The British Soft Drinks Industry - Essay Example

Marketing Market analysis 1. Current Size The British soft drinks industry consists of carbonates, fruit/ vegetable juice, bottled water, functional drinks, concentrates and ready-to-drink tea and coffee. The fruit and vegetable juice sector consists of two groups: long-life fruit juices (non-chilled) and fresh fruit juices (chilled). The fresh or chilled subsector accounted for 11% of the fruit/vegetable juice sector in volume terms in 2004. Chilled versus non-Chilled off-trade Fruit/ Vegetable Juice % share 2002-2004 % volume 2002 2003 2004 Chilled 6.9 9 11 Non-chilled 93.1 91 89 TOTAL 100 100 100 Source: Euromonitor International estimates: Official statistics, trade associations, trade press, company research, store checks, trade interviews. 1.2. Growth Potential Juices (especially the launch of the Tropicana brand extensions) have been a key driver of growth in the soft drinks industry in UK from 1999 to 2004. In general, soft drinks manufacturers have adapted to the new ways of living by responding to the demand for healthier products. This has helped add value to their products and generate growth. In 2004, total consumption of fruit/ vegetable juice increased by 7% and by 2009, the overall market conditions are projected to remain highly favourable for the fruit/ vegetable juice sector. 100% juice is expected reach volume growth of 43% and volume sales of 221 million litres or 384 million euros by 2009. (Euromonitor 2005) This supports the entry of Fruitness into the growing juice sector. 1.3. Geographic Locations Major players in the industry such as Coca-Cola, Spadel, Sunco (bottler and distributor of PepsiCo), Danone, Unilever, Nestle, Materne-Confilux, Wesergold, Melitta (Granini) and Looza (Tropicana) have manufacturing plants and distribution networks all over UK. As Fruitness will target companies in London only, our manufacturing facility will be located in or in close proximity to London. 1.4. Industry Trends While the sector shows positive growth for the next three years, juice and nectar producers are already looking for new ways of keeping sales growing. As such, product innovation as well as packaging and pack sizes are very important in the juice/ vegetable juice industry. Orange is the most popular flavour with 17% share of the sector volume sales, grapefruit is second with 11% and tomato is third with 9%. As orange is still the leader, Fruitness is focusing on pure orange and orange based juices. Once established, Fruitness will invest in additional equipment in order to expand its existing product range and cater for customer's growing interest in other flavours. 100% juices dominate fruit/ vegetable juice products and the leading performance among the fruit/ vegetable juice sector is taken by 100% juice. The popularity of this subsector is due to the increasingly active and sporty British consumer lifestyle and interest in healthier diet. Nectars and juice drinks are less popular among the British consumers. Promotional activities and the presentation of a variety of fresh 100% juices by companies such as Looza and Melitta, have created a significant consumer awareness of the health benefits of these products and as a result, there have subsequently been consumer shifts towards these. In addition, there has been a slight shift from long-life products to chilled/ short-life products in 2003 and 2004. Industry sources also expect stronger forecast period growth for chilled/ short-life products due to the fact that the majority of British consumers are against concentrates and prefer more natural, fresh products. To summarize, the main trends in the juice industry are differentiation including the incorporation of new flavours, new packaging formats and more targeted marketing as well as the reduction in calories and sugar and inclusion of vitamins C, E, minerals, selenium and phytosterols. In addition carbonated beverage manufacturers have already started to develop healthier products, such as juice with calcium, especially for women, and low acid juice for children and the elderly. The number of product innovations is expected to increase from 2004- 2009 and further develop the strength of this sector and the health trends continue to be the areas on which manufacturers and consumers concentrate. 1.4. Seasonality Factors In the soft drinks industry, the marketing manager of Coca Cola UK has stated that there is no correlation between seasons and soft drinks consumption. Applying this research to the fruit/ vegetable juice sector, Fruitness should maintain steady sales yearly. Showing the benefits of drinking fresh juice year round, Fruitness juice is a refreshing summer drink. Simultaneously, it is packed with vitamins, which naturally boosts consumption during winter. Levelling of sales may occur, however, during summer as more employees take their vacation during this period. 2. Segmentation and Targeting 2.1. Segmenting The market of soft drinks can be roughly subdivided by using two dimensions (Carbonated vs Non-Carbonated; Fresh vs Non-Fresh). The non-fresh segments are crowded out by the big multinationals companies supplying both carbonated and non-carbonated drinks. In the fresh juice segment, the focus is on local suppliers and most specifically on non-carbonated drinks, since the idea of fresh juices has no benefit in adding carbonates. But whereas the local brands mainly remain small due to restricted distribution through specialty stores, Fruitness plans to grow big by reaching a lot of customers through selected channels. 