Innocent Drink's Strategy - Case Study Example

Innocent Drinks Name Course Lecture Date 1.0 Introduction Innocent Drinks is the top fresh fruit manufacturer and retailer in the United Kingdom. The company has risen from humble beginnings to selling over 2 million smoothies every week. This report studies the internal, external and industry environment of Innocent Drinks. It also analyzes the company’s response to the environmental forces which has enabled the Juice manufacturer to maintain a strong position in the industry. The report begins by a brief history and profile of Innocent Drinks which started as a small start-up in 1999. The history section shows how Innocent Drinks has been able to sustain consistent revenue and profit growth and how they eventually expanded to the wider continental market. Secondly, the report analyzes the Strengths, Weaknesses, Opportunities and Threats that are present in Innocent market. Notably, Innocent most significant strength is its healthy natural products. Thirdly, the reports analyzes the Political, Economic, Social, Technological, Environmental and Legal factors that affect the marketing strategies of Innocent drinks in the UK and the global market. The report also analyzes the industry environment of Innocent Drinks using the Porter’s five forces analysis. Finally, the report concludes by presenting the most significant opportunities available for the company to strengthen their position in the fruit drinks industry. It also discusses the factors that threaten Innocent strong position in the market. 2.0 History of Innocent Drink Innocent Drinks is an international water and smoothie manufacturer based in the UK. Started in 1999 by three Cambridge graduates, the UK based soft drink manufacturer has expanded to become a major force in the natural drinks market (Germain 2008). Innocent drinks have a significant market presence in Ireland, France, Belgium, and Netherlands and even in Copenhagen. In 1999, Richard Reeds, Jon Wright and Adam Balon innocently set up a stall to sell smoothies at the London music festival. Having invested $500 in their business and experimented with recepies for six months, their products were excellent as evidenced by the overwhelming sales (Germain 2008). By December 2007, Innocent was on the 40th position of the Sunday Times Fast Track 100. It was to appear on this list of UK fastest growing companies for four consecutive years. Innocent revenues doubled for each of the four years the company was on the Sunday Times Fast Track 100. Innocent’s popularity is based on production of natural smoothies that constitute of pure fruit concentrates (Germain 2008). In addition, the company’s products have a great taste further enhancing their appeal to customers. Moreover, Innocent avoids using stabilizers and preservatives in their products. Innocent has two main lines of product; spring water and fruit smoothies. Among Innocent product are January Detox, This Water, Superfood Smoothies, Breakfast Smoothies, Smoothies for Kids and Thickies. Innocent has also been hailed as one of the most ecologically responsible UK companies. In 2007, Innocent started using the ‘eco-bottle’ made of 100% renewable materials (Abbing 2010). It also uses 100% recycled plastic bottles for its products. It also contributes a significant percentage of its profits to charity through the Innocent foundation. 3.0 SWOT Analysis 3.1 Strengths 3.1.1 Natural products In a market where demand for natural products is high, innocent has excelled in providing smoothies made of natural fresh fruits. Unfortunately this means that Innocent products have a short shelf life (Hiam 2009). 3.1.2 Product Innovation Innocent is engaged in continuous product innovation and introduces new flavours into the market every year (Abbing 2010). Innocent boast of over 32 different labels and they constantly change them giving the consumers something new. 3.1.3 Environmental Responsibility Innocent is known for its use of recycled products and efforts to save consumption of material in production and packaging. Recently, the uses of lighter carton with no membrane lids have enabled tonnes of carton and plastics to be saved (Abbing 2010). 3.1.4 Consistent growth In 2008, Innocent was considered the fastest growing player in the food and drink market (Abbing 2010). Since its launch in 1999, Innocent had reported good profits and its revenues have been doubling every year allowing for Innocent expansion to overseas markets. 3.1.5 Scale of operation Innocent scale of operation enables the organization to utilize economies of scale throughout its supply chain. It is estimated that Innocent sells over two million smoothies in one week. 3.2 Weaknesses 3.2.1 Integrity Issues While Innocent boasts a record as an ethically responsible company, this reputation has come under challenge. In October 2012, Innocent was accused by ASA of false advertisement by claiming that one of its products contains water only while in fact it has 42 grams of sugar. 