Introduction TCD Vithit case study (2017)explains, that Vithit is an Irish hybrid-health drinks company, selling vitaminjuices in 16 markets around the world. It was established by Gary Lavin in 2000.
The company’s aim was to create a healthy, low calorie drink as an alternative tosugar-heavy sports drinks. The product is comprised of four ingredients;vitamins, juice, water and tea. In its early years the company struggled togain a presence in the Irish market as the health trend that could be seen inthe US had not yet hit Ireland or the UK. After the financial crash in 2007, Lavininvited Ian O’Rourke to join the company as co-director and business partner. O’Rourkebegan rebranding the product by creating a new name and changing the packagingand design of the product. Sales grew slowly for the first few years, then in2010 the health movement hit Ireland, sales in the domestic market increasedgreatly and the company expanded into the UK market.
Once the brand wasestablished in both the UK and Irish markets, Vithit began to expand tocountries such as; South Africa, Spain, Portugal, the US and various Nordic countries.Vithit also diversified their product range to include vitamin health bars, kid’svitamin drinks and a range of sparkling juice drinks. “In 2016 Vithit was the fastest growing soft-drink brand in Ireland andthe 15th largest overall in the country” (TCD Vithit case study2017). PESTLE Analysis”A PESTLE analysis is a framework to analysethe key factors influencing an organisation from the outside” (Weeks 2017). The following factors are used to examine how they impact the soft drinksand health drinks industry. “Vithitcategorised itself as a ‘hybrid health drink’, which was ‘water, tea, juiceinto a single serve beverage with a ‘hit’ of vitamins'” (TCD Vithit case study2017). PoliticalDcosta (2017) explains that political events such as tax policies, tradereforms and trade restrictions can influence the industry in which a firmoperates.
The introduction of a sugar tax toIreland and the UK in 2018, is one of the most notable factors that willinfluence the soft drinks and health drinks industry. There is also talks ofthe tax being introduced in the United States. This will reduce the price gapbetween Vithit and its rivals as the price of competitor’s sugary drinks willlikely rise due to the new tax.
Vithit sells their product in a number ofcountries, and therefore must abide by the various trade restrictions andregulations that each country imposes on the health drinks industry. TCD Vithit case study (2017) explains thatin Nordic countries there is a lower RDA for vitamins comparable to the rest ofthe EU, to overcome this difficulty Vithit reformulated their products tocontain less vitamins so they now comply with the countries’ regulations. EnvironmentalAccording to Jurevicius (2013) the environmental factor of the analysisis concerned with aspects such as recycling, waste management and lawsregarding environment pollution. The laws and socialattitudes towards these aspects vary from country to country, and so their impacton the industry is dependent on the country in question. Vithit operates in anenvironmentally friendly way through their use of aseptic filling.
“Vithit specifically decided to use asepticfilling because of its environmental and product packaging benefits. An asepticfill removes the need to heat the liquid and so a thinner plastic can be usedin bottling” (TCD Vithit case study 2017). By having thin plastic bottlesVithit reduces the amount of waste their product produces, therefore lessoningtheir negative impact on the environment. Socio-Cultural Jurevicius (2013) explains that socio-cultural factors such as lifestyle,population demographics and most relevant to this case study; healthconsciousness, all influence the environment that impacts an industry. Vithit struggled to establish a foothold in the Irish market in its earlyyears as the health movement had not yet arrived in Ireland.
When O’Rourke joinedthe company in 2007 Vithit experienced greater success in the domestic market butit was not until 2010 when the health trend reached Ireland and the UK, thatpeople became more health conscious. This change in attitude lead to a greaterdemand for healthy alternatives to sugar-heavy drinks, Vithit filled this gapin the market. Consumer lifestyles and preferences vary from country tocountry. Sometimes all a product needs to be successful in another market is tobe tailored slightly.
