In order to achieve scale, O’Rourke knewIn order to achieve scale, O’Rourke knew

 

 

 

In order to achieve scale, O’Rourke knew
internationalization was necessary and so in 2011 the efforts began to gain a
foothold in the UK for Vithit. As production of VitHit is based in the UK, it
was the logical next step for Vithit. No adaptations were made for the UK
market and this could potentially be why sales were slow initially. It took
them 2 years to get into a major supermarket (Tesco) and even then their
products were on the dry shelf. The strategy for entry into European countries
was structured and well thought out (unlike Lavin’s previous Ad-hoc efforts).
The decision to avoid Germany and France all together is interesting. Lavin and
O’Rourke are prepared to deviate from the core strategy when needs be. The
lower vitamin content in Nordic countries and the total change from bottle to
can in South Africa to meet local preferences exemplifies this. However, their
belief is that the pallets of people in these countries is too just different,
that no matter how much they tinker around with the formulation, they would
never succeed there. I wonder if they’ll ever change this stance.

Upon becoming business partners, Lavin and O’Rourke quickly
realized the importance of having a unique selling point. Something that would
make them stand out from the competition in the customer’s. They did this, as
well as creating their own market niche by marketing the drink as a ‘hybrid
health’ beverage. The revitalisation of the bottle to have white packaging and
the ‘rainbow effect’ that this created was an integral part of their
competitive advantage. O’Rourke’s suggestion to rebrand from Vitz to Vithit was
a key factor in their success as he rightfully suspected the Germanic sounding ‘Vitz’
would not succeed internationally.

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3.      
Globalizing the international strategy by integrating
the strategy across countries.

2.      
Internationalizing the core strategy through
international expansion of activities and through adaptation.

1.      
Developing the core strategy – the basis of
sustainable competitive advantage. It is usually developed for the home country
first.

George S. Yip identified three essential steps in developing
a worldwide strategy.

Strategy of internationalization

 

 

It is
fairly easy to become a supplier within the industry and thus they would not
find it difficult if they wanted to enter. Vithit and other companies will
choose the suppliers that do the best job and have the best price. If another
supplier does the same job but is cheaper, the business can switch without much
of an issue. This takes away much of suppliers’ bargaining power

2.       Low switching costs

1.       High overall supply

Vithit must
maintain profitable relationships with it’s suppliers. The weak bargaining
power of Vithit’s suppliers is based on the following external factors:

Bargaining
Power of Suppliers

 

 

 

 

 

 

 

A potential
entrant to this industry would face difficulty in assessing distribution
channels. Vithit, being one of the major healthy beverages brands already have
access to the main distribution channels, such as big supermarkets like Tesco
and Supervalu, petrol stations, and corporate canteens. They have low costs,
competitive pricing, and strong business relationships. For example, new
entrants in Ireland will find it very difficult to achieve the 40000 cases per
year required by Gleesons.  

A large
amount of capital is needed to enter the food and beverages industry because
there are large capital costs needed for manufacturing. Bottling, distribution,
and storage can be contracted out, but it would most likely increase costs in
the long run and weaken the supply chain.

2.       Unequal Access to distribution
channel

1.       Required Capital

Vithit must
remain strong despite the possibility of new firms competing against it. Barriers
to entry result in the threat of new entrants being a secondary concern to
Vithit.

Threat of
new entrants

Also, these
substitutes are so widely available. Everywhere you look you will see Coca Cola
adverts. On TV, in movies, billboards etc. It is impossible to get away from
and this constant bombardment plants the product into the consumers mind.

When
entering new markets, like Vithit are currently doing in the US, customers are
slow to go for substitutes because brand loyalty is a strong competitive
pressure in the beverages industry. In the US, Coca Cola, PepsiCo and Dr.Pepper
own 43%, 27% and 17% of the market share respectively. They are so long
established that many customers would never even think of changing.

2.       High Availability of substitutes

1.       High Performance of substitutes

The
following external factors contribute to the strong threat of substitutes
against Vithit:

Threat of
substitutes

 Vithit must ensure customer satisfaction
through innovation and a quality product to maximise revenue.

The
substitutes for Vithit’s products go much further than soft drinks. Vithit is
all about giving you that ‘hit’ of vitamins or that extra boost. As a result,
coffee, would be a substitute. The vast amount of substitutes available reduce
would-be consumers of Vithit.

As
previously stated, consumers can easily shift between firms. This condition
strengthens buyers ability to influence Vithit. Customers are highly sensitive
to the price of soft drinks and are willing to change brands if one becomes
much more expensive than the other. Soft drinks are not a need and people won’t
pay any price for it.

2.       Wide
range of substitutes

1.       Low switching costs

The
external factors that lead to the strong bargaining power of Vithit’s customers
are:

Bargaining Power of Buyers

In addition, Vithit is competing with many other companies.
Not only the beverage industry giants like Coca Cola but with numerous medium
and small ones too. At the end of 2016 Vithit sales were up 60% in just 6
months to 20 million cases. 20 million cases sold yet they are only the 15th
largest soft drinks company in Ireland. That shows just how tough the
competition is.

