Vitz Drinks ltd. was founded by ex-rugby player, Gary Lavin
in the year 2000. As a previous sportsman, aware of proper nutrition, Lavin noticed
the high sugar content in sports drinks. Lavin set out to create a low calorie,
low sugar heath drink. However, with no business or entrepreneurial skills,
Lavin found his company with a negative cash balance of €1.2 million at the
time of the financial crash in Ireland. Vitz international exporter, Ian
O’Rourke soon became the co company director and business partner of the
renamed ‘VITHIT’. From struggling to conquer the domestic market VITHIT became
the fastest growing soft drink in 2016. (Final
Year TCD Business Studies Students (2017) case study of VITHIT).
VITHIT competes in the highly competitive health drinks
industry. Using PESTEL analysis the significant influences in the general
environment that impact the industry can be identified.
The first factor of the PESTEL analysis is the political
environment. The political environment has numerous effects on a company. The
outcome of political decision can have significant effects on the actions of a
company and their consumers and can result in major gains or losses. (Pestle
analysis contributor, 24 February 2015, www.pestleanaylsis.com/poltical-factors-affecting-business/ ,29/12/17). The Political
environment VITHIT finds itself in benefits their business. Ireland’s well
known low corporation tax of 12.5% allows VITHIT to retain a large amount of
its profits. With the introduction of the transfer pricing rules, VITHIT also
benefits as it is classified as a small and medium sized enterprise which are
excluded from these rules. (Adrian Burke, August 2015, www.adrianburke.ie/tax-benefits-of-establishing-an-irish-company/ ,29/12/17).The new tax on sugar that
will be in effect in Ireland in 2018 also sees VITHIT at an advantage compared
to other health drinks due to their low sugar content of 1.3grams per 100ml,
the tax will have a smaller effect on them compared to their competitors such
as Club Orange who have 13 grams of sugar per 100ml. The import and export
rules that effect VITHIT also work in their favour as there is free trade of
products to all member states of the European Union.
The next significant influence in the PESTEL analysis is the
environment. The environment may seem like an usual factor to affect one’s
business but can have a huge influence. Be it an unexpected drought or flood
preventing the growth of ingredients, or even a strong storm which can affect
the importation and exportation of products, affecting sales and thus profits
of a business. Lucky for VITHIT the locations of its markets are none of
extreme climates. Ireland, UK, the Scandinavian countries and the 6 states of
the US that VITHIT drinks are sold in are not usually home to any extreme
weather events. VITHIT’s business has also been lucky not to have been
previously affected by any severe weather events. VITHIT are environmentally
aware also as they use aseptic filling in the bottle which removes the need to
heat the liquid.
Socio-cultural also is an influence that effects the
environment of an industry. Society is constantly changing. The influence that
friends, family and social media have on someone’s views and interests are
increasing. These changing interests can see a change in demand for a particular
product or service and so would be a costly mistake for a business not to keep
up with the changes in society. (Pestle analysis contributor, 25 February 2015,
www.pestleanaylsis.com/social-factors-affecting-business ,29/12/17). At the beginning of Vitz
Drinks ltd, the health kick although successful in the US, had not yet crossed
the Atlantic to be a popular trend in Ireland. O’Rourke recognised the delay of
Irish and European societies in catching up with the US. Once it did however, a
massive market opened up and VITHIT was a success with its domestic market.
With the further acceleration of this trend VITHIT could extend its market not
just for the health-conscious consumers but also the convenient consumer too. With a white, big, bright label which stood
out against the strong colour of the natural juices, the bottle seemed cool and
trendy to a consumer as well as it being of preferred size and shape. VITHIT
also had an ability to change the product in order to suit each type of society.
For example, the product was made with less vitamins in Nomadic countries due
to the people there having lower vitamin RDAs and in South Africa they changed
the shape of the bottle to a slimmer version to appeal to the local
Year TCD Business Studies Students (2017) case study of VITHIT). With
regard to education, Lavin’s creative ability of making and selling a product
combined with O’Rourke international and entrepreneurial skills created a
partnership that covered all angles of a business. They also have 20 highly
educated employee’s working across 16 markets throughout the countries they are
present in. (Final Year TCD Business
Studies Students (2017) case study of VITHIT).
