Political: be healthier. At the time of Vithit’s

Political:

Taxes
increase the cost of sales, meaning businesses will have to raise their prices.
 The more expensive the product, the less
likely consumers are to buy it.  However,
current health trends in Ireland will benefit Vithit with the introduction of
sugar taxes in 2018, “The tax will apply at a rate of 30 cent per litre if
drinks have over 8g of sugar per 100ml while 20 cents per litre tax will apply
if drinks have between 5g and 8g of sugar per 100ml. Drinks with less than 5g
of sugar will not be taxed” (Pope, 2017).  Vithit lean & green has 1.3g of sugar per
100ml (O’Connor, 2017) while 7up has 11.2g per 100ml (Kenny, 2012).  Vithit isn’t being taxed unlike its
competitors.  Consumers are turning away
from soft drinks towards healthier alternatives, leading to greater sales for Vithit.
 

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Economic:

In
a 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 sensitive
to price change.  Profits increase if the
euro is weak as the product is exported to sixteen foreign markets (Blair-White
et al 2017).  They must consider
international trade, import tax, exchange rates and foreign economies, which
influence the price Vithit sells their products.  The use of aseptic filling means less plastic
is required for bottling, cutting costs.  Although it’s within a niche for health drinks
it still competes with the all other drinks in the beverages industry. Vithit
must consider the competitor’s prices, marketing techniques and market share.   Securing
finance is difficult, Vithit is small and could pose a risk, so they turned to
alternative sources like peer-to-peer loans from linked finance.

Social:

Ireland is very health conscious, after risking becoming
the most obese country in Europe within the next decade (Cullen, 2016).  People are making lifestyle changes to be
healthier. At the time of Vithit’s establishment, “colas and sports drinks
contained 20-28g of sugar, yet the recommended daily total sugar intake per
person is only 25g” (Blair-White et al 2017), so Gary Lavin decided to develop a
healthier alternative.  Using aseptic
filling ensures all added vitamins and benefits survive but the product is
sterilised, this appeals to parents looking for alternatives to sugary drinks
for their children.  They “worked their
youthful, fun brand image into witty advertising slogans and self-deprecating humour
featured on their bottles” (Blair-White et al 2017) using “punny” product
names, including ‘immunitea’ and ‘vitalitea.’  Vithit considers what consumers want, switching
to wider bottles in Ireland and slim cans in South Africa. 

Technological:

Vithit must consider its machines, do they need to be
upgraded?  Are they as efficient as they
could be or as their competitors?  They
must consider these questions when budgeting. 
Occasionally they will need to upgrade their machines which will be
expensive but in the long run the efficiency will enable them to save money,
cut costs and make redundancies, allowing them to reduce their price and
increase sales.  Regarding advertising, being
the main sponsor of ‘Masterchef’ is good brand exposure along with a blog,
Facebook, Instagram and twitter pages, to interact with its consumers “social
media has become a key means of engaging with its younger consumers”
(Blair-White et al 2017).  This lets them
see what consumers are looking for and appeals to the younger market through
witty posts on a platform they will see and enjoy.

Environmental:

Because Vithit is a health drink containing fruit
juices, they need good quality fruits harvested from a clean environment.  Other ingredients include water; therefore, it
is in their interests to source a clean water supply, this will affect
competitors as well as themselves.  Vithit
sells its product in a recyclable plastic bottle, which helps with advertising
as they can show themselves to be a green company who cares about the
environment.  The business’ use of
aseptic filling has environmental benefits as well as social as it removes the
need to heat the drink, allowing for thinner plastic used for the bottles.  Although Vithit seems to be very
environmentally conscious, like any business, they must make a conscious effort
to reduce their factory fumes, reduce their carbon footprint and obey environmental
legislation.  

Legal:

Vithit must obey the law of the country they are
selling in, for example Sale of Goods and Supply of Services Act 1980 in
Ireland or the Consumer Protection from Unfair Trading Regulations (Jackson,
2017) in the UK.  Their products must be
of merchantable quality and they must include specified information on their
packaging, such as ingredients and any necessary warnings.  There are many food regulators in place in
Ireland by the Food Safety Authority to ensure products are not harmful and
consumers know what they are buying.  When Vithit expanded to the US they were
forced to remove L-cartinine from their products “which is not permitted in
liquid products in the US” (Blair-White et al 2017).  Vithit also reformulated their product to have
less vitamins for exporting to Nordic countries due to the lower vitamin RDAs
there.Vithit
is in the beverages industry, as an alternative to sugary drinks but competes
in the same market within the health beverages niche.  In this assignment I will apply PESTLE and
Porter’s five forces to Vithit as well as the beverages industry.  I will also analyse Vithit’s strategy for
internationalisation by looking at Greiner’s model of how organisations grow
and evolve and Mintzberg’s five natural configurations.    PESTLE
stands for political, economic, social, technological, environmental and
legal.  Political is concerning the
opportunities and threats placed on a business by political institutions such
as the government.  The main influences
are 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 that
will 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 technological
aspects of business, the barriers and incentives.  The main influences are new technologies,
legislation, research and innovations, ICT and competitor technology
development.  Environmental is relating
to the opportunities and threats the environment has on the business.  The main factors are environmental
regulations, reducing carbon footprint and impact of weather.  Legal relates to the laws, regulations and
legislation that affect the running of Vithit. 
The main factors are Irish legislation, international legislation,
consumer protection, health and safety regulations, competitive regulations and
industry-specific regulations.  PESTEL is
a way to analyse the strategic planning of a business.  It looks at the external influences on a
business, so they can plan accordingly and be successful in the long run.  It helps the business with their strategic
planning, marketing planning, organizational change, research and product
development. 

Porter’s
five forces framework consists of the main elements of competition, the
bargaining power of suppliers, threat of substitutes, bargaining power of
buyers, threat of new entrants and competitive rivalry.  The goal of the corporate strategist is to
find a position in the industry to best defend the company and to take
advantage of these forces.  The impact of
each of the forces vary depending on the industry but their collective strength
determines the overall profit potential. 
They highlight the strengths and weaknesses of the business and show
which areas need to be adjusted for maximum results.  The weaker the forces the greater the
opportunities for higher performance.Bargaining
power of buyer:

As
Vithit is a relatively new business, buyers have a lot of bargaining power.  With many alternatives in the beverages
industry, Vithit must advertise its unique selling point as a hybrid health
drink, “water, tea, juice into a single serve beverage with a ‘hit’ of
vitamins” (Blair-White et al 2017).  When
expanding into the UK, Tesco agreed to stock Vithit but only stored it in the
dry shelves in the back.  Vithit needed
to show Tesco they deserve prime shelf space, as positioning greatly influence purchasing
decisions (Porter, 1979).  Since products
in the beverages industry are hardly differentiated, Tesco would able to find
cheaper alternatives that still meet their needs, giving them a lot of
bargaining power. (Porter, 1979).  Consumers are generally more price sensitive
if the product is undifferentiated, expensive and quality isn’t their top
priority (Porter, 1979).  Therefore,
Vithit must work to differentiate itself, and reduce their price as much as
they can to entice on-the-go consumers to buy their product.

 

Bargaining
power of supplier:

Suppliers
have some bargaining power as Vithit is looking for the best quality raw
materials.  These raw materials are
different to other firms in the beverages industry as each recipe is different.
 Aside from ingredients, most suppliers
provide basically the same product, such as, bottling equipment or machinery.  These general things can be provided by many
suppliers, and since the products aren’t in short supply, Vithit can shop
around, giving suppliers very little bargaining power.  Vithit is going to choose the company that
provides the best products at the lowest price, therefore the suppliers will
have to compete to be this company and keep Vithit happy.  Who the supplier is has little effect on
Vithit, they can switch easily and are only concerned with producing quality
products at a reasonable price.  The
supplier needs Vithit more than Vithit needs them as it is very easy to find an
alternative supplier, but suppliers need a business to sell to survive.  

Threat
of substitute:

There
is no real threat of substitution for the entire industry unless consumers want
to be self-sufficient and make their own beverages.  It would not benefit consumers much or save
them much money to do this as they would have to pay for ingredients and
machinery themselves.  With this lack of
a threat from substitutes there is no limit on the potential of the industry (Porter,
1979).  However, within the market there
are many substitutes such as Bai, VitaminWater, Honest Tea and HINT, but price
difference 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 four
Vithit flavours of the time won 1st, 3rd, 5th
and 7th in the top 50 best-selling health brands (Blair-White et al
2017) this would motivate consumers to choose Vithit over its substitutions.  Alternatively, consumers could choose water
which would be the healthiest and cheapest option of them all.

Threat
of new entrants:

With
the recent health trends in Ireland, the health beverages niche is seeing an
influx in the number of new businesses.  This
industry is lucrative so new businesses, such as Bai, and expanding established
businesses, are entering the market which threatens Vithit both domestically
and internationally.  It is likely that
with the current health trends, more and more products will enter the market,
making it very competitive and even more difficult to differentiate the products
which is a key barrier to entry.  As
Vithit has grown over the years, it has gained a lot of power and popularity, making
it difficult for new entrants as they’ll be able to fight back with their
significant resources, like excess cash.  They will be able to cut their prices more
easily than new businesses and keep their market share.  New entrants would have to pay high start up
costs as well as high advertising costs to compete, but the advantages of
success would be worth the risk. 