Rivalry among competitors is also strengthened because
consumers can easily shift from one brand to another. The cost of shifting is
literally non existent. As Vithit only uses high quality products, their prices
are slightly higher than most competitors. Unfortunately for Vithit, companies
like Coca Cola and Pepsi can afford to slash prices to regain customers who may
have switched to Vithit but found the £2.50 price too expensive to buy
regularly.

                                                                                                       
                    

 

Almost every business in the food and beverage industry is
aggressive, in marketing and innovation for example. This exerts a strong force
on Vithit and forces them to think outside the box. O’Rourke’s decision to
revitalise the bottle comes as a direct consequence of this. The ‘Rainbow
Effect’ idea was a simple, yet highly effective technique for catching the
consumers eye. The white labelled bottle paired with
the colourful liquid inside are undoubtedly hard to miss in shop fridges.

3.      
High number of competitors

2.      
Low switching costs

1.      
High aggressiveness of firms

Rivalry
among existing competitorsIn my opinion, there are 3 main external factors that
contribute to the strong force of competition against Vithit:

 

 

 

 

 

5.       Bargaining power of suppliers

4.       Threat of new entrants

3.       Bargaining power of buyers

2.       Threat of substitutes

1.       Rivalry among existing competitors

Due to the
ever-increasing global nature of the business, Vithit faces varying external
factors in it’s industry environment. I will summarize the overall impact of
these factors and the corresponding five forces below, with indicators of the
strengths of their forces on Vithit. They are listed in order of what I feel is
most important.

Vithit’s success
is linked to its business capabilities, especially in overcoming the challenges
shown in this Five Forces analysis. Michael Porter developed the Five Forces
analysis model to determine the most significant external factors that
influence firms. For Vithit to maintain its position as Irelands ‘fastest
growing soft drinks brand’, it must consider and act upon some potential
problems identified in this analysis. Vithit also needs to continually adjust
its strategies to effectively respond to the external factors significant in
the food and beverage industry environment.

PORTER’S
5 FORCES

 The moderate rate of regulatory change gives
opportunity for Vithit to grow with the expectation that its current strategic
decisions will satisfy regulatory requirements in the long term.

Companies
need to know what is and what is not legal in order to trade successfully,
that’s obvious. As Vithit trades globally they have to be very careful as each
country has its own set of rules and regulations. Vithit has navigated these
factors successfully so far and has done well to avoid any issues relating to
their ingredients. The ban of L-carnitine in liquid products in the US was one
hurdle they had to get around. Also, the smaller vitamin RDAs in Nordic
countries required a reformulation.

Legal

I strongly think it is in Vithit’s best interest to continually assess
every aspect of the business, always looking to see if there is a more
environmentally friendly way to operate.

Although this survey was carried out in the US, I would claim that Irish
people would be even more anxious to know if a company they are buying from has
these good practices.

According to a US survey carried out by The Natural Marketing
Institution, out of 53,000 U.S. consumers, they discovered that 58 percent of
consumers consider a company’s impact on the environment in considering where
to purchase goods. They also discovered people are more likely to purchase from
companies that practice sustainable habits.

I found an interesting study to back this up.

 

Vithit, from the beginning, has been a company that places a huge
importance on business sustainability. Aseptic filling was chosen not only for
the survival of the vitamins, but also to reduce the amount of plastic required
to produce each bottle. If they were to include a quick note on the packaging
that highlights this fact, I believe they’d win over even more health
enthusiasts.

“Business sustainability represents resiliency over time – businesses
that can survive shocks because they are intimately connected to healthy
economic, social and environmental systems. These businesses create economic
value and contribute to healthy ecosystems and strong communities.”

 

2.       Standards for waste disposal

1.       High focus on business
sustainability

There are
two main environmental factors that are significant to Vithit:

Environmental

Vithit
needs to keep up to speed with technological advances so that it can continue
to deliver its product to the consumer as cheaply and as efficiently as
possible.

Vithit’s
use of social media has been very effective. They are very active on Facebook,
Instagram and Twitter. From Vithit’s point of view, the best form of
advertising is word of mouth. They sponsor fitness events like ‘Hell and Back’
which is exactly the kind of place where Vithit could gain new customers
through samples. Vithit know they don’t have the money to be pumping into
advertising like Coca Cola can and so they have to be smarter with how they use
their money.

O’Rourke
from the outset was very focused on creating strong distribution networks. His
dismissal of the sales representatives was a key decision as it reduced costs
regarding the 3 wages and the running of the van. They took a risk in lying to Gleesons
about their cases’ sales but it paid off and full credit must go to them for
having the courage to do so. They must continually look to find the best
distributors in each and every country in which they operate.

