Introduction 2017). PESTLE Analysis “A PESTLE analysis is

Introduction

TCD Vithit case study (2017)
explains, that Vithit is an Irish hybrid-health drinks company, selling vitamin
juices 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 to
sugar-heavy sports drinks. The product is comprised of four ingredients;
vitamins, juice, water and tea. In its early years the company struggled to
gain a presence in the Irish market as the health trend that could be seen in
the US had not yet hit Ireland or the UK. After the financial crash in 2007, Lavin
invited Ian O’Rourke to join the company as co-director and business partner. O’Rourke
began rebranding the product by creating a new name and changing the packaging
and design of the product. Sales grew slowly for the first few years, then in
2010 the health movement hit Ireland, sales in the domestic market increased
greatly and the company expanded into the UK market. Once the brand was
established in both the UK and Irish markets, Vithit began to expand to
countries such as; South Africa, Spain, Portugal, the US and various Nordic countries.
Vithit also diversified their product range to include vitamin health bars, kid’s
vitamin drinks and a range of sparkling juice drinks. “In 2016 Vithit was the fastest growing soft-drink brand in Ireland and
the 15th largest overall in the country” (TCD Vithit case study
2017).

 

PESTLE Analysis

“A PESTLE analysis is a framework to analyse
the key factors influencing an organisation from the outside” (Weeks 2017). The following factors are used to examine how they impact the soft drinks
and health drinks industry. “Vithit
categorised itself as a ‘hybrid health drink’, which was ‘water, tea, juice
into a single serve beverage with a ‘hit’ of vitamins'” (TCD Vithit case study
2017).

 

Political

Dcosta (2017) explains that political events such as tax policies, trade
reforms and trade restrictions can influence the industry in which a firm
operates. The introduction of a sugar tax to
Ireland and the UK in 2018, is one of the most notable factors that will
influence the soft drinks and health drinks industry. There is also talks of
the tax being introduced in the United States. This will reduce the price gap
between Vithit and its rivals as the price of competitor’s sugary drinks will
likely rise due to the new tax. Vithit sells their product in a number of
countries, and therefore must abide by the various trade restrictions and
regulations that each country imposes on the health drinks industry. TCD Vithit case study (2017) explains that
in Nordic countries there is a lower RDA for vitamins comparable to the rest of
the EU, to overcome this difficulty Vithit reformulated their products to
contain less vitamins so they now comply with the countries’ regulations.

 

Environmental

According to Jurevicius (2013) the environmental factor of the analysis
is concerned with aspects such as recycling, waste management and laws
regarding environment pollution. The laws and social
attitudes towards these aspects vary from country to country, and so their impact
on the industry is dependent on the country in question. Vithit operates in an
environmentally friendly way through their use of aseptic filling. “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” (TCD Vithit case study 2017). By having thin plastic bottles
Vithit reduces the amount of waste their product produces, therefore lessoning
their 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; health
consciousness, all influence the environment that impacts an industry. Vithit struggled to establish a foothold in the Irish market in its early
years as the health movement had not yet arrived in Ireland. When O’Rourke joined
the company in 2007 Vithit experienced greater success in the domestic market but
it was not until 2010 when the health trend reached Ireland and the UK, that
people became more health conscious. This change in attitude lead to a greater
demand for healthy alternatives to sugar-heavy drinks, Vithit filled this gap
in the market. Consumer lifestyles and preferences vary from country to
country. Sometimes all a product needs to be successful in another market is to
be tailored slightly. TCD Vithit case
study (2017) describes how Vithit repackaged their product into slim cans for
the South African market to cater for local preferences. Vithit also takes
into account population demographics before expanding into new markets. TCD Vithit case study (2017) explains that countries
with ‘young mindsets’ such as Spain, Portugal and the Nordic countries were targeted
by Vithit, as consumers there were expected to be more health conscious.

 

Technological

PESTLEanalysis Contributor (2015) explains that technological factors
such as new discoveries, innovations and new technological platforms can all
influence an industry. Aseptic filling is a method used by
Vithit to reduce the amount of plastic used to produce their bottles, while
also ensuring that the vitamins added to their drinks survive, due to the
cooler temperature used during the filling process. Vithit uses two innovative
marketing techniques to distinguish their brand from competitors. The company switched
from their original, skinny bottle design to a wider bottle with a wider mouth
as they discovered this was preferred by consumers. Vithit also decided to put
a white label on the bottle, this was because “the brightly coloured Vithit products contrasted against the white
labels, creating an in-store ‘rainbow effect’ to catch the eye of the
consumers” (TCD Vithit case study 2017). It is important for firms to keep
up-to-date with new technology, this includes the use of various social media
platforms. Vithit has a strong social
media presence and uses sites such as Facebook, Twitter and Instagram to attract
younger consumers, as explained in TCD Vithit case study (2017).