The economic influence
in the PESTEL analysis is one of great importance. It is important that the
business has appointed people with good decision-making skills to the positions
of power in order to allow the business to deal with the economic situations
they find themselves in. Interest rates are a factor. VITHIT struggled to get
traditional financing but were given €15000 peer to peer loan from linked
finance in 2015. A downside of this was higher interest rates to be paid back
with the loan, however it was a more easily secured loan. (Final Year TCD
Business Studies Students (2017) case study of VITHIT). With the recession
in Ireland VITHIT were faced with decisions. Their production company in
Shannon closed and so they moved production to the UK. Previously Lavin had
been using his returns on property to fund the business but these funds
disappeared resulting in a negative cash balance of €1.2 million in 2007. In 2015 VITHIT main retailer Tesco UK were
involved in a financial scandal where the new chief executive said the first
half of profits were likely overstated by around £250 million and suspended 4
senior executives. VITHIT made the decision to search for other UK retailors if
they wanted to become a global success. These economic situations posed a
threat to the business but VITHIT dealt with each situation well. The success
of their health drinks in the mixed market in America allowed them to concluded
it would do even better in a market of more affluence.
Technology had a great influence on business hence it is part
of the PESTEL analysis with the introduction of machines and high-speed
internet, business can improve their communications as well as the product or
service itself. Technology helped VITHIT as if it were not for the popularity
the ‘health kick’ gained people would not be interested in such health drinks.
Thus, thanks to the likes of social media and fitness bloggers, the importance
of health is highlighted further and influences the consumer to buy VITHIT health
drinks. The packaging of the product as previous explained can be altered
depending on who the drink is being sold to. With such advances in technology
these slight changes to the liquid or bottle are easily made and make the
product more attractive to the target market.
Finally, the last significant influence part of the PESTEL
analysis is legal influences. The law can affect the way a business and
consumers act. They will determine whether or not a product or service is
legally allowed to be sold. VITHIT was influenced by the legal factor when
bringing the product across to the US they took the L-carnitine out of the
liquid of their drink as it is not authorised in the US.
The PESTEL analysis is a tool that allows us to identify the
influences in the environment that impact on an industry, another tool is
Porters Five Forces. This is a framework which allows us to examine the
competition a business may face in an industry.
One of the Five Forces is the Power of the Buyers. This is the
pressure that consumers put on businesses to provide higher quality products,
better customer service and lower prices. (James Wilkinson, 23 July 2013, www.strategiccfo.com/buyers-bargaining-power-one-of-porters-five-forces ,29/12/17.). VITHIT has many buyers
such as Tesco, where 54 cases are sold per week, Sainsbury, Pallas Food as well
as international markets such as those in the US where there is a target of 60
million bottles to be sold. This means that VITHIT has a low buyer
concentration. This is a positive for the business as if they lose one buyer it
will not have a devastating effect on VITHITs profit. It also means no one
buyer is powerful enough to pressurise businesses to bring down prices. (Marc J
Marin, 2016, www.gatewaycts.com/bff/avoiding-high-customer-concentration/ ,29/12/17). Switching costs are a
factor which negatively affect VITHIT as the switching costs for consumers to
change to VITHITS kid’s vitamins drink is high. This is due to the fact that
VITHITs cost of production is higher and therefore price will be higher as they
use natural juices. This also falls under price sensitivity as in the market
for kids drinks most of the time the cheapest drink is the most popular
purchase, resulting in less sales for VITHIT. An ability to backward integrate
is a factor that determines the power of buyers. VITHIT does not score well
here as they have not acquired any part of their supply chain. This does
however have its own advantages as VITHIT will not be at risk of owing investments
to both up and downstream. The consumers’ knowledge of a product is also
important and due to social media, there is massive amount of information
provided on this ‘health kick’. VITHIT did however increase their marketing
when they entered the convenience market as now their product was up against
the well-known brands such as Club Orange. Based on the above, I would say the
Power of the Buyer for VITHIT is average to strong.
The Power of Suppliers is another one of Porters Five Forces.
