Retail Expansion of Innocent Drinks - Business Plan Example

MARKET EXPANSION PLAN OF INNOCENT DRINKS Executive summary The study is focused on expansion plan of Innocent, limited which is a subsidiary of CocaCola Company in Swiss market. Innocent is a London, United Kingdom based company and has expanded its operation in France, Denmark, Belgium, Ireland and Sweden. It offers fruit smoothies, orange juice, thickies, Veg. pots, and broccoli and pea rice. There major strengths of the company are focused workforce, market leadership in smoothie market, Use of healthy and natural ingredients to produce Innocent drinks, strong brand equity and customer loyalty, presence in other countries, focus on environmental and social values, and support of Coca Cola Company. Whereas the weaknesses are No product\drink specifically for old age people, the pricing, unjustifiable statements in marketing to support their products, and controversies regarding product recall, advertising claims and charitable donations. The company has opportunity for further product development in the home country and to expand in the new market. Rising health concerns of people gives opportunity to come up with healthy products and the company can also launch something specific for infants and old-age people. Whereas major threats to the company are pricing concerns of people, a rise in raw material price, Critiques from opposition party or competitors, political and economic scenario of overseas market, and threat of arrival of strong player. Packaged smoothies are very successful product of the company in home market. This product is a cash cow for the company in UK market having highest market share. Innocent smoothie is an established brand not only in UK market but also in other European market. The company’s production of smoothies exceeds from its demand in home market, therefore company has an opportunity to expand its operation into overseas market. Company is planning to expand in Switzerland to take advantage from over production of smoothies; the expansion will only include smoothies. The demand for smoothie is increasing in Switzerland as people are getting more health conscious and healthy ingredients in the smoothie is making the product very attractive to the market. Direct exporting is the most appropriate market entry strategy for Innocent drinks for expansion, by direct exporting in the Swiss market company can introduce the brand to the local market and check the response and if it will be good enough from the target market then it can switch from direct exporting to manufacturing the product in the home market. As far as marketing mix is concerned, it is suggested that the company should extend standardised products and promotions in the new market whereas pricing of smoothies should be based on additional efforts and market environment. Innocent, Ltd is suggested to not to produce in the home country therefore there is no need of tall hierarchy, flat structure going to be appropriate for coordination, distribution and marketing with wide span of control and decentralisation. As the company is small sized, tall structure going to be complicated to handle and will incur more cost, therefore flat structure with wide span of control will allow the organisation to work efficiently. For successful expansion in Switzerland, efficient logistics and supply chain plays a crucial rule as smoothie is a dairy product made up of natural fruits therefore transportation and storage should be appropriate and the overall transportation process should be very speedy as delays can result in product expiry and huge loss. Whereas communication and supply chain management should also be very strong to develop efficient network between the two countries. Introduction In this era of competition and technological advancement, companies are thinking ways to expand their business for growth and to increase sales. When a company is capable enough to expand its operations to another region, it checks the feasibility to expand and decides what, where, when and how. While taking the decision to expand geographically, firstly the company decides which operation or what product to introduce to new market, once a company decides the area to expand it decides where to introduce the new or existing product or service, after deciding the region a company decides the timings to launch the product as right timings is key to successful launch, lastly company decides how to implement launch plans. In this way companies successfully geographically expand their operations to another country and increase their sales and profit margins. After achieving success through internal operations, many companies look into new markets to expand their markets so does the Innocent, ltd; it has already expanded its operations in France, Denmark, Belgium, Ireland and Sweden and now the company has decided to expand into Switzerland, the expansion will only include smoothies. The company is looking ahead to adopt appropriate market entry strategy, marketing mix adaption or standardisation, appropriate organisation structure to expand, and to decide the role of logistics and supply chain in expansion. Company profile Innocent, Ltd started its operation in 1999; it sold minority stakes of 18% to Coca Cola in April 2009 and later in 2010 Coca Cola acquired more 40% shares on Innocent, Ltd which in total made Coca Cola majority share holder of 58% (Kuchler, 2010). Innocent, Ltd is a natural drink provider; its product line includes fruit smoothies, orange juice, thickies, veg pots, and broccoli and pea rice. Innocent is a London, United Kingdom based company and has expanded its operation in France, Denmark, Belgium, Ireland and Sweden (Bloomberg Businessweek, 2012) and now it is planning to enter into Switzerland market. Innocent’s mission is to make food good; everything they offer is delicious, healthy and natural. It has workforce of over 250 specialised people who are very focused to company goals, well the company believes in fulfilling social and environmental responsibility (Innocent, 2007). SWOT analysis of the company Strengths Backed by Coca Cola Company, leading global beverage company Market leader in packaged smoothie market Strong brand equity Very focused on the goals Customer loyalty towards the company Very focused and specialised work force of 250 people Presence in France, Denmark, Belgium, Ireland and Sweden Customisation of products, providing different flavours according to customer preferences. Kids’ smoothie Use of healthy and natural ingredients to produce Innocent drinks Focus on social concerns Trusted brand in regard of environmental concerns