Vithit EssayIntro:Vithit is a vitamin drinks company founded by Irish entrepreneur Gary Lavin in 2000. When Lavin introduced co-director Ian O’Rourke in 2007 the company began to grow at an increasing rate due to O’Rourke’s international business experience. Ian made it his personal goal to rebrand the business and set up distribution deals which have seen the company go from strength to strength over the last decade. Vithit is a part of the beverage industry. According to Euromonitor, a segment of this market, the soft drinks industry, is presently worth €1.5bn in Ireland alone.
The soft drinks industry comprises of any non-alcoholic beverage. The soft drinks industry grew by 3%, with vitamin waters such as Vithit exceeding expectations in this market. I have conducted a PESTLE analysis on Vithit. With the company experiencing this level of growth not only within this industry but within the company itself, the factors that influence the business have gained massive importance recently. I also studied Porter’s Five Forces Framework to evaluate competition within the soft drinks industry, an examination which both Ian and Gary will be using in some way, shape or form in the coming years of business.
I finished the report by scrutinizing the company’s strategy for internationalization through Greiner and Mintzberg’s models. PESTLE analysis When we look at Vithit as a company through the PESTEL analysis we can dissect the firm and discover the forces that impact the business the greatest. These six forces include; political, economical, social, technological, environmental and legal1. Economical:Through studying PESTEL and Vithit, the economic impacts are very prevalent.
The first question one might ask their selves is, how can the economy impact a business? Well, for starters, the rate of economic growth is a big factor that plays a major role in business society. Economic growth is an increase in the amount of goods and services produced in a country from one year to the next2. When economic growth is high this means that more goods and services are being bought and consumed than there was the year prior. This tells us that the consumer has more disposable income and therefore a greater consumer confidence exists. This impacts Vithit as the consumer is more likely to buy their product as they have greater purchasing power.
This, obviously, results in increased revenue for the company. Irelands forecasted economic growth for 2017 is 5%3. This is high, and Ireland are predicted to be the strongest economy in the eurozone for the fourth year running in 20174. This shows that Vithit have entered the market at an excellent time.
However, when there is slow or negative economic growth the adverse effect occurs. During the recession for example there was low economic growth and a lot of the country’s workforce was concerned about their own job stability which forced them to put off unnecessary spending for the foreseeable future. Vithit is a luxury product and is something that the consumer can do without. This effects the business negatively as it will see a decrease in sales.
Additionally, this reduction in profit can make it difficult for a business to pay back its creditors, resulting in a bad credit rating and hindering expansion.The economy impacts the business massively through the governments use of taxation. Vithit benefits from the low corporation tax set by the Irish government. Corporation tax in Ireland is 12.5%5. The business will also have to pay commercial rates to the local council that it is situated in for basic services like water and broadband. Tax impacts a business in the decision-making process on where to locate. In Ireland, the government will offer tax breaks and subsidies to businesses that set up in, for example, the west of Ireland.
Vithit considered the tax rates when outsourcing their production to Spain and the UK6. Furthermore, global economic trends influence Vithit massively. As seen in the case study, Ian O’Rourke knew that the boom in interest in the healthy drinks area in America wouldn’t hit Ireland for another few years6. This stopped him going into business early when the market wasn’t ready. When the market finally existed in Ireland Vithit was ready and is now one if the most recognisable brands in its industry in Ireland6. The economic trend that Vithit witnessed here was that consumers are switching to healthier alternatives when it comes to food and drink7. Likewise, we can look at industry growth when analysing Vithit. The industry that I think Vithit is in is the beverage industry.
Trends in an industry lead to growth. The main trend in the industry now is that millennials are the main consumers and are switching from preservatives and additives to nutrient filled ingredients. “73% say they try to buy products in packaging that is recyclable.” Vithit uses recycled material for its plastics8. The market is now seeking products that are healthy and aid to their eco friendly lifestyle. “71% of Grocery Shoppers say that packaging that keeps beverages fresh without preservatives is the most important quality for healthy beverage packaging. (72% of Millennials)”7. Vithit uses aseptic filling which enables them to use a thinner plastic and allows them to keep the nutrients in the liquid and not erased by heating like it normally would6.