It refers to the pressure suppliers can put on business by raising prices,
lowering quality or limiting availability of their products. (James Wilkinson, 24 July 2013, www.strategiccfo.com/suppliers-power-one-of-porters-five-forces/ ,29/12/17). VITHIT have different suppliers. For example, their VITHIT drinks are
outsourced in the UK and their Vitamin bars are outsourced in Spain. Due to the
fact that VITHIT use natural juices the cost of production can be high so
suppliers will demand a higher price from VITHIT, resulting in VITHIT charging
their consumers a higher price in order to make a profit. The importance of the
supplier’s product to the end buyer of VITHIT is high, as the sole point people
buy this product is to have a low sugar, low calorie drink that is filled with
natural juices and vitamins. I would classify the Power of the Suppliers of
VITHIT as average.
Another one of Porters Five Forces is the Threat of New Entrants.
This is the threat new competitors pose to existing competitors in the
industry. (James Wilkinson, 24 July 2013, www.strategiccfo.com/threat-of-new-entrants-one-of-porters-five-forces ,29/12/17). VITHIT has expanded as a
business and now classifies as an economy of both scope and scale. Initially
Vitz Drinks sold small scale to Cork and Dublin but now sells in 16 countries,
majorly increasing in scale. VITHIT has also increased in scope. From just
producing 3 flavours of health drinks to now having 6 flavours as well as
vitamin bars, kid’s vitamin drinks and sparkling drinks. By increasing in scale
and scope VITHIT limits the threat of new entrants to its business. VITHITs
growing brand identity also reduces the threat of new entrants. The packaging
with a big, white label makes the drink identifiable as well as the VITHIT
drinks differences to other health drinks makes it stand out. Due to the
success of VITHIT, it is natural that competitive firms would retaliate. In the
vitamin bar market VITHIT accepted that Fulfil branded their bars better with
their entry in to the market in 2015 and so VITHIT sell on a small-scale basis
and let the bars become secondary to the drinks. As the health kick continues
many large-scale businesses are taking over health brands. For example, Dr.
Peppers acquisition of Bai for nearly $ 2 billion in February 2017. (Final Year TCD Business Studies Students
(2017) case study of VITHIT). This means these new ‘health’ businesses now have
much more resources and capital to expand, posing a great threat to smaller
business such as VITHIT. Access to distribution channels can also affect the
threat of new entrants and luckily for VITHIT it was a key success factor for
them. O’Rourke had always seen strong distribution channels to be as important
as the product itself. When devising a plan for the product to expand in to
Europe, VITHIT established a strong distribution factor with EL Cartes Ingles
in Spain and Shoprite checkers in South Africa. Again, when expanding to the US,
O’Rourke met with his American contacts, Joe Julino former vice president of
PepsiCo, to establish strong distribution channels. (Final Year TCD Business Studies Students (2017) case study of VITHIT). This
was a major benefit to the company as having these international connections
allows the brand to easily expand and limits the threat of new entrants. VITHIT
have many factors going for them but at the same time the threat of new
entrants is high.
Threat of substitutes is another
one of Porters Five Forces. As society becomes more health conscious the market
for health brands keeps growing. VITHIT competes against many successful substitutes
such as the recently launched Bai and the well-known US brand Vitamin Water. The fact that VITHIT has tea ingredients means
it also competes in the tea market against companies such as Honest Tea and
HINT water. VITHIT further opened themselves up for competition when they
entered the convenience market competing against the likes of Club Orange. To
keep the sales of their product up, VITHIT continue to develop their product
with 6 flavours of VITHIT drinks now being available. In the kid’s vitamins
drink market, substitutes are winning due to their lower prices. With all these
factors in mind I would rate the Threat of Substitutes as strong.
The last driving force of Porters Five Forces is the
Intensity of Rivalry. With the threat of substitutes and threat of new entrants
both being strong, the Intensity of Rivalry in the health drinks industry is
also strong. As the health kick became more a way of life as oppose to a phase,
room for competitors in the market was constantly increasing. With a strong
brand identity and distinct factors that set their product apart from anyone
else’s, VITHIT are adding to the intensity of rivalry. However, with the global
sports drink market worth $4.1 billion in 2012 and an expected value of $5.6
billion in 2020 the intensity of rivalry is increasing and threaten the reputations
of Lavin and O’Rourke as well as their business. However, VITHIT are determined
to continue to succeed despite this strong Intensity of Rivalry.