Innocent Drinks ranked number 40 in the Sunday Times Fast Track 100, a list of the UK fastest-growing private companies in the territory (Innocent, 2007) Weaknesses No product\drink specifically for old age people The price of Innocent smoothie is comparatively high in the market Unjustifiable statements in marketing to support their products as super food, healthy and good Controversies regarding product recall, advertising claims and charitable donations Strong good will in the market Opportunities Further product development opportunity in the home market Growth expansions in overseas market Rising health concerns of people would give an opportunity to come up with healthy products Expansion of product line inside and outside home country To cater needs of untapped market such as old age people, infants etc Made to order smoothies Threats A rise in raw material price Rising pricing concerns of target market Cheaper substitutes of smoothies Premium pricing of smoothie in the market Relative competition from other soft drinks provider Government regulations Political and economic stability of overseas market Risk of failure in new markets due to changed behaviours and attitudes of people Arrival of new strong player can strongly impact the market position and sales of Innocent, Ltd Critiques from opposition party or competitors can affect the image of Innocent drinks Demographics changes in future can hinder the sales of Innocent drinks Product analysis Smoothies are bread and butter for the Innocent, Ltd; the company started smoothies in 1999 with three recipes and now it has more than over 30 recipes. Smoothies is made up of real crushed fresh fruits, the company has also introduced kids smoothies after receiving so many requests through emails. Smoothies are the most successful product of the company and have achieved targeted sales in existing target market (Innocent, 2007). Packaged smoothies are very successful product of the company in home market, United Kingdom (Mintel, 2011). This product is a cash cow for the company in UK market having highest market share but smoothies are on the maturity stage of the life cycle that’s why there is no hope of further market growth and expansion in the home country, the product generates a lot of cash for the company and has leading market share in a low growth market, the company can think on further product development of this product, well the customers are also very loyal towards the product. Innocent smoothie is an established brand not only in UK market but also in other European market. The company’s production of smoothies exceeds from its demand in home market, therefore company has an opportunity to expand its operation into offshore market. UK market analysis UK market is large in size with varying consumers’ tastes and demands around the region. It provides opportunity to many potential products and brands to grow. There is a sustainable scope for smoothies in UK market; they are widely accepted and easily accessible in the market. Packaged smoothies in UK market are gaining more consumers’ attention and convincing the target market to incline the purchase towards packaged smoothies (Datamonitor, 2009). In 2002, 41% of UK households were unaware of the idea of smoothies but today UK is considered as one of the largest commercially packaged smoothie market. Smoothies are the most expensive soft drink in the UK market, therefore during the economic crises comparatively cheaper substitutes turn out to be more appealing (Datamonitor, 2010). Smoothie market in UK is quite developed but still there is a place of innovation. Product development can help smoothie producers to increase their sales and to increase customers. Innocent, Ltd is the leading player in UK smoothie market whereas new product development is a key to drive the market. Major considerations in geographic (overseas) expansion When a company decided to expand overseas, it has to consider many factors while selecting the country where expansion is feasible. Following factors should be considered while planning to geographic expansion (Schroiff and Arnold, 2004): Demand for the product A company should check the demand of the specific product or service in the new country where it is planning to introduce it. There should be a justifiable demand or an unknown need which can be addressed though introducing the product\service. Target market When a company decides to expand overseas, first thing it should consider the target market, the country where a company decides to expand its operation should posses the desirable target market otherwise the expansion will result in failure. Market space Company while deciding the country to expand its operations, it should seek for a country where the sufficient market space is available so that a company can hope for growth and sustainability. Economic stability A company should consider the economic stability of the country where it is planning to expand as economic condition of the country defines the boundaries of growth, sales, and performance of businesses. Preference is given to those countries which are economically stable and having an acceptable GDP. Political stability A company should considers a country’s law and order situation while expanding, as businesses are strongly affected by the political scenario of the host country. Stable political scenario provides ease and flow in operations. Social values While planning to expand in another country, a company should consider social values of host country. Customer loyalty and emotional attachment with the product or service offered is largely dependent upon the social values; even the success of the product is also dependent upon the social values of target market. Technological factors A company should analyse level of technological advancement in the country where it is thinking to expand its operations as technology is the key to success to efficient production and management. Infrastructure A company while expanding its operations to another country should check the infrastructure stability of the selected country as the whole project is dependent on this factor. Flexibility of property rights and legal issues A company should analyse the laws of property rights and other legal issues of the country where it is planning to expand its operations. Preference should be given to those countries where property rights and legal issues are flexible enough. Switzerland market analysis By per capita gross domestic product, Switzerland is the one of the richest country on the globe and has the highest financial assets and non-financial assets per adult. It is the 36th largest economy