Political:The next element of PESTEL is political. In this section we must look at the regulation that effects the business. The Irish government has decided to implement a sugar tax starting 2018. “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”9. This is bad for other soft drink companies as they contain a lot more sugar than Vithit does. For example, coke contains 39g of sugar per 355ml10. that means that one can of coke exceeds our daily sugar allowance.
To contrast, Vithit has 6.5g of sugar per 500 ml bottle11. This will drive up the prices of soft drinks so the value of Vithit will increase massively. The popularity for cheap health drinks will increase.
Vithit had to watch out for regulation in the different countries they sell to and adapt their product accordingly. They had to remove L-carnitine from its products when selling in the U.S. because it wasn’t allowed in products in liquid form over there. This happened when they branched into the Norway market as well. “As Nordic countries have lower vitamin RDA’s than the EU, the product was reformulated to contain less vitamins”6.
Social:Social factors scrutinize all events that impact the market and community socially. Vithit is non-alcoholic so it doesn’t conflict with anyone’s belief on what should and should be allowed on certain advertisements, in sports especially. A big factor facing Ian and Gary at the beginning was who their target market would be and what demographic of the population they would focus on. Vithit decided to enter the Scandinavian market as they were countries said to be of “young mindsets” and opted out of selling in France and Germany as consumer preferred more juice heavy drinks6. Vithit communicates the fact that it is a low sugar alternative to traditional soft drinks. By doing so it avoid scrutiny from experts and large media outlets when the taboo topic of obesity arises. When Vithit went to South Africa, they “repackaged in slim cans to appeal to local preferences”6.
Technological:In this fast-paced world, the rate of technological development in all industries is unfathomable. Businesses are constantly looking for ways to improve their product and lower costs. Vithit uses, as previously mentioned, aseptic filling in the production of their products. This avoids the product being sterilised at a heat of 120 degrees Celsius6. All the added vitamins of Vithit survive. This allows Vithit to advertise themselves as a healthy alternative without any worry of backlash. Many businesses including Vithit have used social media to aid their marketing campaign. Social media has allowed for the business to interact with its customers in a more direct manner.
Vithit uses bright colours to complement the white background of its photos. Its aids to the fact that this product is not only healthy but vibrant and full of energy. Legal:There can be a lot of legal implications when you claim that your product is healthy and contains these vitamins. Vithit had to do many tests to make sure the vitamins were in the final product and get these products approved by the suitable board.
On its website, it claims that its boost drink has 100% RDA folic acid, vitamin B12 and vitamin C12. Vithit also has to make sure that there are no harmful substances in the product and that it is given the green light by the suitable regulatory bodies for its sale in the market. Vithit must abide by the two big consumer laws in Ireland; the sale of goods and supply of services Act 1980 and the Consumer Protection Act 2007 when selling their product in Ireland. To sell a product that is not of merchantable quality or produce an advertising campaign that is misleading would warrant a refund from the consumer base resulting in bad publicity. Environmental:This factor doesn’t affect the beverage industry quite as much as it does agri-business but Vithit try to be as environmentally conscious as they can by using recycled plastic for packaging6 and using the aseptic filling method with uses less energy than traditional methods. Porter’s Five ForcesThreat of New Entry:Through investigation of the Vithit case study under Porter’s five forces framework we get a deeper understanding of the business. The first force we must look at is the threat of new entry13. New entrants to the healthy beverage market are bad for Vithit as it forces them to keep the selling price at a low and decreases their overall market share.
However, barriers to entry can hinder the impact of the new entrant to the business. Vithit engages in economies of scale and this puts them at a cost advantage to its competitors and especially new entrants. Firms can also create economies of scale when they acquire another competitor.