TCD Vithit casestudy (2017) describes how Vithit repackaged their product into slim cans forthe South African market to cater for local preferences. Vithit also takesinto account population demographics before expanding into new markets. TCD Vithit case study (2017) explains that countrieswith ‘young mindsets’ such as Spain, Portugal and the Nordic countries were targetedby Vithit, as consumers there were expected to be more health conscious. TechnologicalPESTLEanalysis Contributor (2015) explains that technological factorssuch as new discoveries, innovations and new technological platforms can allinfluence an industry. Aseptic filling is a method used byVithit to reduce the amount of plastic used to produce their bottles, whilealso ensuring that the vitamins added to their drinks survive, due to thecooler temperature used during the filling process. Vithit uses two innovativemarketing techniques to distinguish their brand from competitors. The company switchedfrom their original, skinny bottle design to a wider bottle with a wider mouthas they discovered this was preferred by consumers. Vithit also decided to puta white label on the bottle, this was because “the brightly coloured Vithit products contrasted against the whitelabels, creating an in-store ‘rainbow effect’ to catch the eye of theconsumers” (TCD Vithit case study 2017).
It is important for firms to keepup-to-date with new technology, this includes the use of various social mediaplatforms. Vithit has a strong socialmedia presence and uses sites such as Facebook, Twitter and Instagram to attractyounger consumers, as explained in TCD Vithit case study (2017). LegalPESTLEanalysis Contributor (2015) explains that legal aspects such asemployment laws, health and safety regulations and product regulations allaffect the industry in which a firm operates. Vithit sells its product in 16 different markets, but often regulationson an industry vary in different countries.It is important for the company to be aware of the various laws and regulationsimposed on the health drinks industry for each country in which it operates, soas to avoid any legal difficulties. As seenin TCD Vithit case study (2017), in the US, a substance called L-carnitine isnot permitted in liquid products. Vithit therefore had to reformulate theirproduct in order to comply with the regulations of the US health drinks market.Countries that are members of the European Union benefit from free movement ofgoods, services, people and capital.
This European law proved useful to Vithitin 2011 when Lavin moved to the UK to promote the product. As a result of thismove Vithit’s sales grew rapidly in the UK. Economic Dcosta (2017) explains that the economic element of the analysis consistsof aspects such as economic growth, inflation and unemployment. These factors can have a positive or negative influence on theenvironment that impacts an industry. Vithit (then Vitz Drinks Ltd.) wasestablished in 2000 during the Celtic Tiger, a period of high economic growth.
Thecompany founder Gary Lavin relied heavily on property investments to fund thecompany during the early unsuccessful years. After the financial crash in 2007the company was left in serious debt as the property investments were no longerprofitable. “Vitz faced closure as it hada negative balance sheet of €1.2 million” (TCD Vithit case study 2017). Withhigh levels of unemployment and reduced economic growth, the health drinksindustry struggled. Healthy drinks were more expensive to buy and people’sdisposable incomes had fallen. This is why the arrival of the health movementin Ireland was vital.
In 2015 Vithit was launched on the US market in the stateof Virginia. Virginia is a mixed market with varying socio-economic classes, sodisposable incomes differ, the state was chosen for this reason. “Management believed that if Vithitsucceeded in such a mixed market, it would enjoy strong success in moreaffluent ones” (TCD Vithit case study 2017). Porter’s Five Forces FrameworkPorter (1979) explains that there are five forces that determine thecompetitiveness of an industry, these are; the threat of new entrants, thepower of suppliers, the power of buyers, the threat of substitute products orservices and the jockeying of position among current competitors.
Threat of New EntrantsPorter (1979) explains that the threat of new entrants to an industry isdiscouraged by barriers to entry such as economies of scale, customer loyaltyand access to distribution channels. Economies ofscale act as a barrier to entry as established firms can achieve lower costs ofproduction per unit due to large-scale production, whereas new firms do not yethave this advantage. In industries where there are high levels of brand loyaltysuch as the soft drinks and health drinks industry, new entrants must spendheavily on advertising and product differentiation to overcome customer loyaltyfor established brands. This leads to high levels of competition in the industry.Vithit differentiated their product by changing to a wide bottle with a whitelabel to stand out from competitors. Another barrier that deters new companies fromentering an industry is access to distribution channels, a company needschannels to get their product to market.