by purchasing power parity. These facts about Switzerland attract many overseas investors to invest their money in Switzerland to get the best out of their investment (Euromonitor, 2011). Switzerland has many opportunities for overseas investors in many markets which are on infant stage of development, of which one is smoothie market. The demand for smoothie is increasing in Switzerland as people are getting more health conscious and healthy ingredients in the smoothie is making the product very attractive to the market. Switzerland target market is not price conscious as the standard of living is very high and gives important more to quality and use of natural ingredients, whereas the bargaining power is also very low as no such substitutes are available and those who are available are not made up of natural ingredients. The citizens of Switzerland are very much concerned about safety and environmental protection. The adoption of advanced technology in Switzerland is a supportive factor to the growth of smoothie market. Availability of space and low competition in smoothie market in the Swiss zone has also attracted many overseas companies to invest in this market (Euromonitor, 2011). Selected market entry strategy The selected market entry strategy for Switzerland market is “direct exporting”. In direct exporting company starts selling directly to overseas market without using any outsourced distribution and marketing channel (Koza, Tallman, and Ataay, 2011). The company doesn’t manufacture in the host country, it just transports the product to the new region. The communication and technological advancement has encouraged companies to adopt exporting to expand their profits by operating from where the company originates. Direct exporting has become relatively very common as companies are able to increase sales by incurring low cost and can enjoy high profit margins through specialisation and competitive advantage (Kim and Hwang, 1992). To make the product available for end consumers, the company selects the strategy of strategic alliance with Swiss retailers; strategic alliance is an agreement between two or more organizations to practise a set of actions which is beneficial for both the parties while remaining independent entities. Justification of selecting market entry strategy Innocent, Ltd faces risk in expanding in Swiss market as it has never operated before in this market, well the aim is to achieve medium to long term profitability and growth. The expansion will only include smoothies as it has been discussed earlier, smoothie is a cash cow in home market and as the Swiss market for smoothie is at infant stage whereas the demand for this product is growing in the market and there is no direct competitor present in the Swiss market; the company is planning to enter into Switzerland with an intention to making it a star in this region. As the company has limited experience in operating in Swiss market and is a small sized company, the risk therefore is more as many areas will be uncovered once the company starts its operations in the region therefore Innocent Ltd should adopt direct exporting as basic market entry strategy with developing strategic alliance with Swiss retailers in order to make the desired product available in the market. Company currently is producing more smoothies than it is selling therefore it has a potential to sell those extra smoothies in the new overseas market, therefore this reason also contributes largely in the decision to select direct exporting as market entry strategy for Switzerland. By doing so company will also reduce many risks attached to operating into new market, secondly there is no direct competitor in Swiss market therefore there is no risk of low-cost competitor; thirdly if the company will start its manufacturing the host country, it will cost more to the company. By selecting exporting as market entry strategy for Swiss market company can introduce the brand to the local market and check the response and if it will be good enough from the target market and once the company will understand the market in terms of strengths, weaknesses, opportunities and threats; then it can switch from direct exporting to manufacturing the product in the territory of local market. Direct exporting will also allow the company to use its own distribution and marketing channels which understand the product wholly and are experienced in smoothie market, outsourcing these two major operations is quite risky as the product is new in the market therefore there is no experienced distribution and marketing agency present in Switzerland who can work efficiently (Bronson, 1991). Strategic alliance with major Swiss retailers will allow the firm to make the product available in the market; when the product will be easily accessible to the target market, it will become easier for the product to gain customers’ attention. Strategic alliance with key retailers will allow the company to establish a strong customer base in the market, whereas it will also induce the retailers to stay loyal with the company for long period, so Innocent drinks will have a smooth future even when a new competitor will enter in the market. Marketing mix Marketing mix is a marketing tool used by organisations; basic marketing mix is a mix of four elements which are product, price, placement and promotion (Kotler, Wong, Saunders, and Armstrong, 2005). It is very crucial for organisations to decide their marketing mix (Kotler and Keller, 2011). Product, price, placement and promotion decisions are interlinked and very important. Right choice of these elements can make the project successful whereas one wrong choice of any of these elements can result in losing all efforts (Lee and Carter, 2010). The first thing a company decides is what product to produce and what are going to be the features, well this is the most crucial thing to decide; once the company decides the product, then it decides the price of that product according to demand and market affordability; after deciding the price, the next step is to decide the placement, which means where to launch the product, the geographic area; lastly company decides the promotional channel through which a company create awareness and acceptance of the product (Johnson, Scholes, and Whittington, 2010). Marketing-mix decision of standardisation or adaption in the expansion As Innocent, Ltd has limited experience in the Swiss market and the market is new to the company, it is very risky for the company to introduce new product in the new market, therefore straight extension of the product in the beginning is appropriate as it is not feasible to invest in