VITHIT is a business that has gone from the verge of collapse
in 2007 to having a target of 2 million cases to be sold in 2017. It has become
successful with the formation of the partnership of Lavin and O’Rourke and
their strategy of internationalisation. With a mission to have a ‘tasty sport
drink that tasted good, if not better than their sugary counterparts’ (Final Year TCD Business Studies Students
(2017) case study of VITHIT), values to always be present in the domestic
market with a low sugar, low calorie drink and a vision for VITHIT to go
global, Lavin and O’Rourke put their strategy into action.
There are five elements to a strategy, one being staging.
O’Rourke and Lavin were very keen to conquer the domestic market first but
having done this they chose the UK as their stage to expand further. VITHIT
also choose minor stages to assess how the product was doing. For example, they
targeted the more youthful country of Iceland for their product and it is now
averaging annually 300,000 units. With this success in Iceland, VITHIT easily
entered the market in the Scandinavian countries. Their staging technique can
again be seen when expanding to the US. They trialled their product in the state
of Virginia and with the positive response they received, VITHIT entered 6 more
states of the US.
Another key element to a strategy is what arenas should the
business be active in. VITHIT initially began with the health drinks market and
made sure they were a success here. With the increase of demand for both health
brands and VITHIT, their product was now attracting the convenience consumer
allowing VITHIT to enter the soft drinks market. VITHIT then entered other
arenas as they created new products such as their vitamin bar launching them in
to the market for health bars now as well as health drinks. This was another
way of getting VITHIT brand known to the world.
The next element of a strategy is vehicles. To allow the
brand to succeed in Ireland let alone the world, O’Rourke had a few changes to
make internally. He restructured the company having a few workers and no
department heads to report to, resulting in the decision process being quick,
as the main power rested in the duos partnership. O’Rourke renamed ‘Vitz Drinks
Ltd’ to the more simple and easier sounding ‘VITHIT’. With these changes the company
began to thrive and what further allowed their product to sell was the strong
distribution channels the company held as essential allowing them to expand to
the likes of the UK, US and South Africa.
A fourth element to a strategy being the differentiations a
product has to set it apart from substitutes. VITHIT excel in this area as from
the start they had a low sugar, low calorie drink which differed from the high
sugar content of other sports drinks. However, to further be noticed they
repackaged and renamed. When sending their product into the different countries
they altered the product slightly to the preferences of those people in order to
be a success. For example, a smaller bottle in countries where preferred. To
help them thrive in the US market, VITHIT introduced 3 new flavours of their
drinks in order to try to appeal to everyone’s tastes internationally.
The last element needed for a strategy and particularly
important when internationalising one’s product is economic logic. Given that
they use natural juices in their product, the cost of production is higher than
most competitors but VITHIT outsourced their production which decreased the
price and developed international relations. The product itself is hard to beat
in terms of low amounts of calories and sugar and the presence of vitamins and
teas. Therefore, despite being slightly more expensive consumers worldwide are
still willing to purchases this unique product.
Thus, from the initially financially draining strategy of
Lavin back in the early days of VITHIT, both Lavin and O’Rourke have made
changes as seen above in order to come up with a strategy of
internationalization and thrive in markets worldwide.
Adrian Burke, August 2015, www.adrianburke.ie/tax-benefits-of-establishing-an-irish-company/ ,29/12/17.
Final Year TCD Business Studies
(2017) Case Study of VITHIT.
analysis contributor, 24 February 2015, www.pestleanaylsis.com/poltical-factors-affecting-business/ ,29/12/17.
Pestle analysis contributor, 25 February
2015, www.pestleanaylsis.com/social-factors-affecting-business ,29/12/17.
Marin, 2016 , www.gatewaycts.com/bff/avoiding-high-customer-concentration/ ,29/12/17.
James Wilkinson, 23 July 2013, www.strategiccfo.com/buyers-bargaining-power-one-of-porters-five-forces ,29/12/17.
Wilkinson, 24 July 2013, www.strategiccfo.com/suppliers-power-one-of-porters-five-forces/ ,29/12/17.
James Wilkinson, 24 July 2013, www.strategiccfo.com/threat-of-new-entrants-one-of-porters-five-forces ,29/12/17.