3.2.2 Short Shelf life Many of Innocent smoothies have a short shelf-life meaning they cannot be stored for a long time. 3.2.3 Simplistic Packaging Innocent packs its products in simplistic packages which may be unappealing to some consumers. 3.3 Opportunities 3.3.1 Ethical Appeal The modern consumer is increasingly aware of the ethical standards observed by manufacturing organization. By maintaining high standards of integrity and applying high ethical standards Innocent can appeal to the ethical consumer. 3.3.2 Growing market The natural foods market is a fast growing market segment as more people become aware of the negative effect of processed foods (Faulkner 2010). Traditional soft drinks have also been criticized providing an opportunity for Innocent to expand its market Share. 3.3.3 Global markets Marketing opportunities for Innocent exist in markets beyond their traditional UK market. Innocent can expand to continental Europe and the US markets. 3.4 Threats 3.4.1 Cultural differences Innocent expansion into continental Europe and North America may be affected by cultural differences (Abbing 2010). In some countries consumers may not be aware of the benefit of health eating as they are in the UK home market. 3.4.2 Brand susceptibility The perception of Innocent as an innocent brand is fast disappearing. Innocent has been widely criticized for its partnership with McDonald and for selling its some of its shares to Coca-cola (Abbing 2010). 4.0 Macro Environment (PESTEL) 4.1 Political Environment 4.1.1 VAT taxation Controversy Innocent has been engaged in a campaign to get their drinks exempt from VAT taxation (Faulkner 2010). However, the government considers Smoothies a luxury item that cannot be exempt to VAT taxation like ordinary fruits. 4.1.2 Government Healthy Eating Campaign Innocent products are suitable for government healthy eating campaigns. For example the 5-a-day campaign asks consumers to increase their intake of natural products (Faulkner 2010). 4.1.3 European Union Market Innocent can be able to sell its products to all the nations of the European Union without restriction. The European Union treaty allows producers from one member nation to import their products to other member nations without any restrictions (Abbing 2010). 4.2 Economic Environment The 2008-2009 economic crisis affected sales in many industries and the Smoothie market was among the many affected by the crisis. In 2008, Innocent sales decreased by 20% as consumers avoided the company’s premium priced products (Bradley 2013). Innocent was faced by a dilemma on whether to reduce it product prices. It was cautious as a price reduction would indicate the Smoothie manufacturer had overcharged its products since its 1999 launch. Instead, Innocent decided to stick with its premium prices as this indicates the quality of its products (Abbing 2010). 4.3 Social Environment 4.3.1 Health Consciousness Health consciousness is growing in the UK and other markets increasing the demand for natural food products and juices. In addition, the consumption of premium priced natural products is seen as a fashionable trend. By enhancing the Image of Innocent as a trendy brand, the sales of the Smoothie range can be enhanced greatly. The marketing of product is important in influencing the consumption trends among people of different demography, culture and religion (Smith 2007). Innocent must also remember that the ethical records of a marketing organization are essential components of the organizations success. Organizations that are perceived as “green” appeal greatly to a growing niche of soft drink customers and other consumers. 4.4 Environmental factors Innocent has committed to the use of recycled packaging and reduction of material wastage in the packaging products. Consumers shown a willingness to purchase products packed in recycled and recyclable products. Manufacturers who are perceived as “caring” about environmental issues are likely to get more loyal customers (Smith 2007). Innocent is in the forefront of promoting sustainable fruit production as it only buy fruits from vendors approved by the “rainforest alliance”. 4.5 Technology Environment Green technology has been used by organizations to make cost saving and enhance environmental responsibility of the concerned company (Simmons 2011). Innocent is known for many green technology initiatives including using renewable energy for its offices, recycled bottling and green fuel for its vehicle fleet. 4.6 Legal Innocent is vulnerable to suits for false advertising. Claims that their products are 100% per cent natural have been proved to be false exposing the organization to costly prosecution for false advertising (Smith 2007). 5.0 Industry Environment 5.1 Competitive Rivalry The fresh juice market is one of the fastest growing soft drink segments where many competitors exist. Innocent has the largest market share with over 60 per cent of UK smoothie consumers taking Innocent’s products (Hudson 2006). The fresh juice market has both small enterprise and large enterprise rivals. Innocent greatest rival is Pepsi and in particular Pepsi’s “Tropicana” brand is a direct competitor with Innocent’s products. Pepsi’s products in the UK now target the fresh juice market and are producing smoothies which are lower priced. 5.2 Threat of New Entrants The threat of New Entrants in the fruit Juice industry is low as the scale of operation of the two major players is huge. A new entrant has to invest in production lines, establishing distribution channels and controlling production cost (Simmons 2011). They also have to contend with counter-attacks from the existing fruit juice manufacturers. Existing players like Innocent enhance the barriers to entry by controlling raw materials, making cost of sales more expensive and blocking the sale of their competitor’s products by their distributors. 5.3 The Threat of Substitutes Fruit smoothies are faced by the threat of substitute beverages like other soft drinks. Other types of soft drinks retail at lower prices and may attract some consumers of fruit drinks during economic downturns (Simmons 2011). However, substitute beverages do not provide the health benefits offered by fruit drinks and thus their threat is less significant. 5.4 Bargaining Power of Buyers The bargaining power of customers in the contemporary market is great as information of products and prices is readily available. The intense competition in the fresh juice market also enhances the bargaining power of consumers who can choose a product from innocent’s competitors (Hudson 2006). However, the health benefits of fruit juice also decrease the bargaining power of customers. In addition, Innocent premium priced products may cause buyers to switch to the lower priced products of its competitors. 5.5 Bargaining Power of Suppliers Smoothie manufacturers depend on the supply of quality and fresh fruits from farmers most of them overseas. However, many juice manufacturers have established their supply base therefore reducing the bargaining power of suppliers (Baines, Fill and Page 2011). Most fruit supplies are from China which is nurturing its own juice producers and this may increase the bargaining power of Chinese fruit suppliers (Simmons 2011). Natural fruit is also susceptible to climate changes and crop diseases meaning the production of natural fruit juices is not always guaranteed. 6.0 Conclusion Innocent can be able to strengthen their market position in the fruit drinks market by taking advantage of the opportunities identified in this report. Innocent must continue supplying high-quality smoothies as the natural fruit juice market in the UK and continental Europe is still expanding. Secondly, Innocent should distribute its products to the wider European Union market and ensure its products have a strong presence in each of the member countries. Thirdly, Innocent must focus on promoting the strong points of their products especially the perception that they are a healthier alternative to ordinary soft drinks. However, Innocent must review its pricing strategy as its premium prices may see their customers turn to the products of rivals Pepsi and Coca-cola who are keen on gaining market leadership in the UK fruit drinks market. Innocent should also ensure that they are not practicing false advertising to retain consumers trust on their products. References Abbing, ER 2010, Brand Driven Innovation: Strategies for Development and Design, Ava Publishing. Baines, P, Fill, C, & Page, K 2011, Marketing. 2 uppl, Oxford University Press, New York. Bradley, N 2013, Marketing research: tools and techniques, Oxford University Press, Oxford. Faulkner, K 2010, You'll have to pay for your five-a-day: Court rules that fruit drinks are 'luxury' items and subject to VAT, accessed 25 April 2015, http://www.dailymail.co.uk/news/article-1332214/Youll-pay-day-Court-rules-fruit-drinks-luxury-items-subject-VAT.html Germain, D 2008, A Book about Innocent: Our Story and Some Stuff We've Learned, Michael Joseph, London. Hiam, A 2009, Marketing for dummies, John Wiley & Sons, New York. Hudson, P 2006, Example Business Report: Innocent Smoothies. change, 2007, 2008 Simmons, J 2011, Innocent: The inside story of Innocent told from the outside, Marshall Cavendish International Asia Pte Ltd, New Delhi Smith, NC 2007, Consumers as drivers of corporate responsibility, accessed 25 April 2015, http://195.130.87.21:8080/dspace/handle/123456789/1157 Read More