Vithit’s
use of aseptic filling is an interesting part of their production process.
Aseptic filling is a cool-fill process that eliminates the need to sterilize
the liquid at high temperatures. By using this process all the vitamins and
benefits of Vithit survive and don’t have to be added artificially at a later
stage. I’m a regular consumer of Vithit’s drinks and I didn’t know they used
this method until I read the case study. This needs to be on the packaging as
it portrays to the consumer Vithit’s dedication to providing quality, healthy beverages.

3.       New ways of communicating with
target markets

2.       New ways of distributing goods and
services

1.       New ways of producing goods and
services

Technological factors affect marketing and the
management thereof in three distinct ways:

Technological

 Vithit can also take advantage of the busy
lifestyles of consumers, especially in urbanized markets around the world.
People with these lifestyles are more likely to purchase ready-to-eat food
products like those of Vithit. The deal with ‘Pallas Foods’ that saw Vithit
stocked in corporate canteens is something I believe should be done in every
market in which they operate. Vithit need to make their drink a ‘lunchtime
essential’ for businessmen & women.

Consumer attitudes in today’s society are very different to
what they were when Lavin set up Vithit. Even though he had a great product
that had the potential to do extremely well, the Irish people weren’t ready for
the health trend. Well, it is now very clear in my opinion that this trend has
reached Ireland which is an amazing opportunity for Vithit. Higher health
consciousness among Irish consumers has caused them to look for alternatives to
high-sugar content sports drinks that have been established for years.

3.      
More
discriminating attitudes about product quality

2.      
Increasing
busy lifestyles

1.      
Higher
health consciousness

The
following are notable sociocultural external factors relevant to Vithit’s
business:

Social

Taxes are another economic factor that are of utmost
importance to Vithit. The sugar tax to be implemented in April 2018 would have
been great news to Lavin and O’Rourke. As their drinks contain very small
amounts of sugar (.7g per 100ml) they will not be affected. As Vithit only use
high-quality ingredients, their price of 2.50 euro can be seen as expensive by
some. However, the tax will most likely see soft drinks company upping their
prices, rather than bearing the brunt of the tax themselves.  

Vithit’s performance is directly linked to the economy.
Ireland’s economic growth in recent years following the recession of 2008 will
have been hugely positive to see for Lavin and O’Rourke. As the amount of
disposable income people have grows, spending on non-essentials will increase.
Vithit must take advantage of this emergence from recession. I believe now is
as good a time as any to increase their marketing budget to win over people who
previously, would have been very cautious about spending.

Economic

The announcement of a sugar tax to be implemented in Ireland
in April 2018 will no doubt have been a major boost for Vithit. I will discuss
this is in following section.

However, Gary and Ian will now be keeping an anxious eye on
the relationship between the British and Irish government following the Brexit
referendum of 2016. On 29 March
2017, the UK government invoked Article 50 of the Treaty on the
European Union. The UK is thus due to leave the EU on 29 March 2019.
The UK will no longer have access to the Single European Market and so the free
movement of goods (in Vithit’s case their vitamin drinks) will no longer exist.
This is a serious threat to Vithit as the revenue generated in the British
market will inevitably be reduced. In my opinion, Gary and Ian should squeeze
as much profitability out of the UK market as possible before that March
deadline in 2019. After that, I believe it would be in their best interest to
refocus some of their resources to alternative markets. Continued expansion in
the US could be a viable option.

All 16 countries that Vithit operate in are politically
stable. Economies like the US, UK and Sweden are long established democracies
that offer solid platforms for growth. Full credit must go to Lavin and
O’Rourke for exploiting the opportunities that these countries provide.

3.      
Government initiatives against sugar (in the
form of taxes).

2.      
Improved intergovernmental cooperation

1.      
Political stability in major economies

They are:

 

 

Political factors are concerned with how and to what extent
a government intervenes in an economy. These can be tricky factors to navigate
as each country will have its own laws and regulations that must be adhered to
by Vithit. There are 3 main political factors which I believe must be addressed
by Vithit.

Political

In Vithit’s
case, these factors determine the company’s growth path. The market presents
challenges that threaten Vithit while creating opportunities for improvement.
Thus, strategies and reforms based on the elements of the PESTEL analysis tool
can boost Vithit’s long-term growth.

Legal

Environmental

Technological

Social

Economical

Political

A PESTEL analysis is a framework used by a business to
analyse and monitor the macro-environmental (external marketing environment)
factors that have an impact on an organisation. The acronym PESTEL stands for 6
factors which affect the business. The factors are:

PESTEL Analysis:

 

3.       Assess VITHIT’s strategy
of internationalization  

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

1.       Using a PESTEL analysis, identify the
industry in which VITHIT competes and the significant influences in the general
environment that impact on this industry

There are 3 core questions that I will answer over the
course of this report. They are:

Questions:

In this report I will be focusing on Vithit, one of the
fastest growing health brands in Ireland. It is an Irish company set up by Gary
Lavin in 2002 that competes in the food and beverages industry. However, Vithit
is primarily focused on the beverages industry. Currently, It’s involvement in
the food industry is limited to one country (Spain).

Overview

Executive Summary: