VITHIT Revitalizing the bottle · Energy bar production

VITHIT

Intro

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VitHit’s success
may seem fantastical or an incredible shot of luck but the story behind how an
Irish Based company competing in the soft drinks industry reveals the many
factors that have led to this success. Established at the turn of the millennium
as ‘Vitz Drinks Ltd.’, VitHit has had its fair share of trials and tribulations
over the years, especially with the ever-increasing competitiveness of this
market. In this report I will be looking at Vitz Drinks Ltd. through the lens
of a ‘PESTEL analysis’ too identify the influences that affect the industry and
have helped to shape Vitz Drinks Ltd. In addition to this I will examine the
forces that govern the intensity of competition in this industry. Finally, I
will analyse VitHit’s strategy of internationalization by taking into account
this PESTEL analysis and competition analysis

 

Q1: Using a PESTEL analysis identify the
industry in which VITHIT competes and the significant influences in the general
environment that impact on the industry.

P

E

S

T

E

L

 

 

P.E.S.T.E.L
ANALYSIS SUMMARY

Political:
·       Sugar
taxes
·       Corporation
Tax

Economic:
·       Propped
up by property investments
·       Expensive
Loans

Social:
·       Other
sugary drinks + health trend
·       US
health drinks seen as ‘watered down’
·       Health
trend had not kicked in yet in Ireland

Technological:
·       R&D
to create the products
·       Revitalizing
the bottle
·       Energy
bar production

Environmental:
·       Aseptic
filling so thin bottles can be used

Legislative:
·        EU regulation

 

 

 

 

Political

The
first main political issue that has and will continue to affect this industry,
Vitz Drinks Ltd. included is the idea of a sugar tax to be imposed on certain
sweetened drinks. In Ireland, such a tax was revealed in the 2018 Budget in
October 2017 and is to be imposed from April 2018 which would levy between a
tax between 20 and 30% on certain soft drinks, depending on the sugar content
of the drink. 1.

This
sort of tax on the soft drink industry is a great opportunity for VitHit as it
would result in an increase in price of its competitor’s sugary drinks to a
similar level to the price of VitHit drinks meaning that if they continue to
create and maintain a positive brand image there could be a great leap in the
sale of VitHit drinks.

As
an Irish company, VitHit is charged corporation tax at the Irish rate of 12.5% 2,
even though it has operations outside of Ireland. Ireland’s corporation tax
rate is one of the lowest rates in the developed world 2, this
gives VitHit a competitive advantage on the international market when competing
against soft drinks companies based elsewhere, for example PepsiCo had an
effective annual tax rate of 25% in 20163.

 

Economic

While VitHit was
able to survive on funding from Lavin’s property investments throughout the
early 2000s after the 2007 property crash “the company became insolvent”, as
the property returns that the founder, Gary Lavin, had previously used to keep
the business afloat had vanished 4. This caused a complete
overhaul of the company to turn VitHit into a profitable venture for Lavin,
this required additional capital.

Attaining this
additional was difficult for VitHit throughout the years and in 2015 after
failing to secure this capital from financial institutions left VitHit forced
to turn a peer to peer loan group, Linked Finance which meant it incurred a
higher interest rate 4. This indicates how attaining capital is integral
to succeed in this industry and can be difficult for SMEs such as VitHit. 

Social

For many years the
soft drinks market was dominated by sugary drinks, Vitz Drinks Ltd. was founded
in 2000 with the aim to create a healthy sports drink. Lavin saw a gap in this
market in Ireland and promoted these drinks differently to US sports drinks
which were “perceived as ‘watered down’ juice” 4. A major issue
for Lavin was that although he had “a winning product”, the American ‘health
trend’ had not made its way to Ireland in any meaningful way meaning that there
was not much demand at this time for VitHit’s products.

This meant VitHit
was unable to gain popularity in Ireland until years later, this shows how
integral it is for companies to be aware of their market and also shows how
impactful social norms can be on the success of a product.

Technological

Technology can be
very influential in industry, particularly in industries such as the soft drink
industry where technology plays a very important role in the production of the
product as well as the research and development of the product line. VitHit
used technology and innovation to succeed in the domestic and international
markets, tailoring its product to appease each market. Lavin’s partner O’Rourke
used his experience and insight in the soft drinks market to notice that
consumers had a “preference for wider bottles”. VitHit used this inside
knowledge to create a bottle that stood out from its competitors.

Lavin and O’Rourke
also had enough knowledge to realise that they could not create every aspect of
the product themselves as they did not have the sufficient investment or
technology. This was shown in their outsourcing of production of their line of
vitamin bars to a manufacturer in Spain 4. Both of these examples
show how important technology is in food and drinks industries that VitHit
operates in.

 

 

Environmental

VitHit’s
production of plastic bottles is much more environmentally friendly that its
competitors. The company has chosen to use the method of aseptic filling
because of the benefits this has to the environment and also to the physical
packaging of its bottles 4. This means that the company can be
more environmentally friendly and also efficient in its use of production
materials. By using this method of packaging, the company uses less plastic,
reducing its waste but also meaning the cost of plastic per bottle is less.
This has helped VitHit gain a slight competitive advantage over its competitors
while still creating a high-quality product.

Legislative

Legislation has
been a key factor in shaping VitHit’s product line and sales strategy, from its
inception in Ireland to its international ventures. For example, after Shannon
Minerals, VitHit’s production company closed in 2007 VitHit was easily able to
outsource its production to the UK or similarly when VitHit outsourced its
production of vitamin bars to Spain. This ease of trade between Ireland, the UK
and with the rest of the EU has been very important in shaping VitHit as a
company, allowing it to trade in many European markets and to easily outsource
production, and is a direct result of EU and Irish legislation 5.

Q2: Using the
Porter 5 Forces Framework assess the forces driving competition in the industry

PORTER’S
FIVE FORCES

1.    
Threat of New Entry:
·      
Certain barriers to entry
·      
American vs European tastes

2.    
Buyer Power
·      
The importance of how supermarkets sell
VitHit
·      
The importance of certain buyers to
create a brand identity

3.    
Supplier Power
·      
Outsourcing Production
·      
Aseptic filling creating more efficient
production

4.    
Threat of Substitution
·      
International Health Drinks
·      
Vitamin Bars competition

5.    
Competitive Rivalry
·      
Success of VitHit may promote more
competitors
·      
Sugar Tax may promote more competition
in the health drinks market

 

Threat
of New Entry:

While
VitHit is a very well-established brand it was not always this way and in its
early years it found it very hard to break into the soft drinks and health
drinks industries. There were several barriers to entry that VitHit had to
overcome to compete and gain popularity in both the domestic and international
markets, for example VitHit struggled for many years with investment and was
only able to function as a loss making business from Lavin’s property
investment returns and an eventual loan from ‘Linked Finance’4.
This shows how tough it is to break into the soft drinks industry.

One
reason that VitHit has dominated the Irish health drinks market, according to Lavin
himself is that the American vitamin waters that have attempted to break into
the Irish, UK and European markets “were created for the American market and
different taste buds” 6. This shows that competition in this market
is dictated, in part at least, by cultural and social factors meaning that the
threat of entry of new competitors is reduced as success in this industry requires
an understanding of  local culture and
customs.

These
barriers to entry help us to understand why VitHit has enjoyed such success in
the Irish and European health drinks market.

Buyer
Power:

In
the soft drinks industry, buyers have a great deal of power. Soft drinks
companies, VitHit included, rely heavily on sales and the buyers drive these
sales. VitHit could not have succeeded had it not gained the confidence and
backing from major retailers, supermarkets and catering companies. This was evident
in VitHit’s attempts to break into the UK market. Originally VitHit was being
sold on the dry shelves in some Tesco stores and was only achieving sales of
2.5 cases per week. After Lavin set out on a campaign targeting Tesco Express
convenience stores to convince them to stock VitHit in the fridges with the
other items sales hit over 50 cases a week in some Tesco Express stores 4.
This helped Lavin to convince Tesco that VitHit was a convenience item that
could be successful competing alongside other soft drinks. This series of
events helps to show how important buyers are in this industry in allowing
companies to succeed.

Another
important event in the company’s history that shows the importance of the buyer
was when VitHit were attempting to secure the Irish market they strategically
stocked VitHit in certain locations to promote brand awareness. Before 2009
VitHit targeted corporate canteens and catering companies across Ireland, by
stocking VitHit in these small canteen fridges VitHit gained brand awareness and
the next year their sales figures began to increase drastically 4.
This shows how important buyer confidence in your product is and indicates the power
that buyers have over the competition in the beverage industry.