Competitive
rivalry:

The
beverages industry is competitive with many products appealing to the needs of
consumers.  Vithit’s main competition
within their niche are Bai, VitaminWater, and Honest Tea, but they’re
“competing against anything that is low calorie and up and coming” (Blair-White
et al 2017).  The “natural juices used in
Vithit drinks pushes up the cost of production beyond those of competitor’s
such as Robinson’s, (Blair-White et al 2017)” forcing Vithit to focus mainly on
the health beverages niche, as a “healthy sports drink that tasted as good, if
not better than their sugary counterparts” (Blair-White et al 2017).  Witty advertising keeps the brand appealing to
youthful-minded people and the ‘hybrid health’ element reinforces a niche.  Recent product expansion includes vitamin
bars, children’s drinks and flavoured sparkling waters.  However, facing huge competition from more
experienced brands, the vitamin bars aren’t top priority.  Instead they focus on beverages with Vithit
bubbly 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 of
how organisations evolve and grow (Greiner, 1998).  It’s going through a period of sustained
growth 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 countries
around Europe take their lead from that” (Blair-White et al 2017).  After moving to the UK, Lavin and O’Rourke
spent two years developing their strategies, finding small retailers to stock
their product, eventually gaining Tesco’s attention.  It was a slow but steady growth with their
promotional strategies and perseverance leading to Vithit becoming one of the
best-selling health brands in the UK and Ireland.  By 2015 Vithit was being sold in Boots and in
Sainsbury’s and Superdrug by 2016. 

After success in both the UK and Ireland, Vithit went on to expand
further into the European market and some international markets, including
South Africa, UAE and Bahrain, Lavin said “we’re growing carefully – not just
firing it at every country and seeing what lands” (Blair-White et al 2017).  O’Rourke and Lavin were clever and developed
strategies for organic expansion by establishing strong distribution
networks.  They realised that each market
was different and needed to be treated differently so they tailored the product
and marketing campaign slightly for the different countries.  They continued expanding across Europe but avoided
countries 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 in
Scandinavian countries and is stocked in almost every Icelandic convenience
store.  As Vithit is currently only
employing “twenty people across sixteen markets” (Blair-White et al 2017) it is
likely that they have implemented a functional organisational structure.  Communication would be frequent with so few
employees but there would still be managers and supervisors to give
directions.  Incentives, budgets, work
standards and accounting systems for inventory and purchasing would be
introduced as they business is still steadily growing (Greiner, 1998).  They knew that a timely response to market
changes was so important that they gave “international Vithit sales personnel
more autonomy with regard to operational issues” as they’d know the local
market better (Blair-White et al 2017). 
They were wise to delegate as failure to do this would result in a
revolution from crisis of autonomy.

I believe Vithit is of a simple organization in
Mintzberg’s five natural configurations (Mintzberg, 1981).  It’s a new business with few employees.  Being under direct supervision by the top
managers’ Lavin and O’Rourke means there is little standardization, “the
organisation has little need for staff analysts” and “few middle-line managers
are hired because so much of the coordination is achieved at the strategic apex
by direct supervision” (Mintzberg, 1981).  Vithit is flexible and keeps its environment
simple so the “chef executive can retain highly centralized control” (Mintzberg,
1981).  This centralized control enables
them 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 was
primarily focused on innovation and not on the logistics of the business.  This is where many simple structured
businesses can fail, and Vithit nearly did, but with O’Rourke’s attention to
business operations, Vithit has become one of the leading health brands across
Ireland and the UK. 

After achieving such success in Europe, Lavin and
O’Rourke thought it was time for further internationalisation and began
expanding into US markets.  They were
very clever in their approach planning to “treat the first state like a
country, then when we succeed there, move to another state and so on.”  They took advantage of O’Rourke’s
international contacts to develop strong distribution relationships and expanded
into Virginia via the PepsiCo bottling company. 
They believe if they had success in a mixed market like Virginia, they’d
be successful elsewhere, so they used it as a foothold in the market and
planned to expand state by state on the East Coast. 

O’Rourke’s and Lavin’s strategic planning for
internationalisation was so successful that Vithit became the fastest growing
soft drinks brand in Ireland and the 15th largest.  They achieved their global brand status by
sharing their “willingness to talk to anyone who could potentially increase
distribution or sales” (Blair-White et al 2017), this showed they were not too
cocky and realised that they needed to accept help from others to achieve their
ultimate goals.  Their strong
distribution relationships were key to their success, they sought to develop
strong distribution networks everywhere they went with large-scale distributors
(Blair-White et al 2017). 

 

     

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