 

Legal

PESTLEanalysis Contributor (2015) explains that legal aspects such as
employment laws, health and safety regulations and product regulations all
affect the industry in which a firm operates. Vithit sells its product in 16 different markets, but often regulations
on an industry vary in different countries.
It is important for the company to be aware of the various laws and regulations
imposed on the health drinks industry for each country in which it operates, so
as to avoid any legal difficulties. As seen
in TCD Vithit case study (2017), in the US, a substance called L-carnitine is
not permitted in liquid products. Vithit therefore had to reformulate their
product 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 of
goods, services, people and capital. This European law proved useful to Vithit
in 2011 when Lavin moved to the UK to promote the product. As a result of this
move Vithit’s sales grew rapidly in the UK.

 

Economic

Dcosta (2017) explains that the economic element of the analysis consists
of aspects such as economic growth, inflation and unemployment. These factors can have a positive or negative influence on the
environment that impacts an industry. Vithit (then Vitz Drinks Ltd.) was
established in 2000 during the Celtic Tiger, a period of high economic growth. The
company founder Gary Lavin relied heavily on property investments to fund the
company during the early unsuccessful years. After the financial crash in 2007
the company was left in serious debt as the property investments were no longer
profitable. “Vitz faced closure as it had
a negative balance sheet of €1.2 million” (TCD Vithit case study 2017). With
high levels of unemployment and reduced economic growth, the health drinks
industry struggled. Healthy drinks were more expensive to buy and people’s
disposable incomes had fallen. This is why the arrival of the health movement
in Ireland was vital. In 2015 Vithit was launched on the US market in the state
of Virginia. Virginia is a mixed market with varying socio-economic classes, so
disposable incomes differ, the state was chosen for this reason. “Management believed that if Vithit
succeeded in such a mixed market, it would enjoy strong success in more
affluent ones” (TCD Vithit case study 2017).

 

 

 

Porter’s Five Forces Framework

Porter (1979) explains that there are five forces that determine the
competitiveness of an industry, these are; the threat of new entrants, the
power of suppliers, the power of buyers, the threat of substitute products or
services and the jockeying of position among current competitors.

 

Threat of New Entrants

Porter (1979) explains that the threat of new entrants to an industry is
discouraged by barriers to entry such as economies of scale, customer loyalty
and access to distribution channels. Economies of
scale act as a barrier to entry as established firms can achieve lower costs of
production per unit due to large-scale production, whereas new firms do not yet
have this advantage. In industries where there are high levels of brand loyalty
such as the soft drinks and health drinks industry, new entrants must spend
heavily on advertising and product differentiation to overcome customer loyalty
for established brands. This leads to high levels of competition in the industry.
Vithit differentiated their product by changing to a wide bottle with a white
label to stand out from competitors. Another barrier that deters new companies from
entering an industry is access to distribution channels, a company needs
channels to get their product to market. In the health drinks industry competition
is very high for refrigerated, supermarket shelf space, so companies are keen
to establish a presence and secure these distribution channels. It is clear
that there are high barriers to entry in the health drinks industry as
mentioned above, and so the threat of new entrants to the industry is low.

 

Power of Suppliers

Porter (1979) declares that the power
of the suppliers within an industry is greater if the industry is dominated by
a few companies and if the products sold are differentiated. There are many companies in the soft
drinks and health drinks industry, however it is dominated by a few large companies.
Statistics from Statista (2015) show that
in the worldwide market for carbonated beverages, Coca-Cola Co. had 48.6% of
the market share and PepsiCo Inc had 20.5% of the market share in 2015. This
shows that over two thirds of the market was dominated by two companies. Products
sold in the soft drinks and health drinks industry are differentiated by their
flavour, branding, packaging and unique selling point. For example, Vithit
emphasises that it is a “hybrid health
drink” (TCD Vithit case study 2017). The power of suppliers in the industry
is high as only a few firms dominate the industry and the products sold are differentiated.

 

Power of Buyers

Porter (1979) explains that customers in an industry exert their power by
driving down prices and demanding higher quality goods or services. A buyer
group is powerful if they purchase in large volumes and if the products they
purchase from the industry are standardised. In the case of the soft drinks and health drinks industry, buyer groups
such as retailers and wholesalers purchase products in large quantities from
the companies. Consumers then buy from the retailers in smaller quantities.
Products sold in the industry are not standardised due to the wide variety of
flavours and different brands of soft drinks and health drinks. Therefore, the
power of buyers in the industry is average, as purchasing in large volumes
occurs but product differentiation also exists.