additional experimental features as far as complete understanding of the market is gained through experience. Swiss people are quality and health conscious, Innocent is already producing high quality and healthy smoothies with wide range of flavours; therefore right now there is no need of product extension as such. This decision will also minimise the marketing and production cost. Once the company gets settled in the Swiss market it can adapt product extensions. The second element of marketing mix is the price; pricing can vary a bit according to additional communication, distribution and marketing efforts. As Switzerland is an expensive place to operate and live, therefore additional cost of extra efforts has to be attached to the price to create balance. When a company plans for geographic expansion, it is actually thinking to expand the placement element in the marketing mix. Innocent has planned to expand in Switzerland; therefore marketing mix element of placement for this expansion is changed. The last element in marketing mix is promotion, as the product is standardised there is no need of adaption in promotion, the company needs to deliver the same message of high quality and healthy food to the market therefore promotion standardisation (Cateora and Graham, 2010) is most appropriate for this expansion. The company is a subsidiary of Coca Cola Company which has also used promotion standardisation strategy to market Coca Cola; this means the company is experienced in standardisation of promotion which is a plus point for the company. Suggested organisational structure Organisational structure defines the task and reporting relationship of a company, it determines how workers use the available resources and how much they are authorised to take certain decisions (Doole and Lowe, 2008). As the most appropriate market entry strategy for Innocent drinks in Switzerland is direct exporting, therefore the organisational structure for managing international operations should be carefully designed and should be appropriate. As the company is not producing in the home country therefore there is no need of tall hierarchy, flat structure going to be appropriate for coordination, distribution and marketing with wide span of control. As the company is small sized, tall structure going to be hard to manage and expensive for the organisation, therefore flat structure with wide span of control will allow the organisation to work efficiently. Flat hierarchy consists of fewer levels of management which will be easy for the company to manage and operate at low-cost. Direct exporting will engage the company in transporting smoothies to Swiss retailers through own distribution channels, whereas the marketing is also going to be companies’ responsibility therefore the organisational structure should be decentralised as managers and their team will be working at the host country will definitely face a lot of situations where immediate action is needed. Decentralisation will allow the team to take immediate action against customer or retailer query, it will allow the team to understand the new environment and make appropriate decisions timely. Empowerment will also make the working team accountable for their actions. Role of logistics and supply chain in this expansion Role of logistics and supply chain is very crucial in the expansion of Innocent smoothies in Switzerland, for exporting smoothies from UK to Switzerland requires a lot of planning, strong logistics and efficient supply chain. As the most appropriate market entry strategy for Innocent, Ltd is direct exporting, logistics and supply chain becomes the responsibility of the company; therefore the company has to minimise the risk of product shortages and communication distortion by enhancing the efficient use of logistics and supply chain (Barker and Duhaime, 1997). Logistics includes management of all activities from its origin to the point of destination whereas supply chain involves all activities, people, technology and information which are important to move the product from the place of production to the final destination that is in hands of consumers (Bartlett and Ghoshal, 1991). Innocent drinks is looking for further market development in Switzerland to increase sales and market share, which is quite impossible without efficient logistics and supply chain as smoothie is a dairy product made up of natural fruits therefore transportation and storage should be appropriate, the overall process should be very speedy as delays can result is product expiry and huge loss. The next important factor to consider is existing product in the new market, to make the launch successful and sustainable role of communication and transportation (part of logistics) between UK and Switzerland is very important whereas to introduce the product on right timings and to sustain availability, supply chain plays an important role as lacking in distribution can result in product failure. As the company’s intention is to make the smoothie a star product in Swiss market, the most important aspect is efficient supply chain management as it reduces cost and the risk of mismatch between supply and demand. Logistics can leverage the Innocent drinks in taking the lead, and it will create buyer value for the consumers and strategic value for the company. As the market is new therefore understanding and catering customer’s requirement on time is very necessary to be successful for which logistics and supply chain is responsible and plays a key role. Logistics actually help the company to achieve its strategic goal, in this case communication, transportation and over all supply chain management play a key role for successful expansion. Conclusion To conclude, plan of Innocent drinks to expand smoothies in the Swiss market seems to be productive as over production of smoothies can be utilised to meet the growing demand in Switzerland, it is a good decision as expected return is high and there is no direct competition as smoothie market is at infant stage in Switzerland, so the company can work on its intention of making the product a star in Swiss market. Direct exporting with strategic alliance with Swiss retailers will allow the company to gain more by having control on cost and operations, whereas product and promotion standardization will support it. Pricing according to the cost incurred will allow Innocent drinks to balance the working environment. Efficient logistics and supply chain is very necessary or successful product launch and to achieve product sustainability in the new market. References Barker, V. and Duhaime, I. 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