For example, Doctor Pepper’s acquisition of Bai for $1.7bn in 201714. The resources of the two businesses are added and market share increases. Another barrier to entry is the capital investment required to enter the market. In this industry, a firm would need to invest in high tech machinery, persuasive and comparative advertising and a lot of R.
Capital requirements is a huge barrier as we saw in 2016 when Doctor Pepper spent 427 million dollars on advertising in the US15. Other barriers include government policy, access to distribution channels and product differentiation6.Bargaining Power of Suppliers:Suppliers play a major role in affecting the competitive nature of an industry. “Suppliers can exert bargaining power on participants in an industry by raising prices or reducing the quality of purchased goods and services”16. There are many suppliers in the industry from labelling to core ingredients. Therefore, Vithit can switch from one supplier to another if costs are too high.
The materials used are basic commodities like colour, flavour, vitamins and tea16. These can be produced easily so the bargaining power of suppliers are weak. Vithit could have used a supplier in Ireland to produce its bars but Spain probably offered a lower cost or higher quality6. Bargaining Power of Buyers:The power of buyers in the industry is all about the brand recognition the company has. At the early stages of the company Vithit was introduced into Tesco stores but was placed in a shelf at the back and not in a fridge due to this lack of consumer identification of the product6. This shows that without good market share the bargaining power of buyers is high.
This industry is extremely price sensitive. The power of the buyer is directly attributed to consumer consumption of the product. They are extremely price sensitive, so companies must engage in product differentiation to ensure that their product stands out. Vithit uses a rainbow effect when merchandising its products. The white background attracts the eye of the consumer while the colour matching each product creates a rainbow-like sequence on the counter6.
Competitive rivalry:Competitive rivalry forces Vithit to lower its selling price and constantly improve quality. The competition for Vithit in Ireland is Ballygowan’s sparkling fruity range17, Lucozade sport and innocent smoothies to name but a few. Each firm is constantly trying to win over each other’s customers. Vithit has used endorsements by Georgia Salpa and sponsorship of Celebrity MasterChef on tv3 to garner attention from the market.
However, this competition is non-comparable to that of Pepsi and Coke. These two companies dominate the beverage industry. The market share isn’t equally shared, but this is because health conscious consumers aren’t the majority. Vithit is impacted the most by consumer switching costs as Vithit sells at a higher price than its sugary counterparts. Thus, Vithit must keep quality high.
The company remains in a steady position in the industry with a sales increase of 40% next year18. Threat of substitutes:Vithit has several substitutes like juices, soda, beer, coffee and water that the consumer can switch to if they desire. “But most of the customers does not switch among the companies easily because of the brand name and the reputation the companies earned in the industry over time”19. Consumer tastes and seasonality issues effect consumption. During the summer months, more Vithit will be consumed as consumers prefer a cold drink to cool them down whereas during the Christmas break consumer may switch over to more alcoholic products and sales will decrease as a result20. As sales increase this forces Vithit to earn revenue elsewhere stifling competition once more. The primary way to keep customers coming back is through product differentiation. Vithit has executed this through its inception in 2007.
Lavin calls the business a “disruptor” in the industry, or a “first mover” as otherwise known6. Teas were added to the product to further distinguish itself from its competitors. Vithit’s main competitor in the global market is Vitamin Water but Lavin prefers not to associate with them and continually strives to separate itself from competition. Strategy for internationalisationLavin states in the case study that “each market is different, and they should be treated differently”6. This statement can be seen to be put in use by Vithit when they approach every new market they enter in their exploration of internationalization. This concept, otherwise known as globalization, has seen exponential growth in recent years. To evaluate Vithit’s strategy of internationalization, I will utilize Greiner and Mintzberg’s concepts to study the present structure of Vithit and their capability to internationalize. Greiner:According to Greiner, businesses undergo 5 distinct phases as they grow, each with its own crisis in which “a revolution in thinking and approach was required to progress to the next stage”21.