In the health drinks industry competitionis very high for refrigerated, supermarket shelf space, so companies are keento establish a presence and secure these distribution channels. It is clearthat there are high barriers to entry in the health drinks industry asmentioned above, and so the threat of new entrants to the industry is low. Power of SuppliersPorter (1979) declares that the powerof the suppliers within an industry is greater if the industry is dominated bya few companies and if the products sold are differentiated. There are many companies in the softdrinks and health drinks industry, however it is dominated by a few large companies.Statistics from Statista (2015) show thatin the worldwide market for carbonated beverages, Coca-Cola Co. had 48.6% ofthe market share and PepsiCo Inc had 20.
5% of the market share in 2015. Thisshows that over two thirds of the market was dominated by two companies. Productssold in the soft drinks and health drinks industry are differentiated by theirflavour, branding, packaging and unique selling point. For example, Vithitemphasises that it is a “hybrid healthdrink” (TCD Vithit case study 2017). The power of suppliers in the industryis high as only a few firms dominate the industry and the products sold are differentiated. Power of BuyersPorter (1979) explains that customers in an industry exert their power bydriving down prices and demanding higher quality goods or services. A buyergroup is powerful if they purchase in large volumes and if the products theypurchase from the industry are standardised. In the case of the soft drinks and health drinks industry, buyer groupssuch as retailers and wholesalers purchase products in large quantities fromthe companies.
Consumers then buy from the retailers in smaller quantities.Products sold in the industry are not standardised due to the wide variety offlavours and different brands of soft drinks and health drinks. Therefore, thepower of buyers in the industry is average, as purchasing in large volumesoccurs but product differentiation also exists. Threat of SubstitutesIn the soft drinks and health drinksindustry many of the products sold can be considered substitutes for eachother, so the threat of substitutes is a strong force driving competition inthe industry. “Substitute products thatdeserve the most attention strategically are those that (a) are subject totrends, improving their price-performance trade-off with the industry’s product”(Porter 1979).
The Vithit case study showed how the health trend impacted onthe soft drinks and health drinks industry, the company had to wait for thetrend to reach Ireland before they experienced success in the domestic market. Demandfor Vithit rose once the health movement hit Ireland and the UK as customersbegan to substitute sugar-heavy soft drinks and sports drinks for low sugar,low calorie drinks such as Vithit. Consumers are influenced by trends, and maychange their buying preferences as a result. This makes industries such as thesoft drinks and health drinks industry very reliant on trends.
Therefore, thethreat of substitute goods in the industry is high. Jockeying of PositionPorter (1979) explains that in an industry where there are numerouscompetitors or competitors are roughly the same size with roughly the samepower, rivalry tends to by high. In the softdrinks and health drinks industry, few large firms dominate the market and socompetition to be number one in the industry is high. There are also a large numberof smaller competitors in the market which adds to the intense rivalry. Companiesjockey for position in the industry by trying to gain the largest market share.In an industry with such high competition, acquisitions and mergers are commonas it is a fast way for companies to expand and increase their market share. As seen in the TCD Vithit case study (2017),Dr.
Pepper acquired a low calorie, health drink called Bai in February 2017. Dueto the high level of competition between large firms and the presence ofnumerous smaller firms, rivalry in the soft drinks and health drinks industryis very high. Vithit’s Strategy of Internationalisation According to Hambrick & Fredrickson (2001) “a strategy has fiveelements, providing answers to five questions”.
Vithit’s strategy of internationalisation can be divided into these fiveelements and analysed by answering these five questions. Arenas: Where will we be active?As stated in the TCD Vithit case study (2017), Vithit operates in sixteenmarkets worldwide, these include Ireland, the UK, Spain, Portugal, Iceland,Finland, Norway, Sweden, Denmark, South Africa and the US. Vithit chose Ireland as its first market as it is an Irish company andthey wanted to first conquer the domestic market. The company then decided toexpand to the UK and after establishing a presence there they moved into theEuropean market. The newest geographical arena they are operating in is the US,where they have a foothold in 6 states.
Arenas can also come in the form of “product categories” (Hambrick &Fredrickson 2001), Vithit has expanded from the health drink industry intothe production of children’s vitamin drinks, vitamin bars and sparkling juicedrinks. Vehicles: How will we get there?This element of the strategy is concerned with how the company will gaina presence in the chosen arenas explains Hambrick and Fredrickson (2001). Vithit uses a mixture of distribution companies and retailers to gettheir product to market. In the early years, sales representatives and third-partycarrier vans were used to distribute the product around Ireland but this wasvery costly. Sales grew rapidly when the company switched to using Gleeson’s adistribution company to get their product to market. As seen in the case study,in the UK, Vithit targeted retail stores such as Tesco, Boots, Sainsbury’s andSuperdrug to stock their product.
This approach was also used in Spain with ElCorte Ingles and in South Africa with Shoprite Checkers. In the US the companyused PepsiCo’s bottling company to distribute their products. Differentiators: How will we win the marketplace? As already established, the healthdrinks industry is highly competitive and so companies use productdifferentiation to stand out from competitors.
TCD Vithit case study (2017) explains how Vithit chose a wide shapedbottle with a wide mouth as it was discovered this was the preferred design ofconsumers. Another technique used by the company was the introduction of awhite label to the bottle as “thebrightly coloured Vithit products contrasted against the white labels, creatingan in-store ‘rainbow effect’ to catch the eye of the consumers” (TCD Vithitcase study 2017). Another differentiator used by Vithit was the emphasisthat it was a healthy alternative to sugary soft drinks. Staging: What will be our speed and sequence of moves?Vithit grew slowly in the beginning,with the aim of first “conquering thedomestic market” (TCD Vithit case study 2017).
The next move for thecompany was to expand to the UK as they believed a foothold there would createa pathway for the European market later. The European countries were chosen by “targeting countries with young mindsets”(TCD Vithit case study 2017), these included various Nordic countries,Spain and Portugal. In 2015 Vithit was officially launched in the US, thecompany decided to take a different approach here by expanding on a state bystate basis along the East Coast, as described in the case study. Economic Logic: How will we obtain our returns?As “the natural juices used in Vithit drinks pushes up the costs ofproduction” (TCD Vithit case study2017), Vithit charges higher prices than competitors in the soft drinks andhealth drinks industry, but as they are selling a premium product, consumersare willing to pay the higher price. The health movement has also increaseddemand for the product and “in 2016,Vithit was the fastest growing soft drink brand in Ireland” TCD Vithit casestudy (2017). ConclusionThe health drinks industry has experienced rapid growth inrecent years, this is due to factors such as the introduction of a sugar taxand a general move towards a more health conscious lifestyle as a result of thehealth movement.
This has created a larger target market for health drinkcompanies such as Vithit, but has also increased the level of competition inthe industry. The soft drinks and health drinks industry is highly competitive,this can be attributed to the small number of firms that dominate the industryas well as high levels of brand loyalty, product differentiation and theinfluence of the health trend on consumers buying preferences. Vithitrecognised that in order to succeed they would have to expand. They did this byidentifying the markets they wanted to operate in and developing distributionchannels to get their product to these markets.
They used creative packagingand the unique selling point of being a “hybrid-health drink” (TCD Vithit casestudy 2017), to stand out from competitors. Vithit is hopeful that its successwill continue for the future and it looks likely as the health movement isstill gaining momentum and they have an established presence in sixteen marketsaround the world.