 

Threat of Substitutes

In the soft drinks and health drinks
industry many of the products sold can be considered substitutes for each
other, so the threat of substitutes is a strong force driving competition in
the industry. “Substitute products that
deserve the most attention strategically are those that (a) are subject to
trends, improving their price-performance trade-off with the industry’s product”
(Porter 1979). The Vithit case study showed how the health trend impacted on
the soft drinks and health drinks industry, the company had to wait for the
trend to reach Ireland before they experienced success in the domestic market. Demand
for Vithit rose once the health movement hit Ireland and the UK as customers
began to substitute sugar-heavy soft drinks and sports drinks for low sugar,
low calorie drinks such as Vithit. Consumers are influenced by trends, and may
change their buying preferences as a result. This makes industries such as the
soft drinks and health drinks industry very reliant on trends. Therefore, the
threat of substitute goods in the industry is high.

 

Jockeying of Position

Porter (1979) explains that in an industry where there are numerous
competitors or competitors are roughly the same size with roughly the same
power, rivalry tends to by high. In the soft
drinks and health drinks industry, few large firms dominate the market and so
competition to be number one in the industry is high. There are also a large number
of smaller competitors in the market which adds to the intense rivalry. Companies
jockey for position in the industry by trying to gain the largest market share.
In an industry with such high competition, acquisitions and mergers are common
as 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. Due
to the high level of competition between large firms and the presence of
numerous smaller firms, rivalry in the soft drinks and health drinks industry
is very high.

 

Vithit’s Strategy of Internationalisation

According to Hambrick & Fredrickson (2001) “a strategy has five
elements, providing answers to five questions”. Vithit’s strategy of internationalisation can be divided into these five
elements 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 sixteen
markets 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 and
they wanted to first conquer the domestic market. The company then decided to
expand to the UK and after establishing a presence there they moved into the
European 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 into
the production of children’s vitamin drinks, vitamin bars and sparkling juice
drinks.

 

Vehicles: How will we get there?

This element of the strategy is concerned with how the company will gain
a presence in the chosen arenas explains Hambrick and Fredrickson (2001). Vithit uses a mixture of distribution companies and retailers to get
their product to market. In the early years, sales representatives and third-party
carrier vans were used to distribute the product around Ireland but this was
very costly. Sales grew rapidly when the company switched to using Gleeson’s a
distribution 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 and
Superdrug to stock their product. This approach was also used in Spain with El
Corte Ingles and in South Africa with Shoprite Checkers. In the US the company
used PepsiCo’s bottling company to distribute their products.

 

Differentiators: How will we win the marketplace?

As already established, the health
drinks industry is highly competitive and so companies use product
differentiation to stand out from competitors. TCD Vithit case study (2017) explains how Vithit chose a wide shaped
bottle with a wide mouth as it was discovered this was the preferred design of
consumers. Another technique used by the company was the introduction of a
white label to the bottle as “the
brightly coloured Vithit products contrasted against the white labels, creating
an in-store ‘rainbow effect’ to catch the eye of the consumers” (TCD Vithit
case study 2017). Another differentiator used by Vithit was the emphasis
that 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 the
domestic market” (TCD Vithit case study 2017). The next move for the
company was to expand to the UK as they believed a foothold there would create
a 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, the
company decided to take a different approach here by expanding on a state by
state 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 of
production” (TCD Vithit case study
2017), Vithit charges higher prices than competitors in the soft drinks and
health drinks industry, but as they are selling a premium product, consumers
are willing to pay the higher price. The health movement has also increased
demand for the product and “in 2016,
Vithit was the fastest growing soft drink brand in Ireland” TCD Vithit case
study (2017).

 

Conclusion

The health drinks industry has experienced rapid growth in
recent years, this is due to factors such as the introduction of a sugar tax
and a general move towards a more health conscious lifestyle as a result of the
health movement. This has created a larger target market for health drink
companies such as Vithit, but has also increased the level of competition in
the industry. The soft drinks and health drinks industry is highly competitive,
this can be attributed to the small number of firms that dominate the industry
as well as high levels of brand loyalty, product differentiation and the
influence of the health trend on consumers buying preferences. Vithit
recognised that in order to succeed they would have to expand. They did this by
identifying the markets they wanted to operate in and developing distribution
channels to get their product to these markets. They used creative packaging
and the unique selling point of being a “hybrid-health drink” (TCD Vithit case
study 2017), to stand out from competitors. Vithit is hopeful that its success
will continue for the future and it looks likely as the health movement is
still gaining momentum and they have an established presence in sixteen markets
around the world.