suppliersprovide basically the same product, such as, bottling equipment or machinery. These general things can be provided by manysuppliers, and since the products aren’t in short supply, Vithit can shoparound, giving suppliers very little bargaining power. Vithit is going to choose the company thatprovides the best products at the lowest price, therefore the suppliers willhave to compete to be this company and keep Vithit happy. Who the supplier is has little effect onVithit, they can switch easily and are only concerned with producing qualityproducts at a reasonable price.
Thesupplier needs Vithit more than Vithit needs them as it is very easy to find analternative supplier, but suppliers need a business to sell to survive. Threatof substitute: Thereis no real threat of substitution for the entire industry unless consumers wantto be self-sufficient and make their own beverages. It would not benefit consumers much or savethem much money to do this as they would have to pay for ingredients andmachinery themselves. With this lack ofa threat from substitutes there is no limit on the potential of the industry (Porter,1979).
However, within the market thereare many substitutes such as Bai, VitaminWater, Honest Tea and HINT, but pricedifference is still very little. Particularly in the beverages industry, brand loyalty plays a huge role,once consumers start buying Vithit they are unlikely to stop. In 2014 the fourVithit flavours of the time won 1st, 3rd, 5thand 7th in the top 50 best-selling health brands (Blair-White et al2017) this would motivate consumers to choose Vithit over its substitutions. Alternatively, consumers could choose waterwhich would be the healthiest and cheapest option of them all. Threatof new entrants: Withthe recent health trends in Ireland, the health beverages niche is seeing aninflux in the number of new businesses. Thisindustry is lucrative so new businesses, such as Bai, and expanding establishedbusinesses, are entering the market which threatens Vithit both domesticallyand internationally.
It is likely thatwith the current health trends, more and more products will enter the market,making it very competitive and even more difficult to differentiate the productswhich is a key barrier to entry. AsVithit has grown over the years, it has gained a lot of power and popularity, makingit difficult for new entrants as they’ll be able to fight back with theirsignificant resources, like excess cash. They will be able to cut their prices moreeasily than new businesses and keep their market share. New entrants would have to pay high start upcosts as well as high advertising costs to compete, but the advantages ofsuccess would be worth the risk.
Competitiverivalry: Thebeverages industry is competitive with many products appealing to the needs ofconsumers. Vithit’s main competitionwithin their niche are Bai, VitaminWater, and Honest Tea, but they’re”competing against anything that is low calorie and up and coming” (Blair-Whiteet al 2017). The “natural juices used inVithit drinks pushes up the cost of production beyond those of competitor’ssuch as Robinson’s, (Blair-White et al 2017)” forcing Vithit to focus mainly onthe health beverages niche, as a “healthy sports drink that tasted as good, ifnot better than their sugary counterparts” (Blair-White et al 2017). Witty advertising keeps the brand appealing toyouthful-minded people and the ‘hybrid health’ element reinforces a niche. Recent product expansion includes vitaminbars, children’s drinks and flavoured sparkling waters. However, facing huge competition from moreexperienced brands, the vitamin bars aren’t top priority. Instead they focus on beverages with Vithitbubbly being a ‘premium, adult carbonated soft drink” (Blair-White et al 2017)for health-conscious and on-the-go consumers. I believe that Vithit is in the direction phase in Greiner’s model ofhow organisations evolve and grow (Greiner, 1998).
It’s going through a period of sustainedgrowth under the able and direct leadership of O’Rourke and Lavin (Greiner,1998) who realised “if you get a foothold in the UK, a lot of other countriesaround Europe take their lead from that” (Blair-White et al 2017). After moving to the UK, Lavin and O’Rourkespent two years developing their strategies, finding small retailers to stocktheir product, eventually gaining Tesco’s attention. It was a slow but steady growth with theirpromotional strategies and perseverance leading to Vithit becoming one of thebest-selling health brands in the UK and Ireland.
By 2015 Vithit was being sold in Boots and inSainsbury’s and Superdrug by 2016. After success in both the UK and Ireland, Vithit went on to expandfurther into the European market and some international markets, includingSouth Africa, UAE and Bahrain, Lavin said “we’re growing carefully – not justfiring it at every country and seeing what lands” (Blair-White et al 2017). O’Rourke and Lavin were clever and developedstrategies for organic expansion by establishing strong distributionnetworks.
They realised that each marketwas different and needed to be treated differently so they tailored the productand marketing campaign slightly for the different countries. They continued expanding across Europe but avoidedcountries who had a more traditional mindset, e.g. France, rather than a”youthful” one as they embraced their youthful, fun brand. Vithit received great reception inScandinavian countries and is stocked in almost every Icelandic conveniencestore. As Vithit is currently onlyemploying “twenty people across sixteen markets” (Blair-White et al 2017) it islikely that they have implemented a functional organisational structure.
Communication would be frequent with so fewemployees but there would still be managers and supervisors to givedirections. Incentives, budgets, workstandards and accounting systems for inventory and purchasing would beintroduced as they business is still steadily growing (Greiner, 1998). They knew that a timely response to marketchanges was so important that they gave “international Vithit sales personnelmore autonomy with regard to operational issues” as they’d know the localmarket better (Blair-White et al 2017). They were wise to delegate as failure to do this would result in arevolution from crisis of autonomy. I believe Vithit is of a simple organization inMintzberg’s five natural configurations (Mintzberg, 1981). It’s a new business with few employees. Being under direct supervision by the topmanagers’ Lavin and O’Rourke means there is little standardization, “theorganisation has little need for staff analysts” and “few middle-line managersare hired because so much of the coordination is achieved at the strategic apexby direct supervision” (Mintzberg, 1981).
Vithit is flexible and keeps its environmentsimple so the “chef executive can retain highly centralized control” (Mintzberg,1981). This centralized control enablesthem to cope with rapid changes in the market while remaining innovative,competing with larger firms where decision making will take much longer. When Vithit was first established, Lavin wasprimarily focused on innovation and not on the logistics of the business. This is where many simple structuredbusinesses can fail, and Vithit nearly did, but with O’Rourke’s attention tobusiness operations, Vithit has become one of the leading health brands acrossIreland and the UK.
After achieving such success in Europe, Lavin andO’Rourke thought it was time for further internationalisation and beganexpanding into US markets. They werevery clever in their approach planning to “treat the first state like acountry, then when we succeed there, move to another state and so on.” They took advantage of O’Rourke’sinternational contacts to develop strong distribution relationships and expandedinto Virginia via the PepsiCo bottling company. They believe if they had success in a mixed market like Virginia, they’dbe successful elsewhere, so they used it as a foothold in the market andplanned to expand state by state on the East Coast.
O’Rourke’s and Lavin’s strategic planning forinternationalisation was so successful that Vithit became the fastest growingsoft drinks brand in Ireland and the 15th largest. They achieved their global brand status bysharing their “willingness to talk to anyone who could potentially increasedistribution or sales” (Blair-White et al 2017), this showed they were not toococky and realised that they needed to accept help from others to achieve theirultimate goals. Their strongdistribution relationships were key to their success, they sought to developstrong distribution networks everywhere they went with large-scale distributors(Blair-White et al 2017).