The y axis of the above diagram is based on the growth of the organisation and the x axis is based on the length of time the organisation has been in business22. A company with a low rate of growth like Vithit has a lower sloped curve. Low growth can be the result of an under developed brand, insufficient number of reasonable short term and long-term goals, and inefficient business processes23. Unfortunately, this model is very idealistic.
Each revolution and evolution doesn’t come in this way in the real business world. The model repeats itself recurrently but differently dependant on the business. Personally, I believe that Vithit is in stage 3 of this model.
This is known as the delegation stage22. Middle management’s focus is presently on the expansion of the market. We can see this focus as Gary and Ian continually aim to globalise their product into new territories, expanding their distribution network constantly and as production increases they incessantly delegate this work to other firms in different countries. During the summer, Vithit signed a large distribution deal worth at least €17.5m. The American firm expects that sales will double next year as “The new distribution deal serves an area of 25 million people and will see the Irish drink immediately stocked in 5,000 of Honickman’s 15,000 outlets in the Mid-Atlantic region, from New Jersey to northern Virginia”24. As the company grows the workload increases drastically and the pair will be forced to delegate work to employees.
Gary has built this company form the ground up and may find it difficult to let someone do the work for him. This develops the crisis of autonomy and the company faces a stage of revolution as O’Rourke and Lavin feel as though they are losing control over the field of organisation. Nevertheless, we must look at the fact that Vithit only has twenty employees operating in sixteen markets. Therefore, Gary and Ian shouldn’t find it difficult to organize employees and middle management to work towards the unilateral goal of becoming the biggest international soft drinks brand6. Vithit is still a relatively small business in the grand scheme of things.
Thus, Ian and Gary still have a lot of control as to the decisions made in the day to day running of the business6. This forces me to conclude that Vithit, now, takes the form of a simple organisation. Nevertheless, if the business desires to sustain success globally, the directors of Vithit should concentrate on structuring their business to become a more divisional structure as part of their strategy under Mintzberg’s ideas25. As Vithit grows internationally, daily decision making within the business will be spread out among the employees of the business which will grant Gary and Ian to direct their attention on forthcoming strategies of the firm when it comes to internationalization, such as guaranteeing distributors in Australia26.
As Vithit expands into different countries, they have broadened their product range to include children’s drinks and flavoured sparkling water6. As this is implemented into existing international operations, the business will have to become multi-divisional to preserve the business’s activities up to an efficient standard.When we look at capital requirements, which I have mentioned in Porter analysis, there are a lot of elements that positively impact Vithit like the sugar tax that will be implemented in the UK and Ireland. This tax will give Vithit the competitive edge they need as they will not be forced to endure the same commercial strain as their competitors, thus enlarging the capital budget that will be allocated to internationalisation costs like advertising. This is very important to Vithit as securing finance from alternative sources has proven to be difficult throughout the history of the business6. Conclusion:From my above analysis, I can confirm that Vithit are in a very strong position strategically now.
A visionary, Gary Lavin, saw the potential for massive success in the healthy beverage market way before all his competitors even knew the existence of what this boom has become. This has allowed the company to become a recognisable brand in the Irish beverage market even when they are compared to the likes of Coca Cola and all their products. The pair’s determination and willingness to survive in this harsh industry are shown trough their internationalisation journey so far. They have faced many setbacks, but it seems as though luck is on their side as they come out the other end better and stronger. Ian’s quest to transfer the Vithit name to a global brand is sure to be accomplished if the success that they have had so far spreads across Europe. My Mintzberg analysis has highlighted the structural changes that need to occur as the business globalises.
To contrast, the Greiner model that I applied to this business has shown what stage the company is at and what needs to take place for them to expand. Porter has investigated the competitive threats they face while PESTEL signalled the key elements that will impact the business now and in the years to come. Finally, clearly their partnership of creativity and management is a success, and will be a success in the years to come.