Supplier
Power:

Supplier
power does not hold a great influence over VitHit’s competitive rivalry as due
to EU legislation VitHit enjoys free trade with many countries in Europe
allowing it to outsource its production when it may need to. For example, after
VitHit’s original supplier closed down in 2007 VitHit were able to outsource
its production to the UK without much disruption to its production 4.
Although VitHit has the ability to outsource their production to many different
locations over the EU 7, such outsourcing would incur increased
transport costs and additionally VitHit requires specialized aseptic filling
which means that the number of suppliers it has to choose from is smaller than
if it were to use traditional filling methods. This means that while there is
not a great amount of supplier power, there is some and it does have on affect
on the competitiveness of VitHit.

Threat
of Substitution:

Substitution
is a major driver of competition in all industries especially the beverage and
food industries where VitHit is active. While VitHit does face competition
domestically and internationally, Gary Lavin has worked hard to create a very
unique brand image in the health drinks market, branding the product as a ‘hybrid
health drink’, this has allowed VitHit to carve its own lane in the market and
to be seen as different from the sugary vitamin waters imported from the US 4.
This effective marketing may not have eliminated all competition, but it has
certainly helped the brand to curb some of it.

The
threat of substitution as a driver of competition was seen very clearly in VitHit’s
venture into the food industry with its vitamin bars, which were launched in
2009. With the entry of Fulfil bars to the market in 2015 the competition in this
sub market of health bars “O’Rourke Acknowledged that theyVitHit could not
compete with Fulfil” 4. This exhibits how substitution is an ever-present
threat and a major driving force behind competition in both the food and beverage
industry.

Competitive
Rivalry:

The
competitive nature of the health food and drinks markets have mirrored a
changing cultural attitude towards our health in our society and VitHit has
capitalized off of this change. Seeing the success of VitHit and other health
food and drink products many more Irish companies have attempted to compete in
this growing market 9. The health food and drinks industry may
once have been very lucrative but with the success of VitHit and other products
there is a large incentive for more companies to attempt to break into this
market and this is an ever-present problem for VitHit.

Another
factor that may cause an increase in the intensity of competition in these
industries is the introduction of sugar tax in Ireland and around the world.
Many soft drinks companies may attempt to curtail these sugar taxes by
promoting and creating new health drinks with less sugar that would be
competing directly with VitHit.

 

 

 

 

 

 

 

 

 

Q3.
Assess VITHIT’s strategy of internationalization in light of your analysis.

Since VitHit was
founded in 2000, its founder Gary Lavin has been very keen to expand into
international markets and in the company’s infancy Lavin made a lacklustre attempt
move into the UK, Dutch and Belgian markets without any great success. Lavin,
with his limited business experience had not yet gained the experience or
business know-how of how to enter new markets and to successfully commit to the
internationalization of VitHit, as he said himself, these attempts to break
into new markets were merely attempts to “keep afloat”, he did not enter these
markets with any real supply strategy or any insight into these international
markets. In these early years Lavin lacked “proper market entry, distribution or
a promotion strategy” 4. In VitHit’s early years there didn’t seem
to be any clear-cut plan or strategy of internationalization and even more than
this, Lavin was yet to even conquer the domestic market.

This haphazard
approach to internationalization later caught up with Lavin in 2007 when the
property crash meant that his previously lucrative returns on property
investments were no longer able to keep the company propped up. This forced
Lavin into a complete overhaul of the company, Lavin partnered with Ian O’Rourke
that year whose experience in exporting products and in the beverage industry
along with his business acumen aided the partners in creating a plan for the
company. O’Rourke identified Lavin’s haphazard approach to internationalization
as a road block to the company’s potential success. O’Rourke decided that it
was important to the company that they conquer the domestic market first before
continuing to export to the UK, Europe, and the rest of the world 4.

After successfully
gaining a foothold in the Irish Market, Lavin and O’Rourke looked to further
expand VitHit to the UK. Unlike Lavin’s previous attempt of expansion with only
an ‘ad-hoc’ selling of VitHit this “was a structured attempt to gain international
exposure and sales”. Not only did Lavin and O’Rourke have a plan for entering
the UK market but they had a tangible strategy of internationalization. They
would first gain a foothold in the UK before moving on to Europe and the rest
of the world 4. O’Rourke and Lavin also aligned this first real
step in internationalization with the changing European perception about the ‘health
trend’, they had successfully evaluated the changing social influences on the soft
drinks industry and were no ready to capitalize on it.

After successfully
gaining a foothold in the UK by cultivating good buyer relations and a brand
image, O’Rourke and Lavin were ready to move on to conquer the European markets.
After the success in the UK and Ireland, these partners devised a “targeted
strategy for European expansion” 4. No longer was Lavin selling
small quantities of VitHit abroad to merely stay afloat, but he now, with the
help of O’Rourke had the domination of the international soft drink market in
his crosshairs. Soon after this this strategy was updated to incorporate a few
more carefully selected international markets such as South Africa. Lavin and O’Rourke’s
success internationally was due to their strategy of tailoring their product to
suit the needs of each market, for example in South Africa, VitHit was
repackaged into “slim cans” to appease local tastes 4. VitHit was
also very successful in Scandinavian markets as Lavin and O’Rourke knew to enter
markets with a traditionally ‘younger minded’ society. VitHit has taken a similar
approach to expansion in the US where it has planned to treat each state as a it
has treated each European country, to gain a foothold in each state before
moving on to the next. This foresight and tailoring of the product has been a
major factor in VitHit’s successful strategy of internationalization 4.

Conclusion/Summary:

I started this report by
using a PESTEL analysis to identify the major influences that affect the environment
of the industry that VitHit operates in. From the table and from my analysis you
can see that while all of the examined influences played a part in shaping
VitHit and how it operates, the political, social, and legislative factors
played the largest role as these have all been sources of strength for the company.
Then I identified the forces that influence the intensity of competition using
Porter’s 5 forces framework and how VitHit has adapted to this and where it has
been successful/unsuccessful. Finally, by taking both previous sections into
account I examined how VitHit has successfully formulated an effective strategy
of internationalization.

 

References

(1)   The Irish Times.
(2018). Budget 2018 main points: everything you need to know.
online Available at:
https://www.irishtimes.com/business/budget-2018/budget-2018-main-points-everything-you-need-to-know-1.3250539
Accessed 11 Jan. 2018.

(2)   Tax Foundation. (2018).
Corporate Income Tax Rates around the World, 2016 – Tax Foundation. online
Available at:

Corporate Income Tax Rates around the World, 2016


Accessed 14 Jan. 2018.

(3)   Csimarket.com. (2018).
Pepsico Inc Annual Effective Tax Rate Trends, Business Profitability Ranking,
Fundamental Ratios – CSIMarket. online Available at:
https://csimarket.com/stocks/singleProfitabilityRatiosy.php?code=PEP
Accessed 14 Jan. 2018.

(4)   Blair-White, H., Byrne,
N., Collins, A., Crowe, L., Earley, A., and Greene, C. (2017) VIT-HIT
Strateg-Tea: TBS Case Study, Dublin: Trinity Business School, Trinity College.

(5)  
Ec.europa.eu. (2018). Policy – Trade –
European Commission. online Available at: http://ec.europa.eu/trade/policy/
Accessed 14 Jan. 2018.

(6)  
beveragedaily.com. (2018). Hoping for a
VITHIT Stateside: Ireland’s No.1 health drink enters US. online Available at:
https://www.beveragedaily.com/Article/2014/07/24/Hoping-for-a-VITHIT-Stateside-Ireland-s-No.1-health-drink-enters-US
Accessed 14 Jan. 2018.

(7)  
Bausch-group.com. (2018). online
Available at: https://www.bausch-group.com/company/company-2/base-europe/
Accessed 14 Jan. 2018.

(8)  
Porter, M. (1979) how competitive forces
shape strategy, Harvard Business Review March-April 1979, 137-145

(9)  
Kenneally, E. (2018). The 10 Best Irish
Health Food Brands To Try Out This January. online Lovindublin.com. Available
at:
https://lovindublin.com/best-of/the-10-best-irish-health-food-brands-to-try-out-this-january
Accessed 14 Jan. 2018.