2.2. Targeting The target group Fruitness focuses on is the health-conscious employee/parent. The health-conscious employee will be targeted through distribution at the workplace. This ranges from the young starter to people close to retirement. The health-conscious parent worried about the fruit intake of his/her kids will be targeted through delivery in elementary schools. 3. Positioning Strategy Fruitness is positioning itself as the perfect drink during breaks at work or at school. The products of Fruitness will make sure you are filled with natural energy to sustain you throughout the day. Because it is freshly made, the vitamins are still present; making sure you get your necessary daily intake of vitamins in a natural way. The unique selling propositions for Fruitness' products are: Guaranteed freshly made Good for your health Full of vitamins as unpasteurized Delivered in your daily environment 100% natural 4. Branding Strategy 4.1. Purpose of the Product Fruitness produces fresh orange juice, squeezed the first day and directly delivered to the customer the second day. It is made of 100% fresh fruit, without addition of sugar, concentrate, preservatives or use of heat. The packaging consists of a white HDPE (high density polyethylene) bottle that helps maintain high Vitamin C levels (extra 15% retention rate over clear bottles). It is a high quality product aimed at health-conscious consumers. The juice is delivered to companies that want to provide their employees with a fresh, healthy and tasty alternative to the usual soft-drinks. To meet customer demand and taste, Fruitness produces different flavours. It focuses on citrus juices, all with an orange basis: Orange (100% orange), Orange & Lime (90% orange juice and 10% lime juice), Orange & Grapefruit (50% orange and 50% grapefruit) and Orange & Blood Orange (50% orange and 50% blood orange). For more details, consult appendix 4. 4.2. Unique Features The juice: It is produced and consumed in 24h. It is made of fresh fruit without any additives and maintains a high level of vitamins. The innovative business model: The normal value chain for fruit juices from the fruit market to the end consumers includes many intermediate steps with no real added value to the end product. Moreover, those extra steps make the time between production and consumption longer and therefore the product less fresh. The proposed new value chain with Fruitness incorporates and skips some of the unnecessary steps. That way, the juice reaches the customer faster while it is still fresh and full of vitamins. 5. Pricing The characteristics of the pricing policies of the British chilled fruit juice market is depicted below: Chilled fruit juice market 2004 2007 Volume British fruit juice market 19,400,000 41,400,000 l 58,400,000 126,800,000 Price/l 3.01 3.06 /l British Population 10,000,000 10,000,000 inhabitants Average consumption per inhabitant 1.94 4.14 l/inhab At a price of 3.75 euros per litre (7. 49 euro per 2 litre bottle), Fruitness is competitive with its competitors (average price 3 euros per litre) as it is the freshest available juice on the market and the cost of the value added delivery service is included in the price. For example, a one litre bottle of Tropicana costs 2.97 euros. 5.1. Gross Margin on Products As Fruitness is a start-up business with a reasonably low investment in assets, together with good sales in the first years, the gross margin is expected to be very high. After calculations, a gross margin of 49% is expected for the first three years of business. During the first year, due to the overhead costs, Fruitness will not make any profits. Thanks to growing sales, it will however be profitable from the second year onwards. Fruitness can achieve this high gross margin by setting its price at a slightly higher level 25% above general market prices for chilled juice (+- 3 euros per litre). Our higher price is due to the fact that we deliver directly to customers and because our juices are freshly squeezed. 5.2. Break-even Analysis Fruitness will break-even when production equals 115 bottles per day. As 110 bottles are produced per day in August and 120 in September, break even will occur in September. For a visual representation of the break-even point, please refer to appendix 5. 5.3. Market penetration 5.3.1. Distribution Channels Fruitness will have its own delivery service, targeted at companies in and around London. Delivery will be done by vehicle (Citroen Berlingo refrigerated) according to an optimization model that works out the shortest delivery route to all customers. In 2009, a second vehicle will be purchased in order to increase the delivery capacity. 5.3.2. Sales Representatives The managers of Fruitness will be the sales representatives and will present the product and service concept to potential customers. 5.3.3. Direct-Sales Force The secretary and driver and deliverer will form the direct-sales force to be used to sell the product. As both will be closely involved with the organization and production of Fruitness, they will be able to answer any questions when in direct contact with customers/ new customers. 5.3.4. Direct Mail/Telemarketing Research shows that consumer marketing, in UK in particular, will become an even more important tool from 2004-2009 in the battle for market share in the soft drinks market. Products will need to be highly targeted towards specific consumption occasions and locations- such as before work or during a mid- morning tea break for employees at organizations (our target market). The secretary employed to accept and place orders, will actively phone potential customers to promote the product and service Fruitness is offering. All follow up communication will be done via email or visits to new potential customers by the management team. Direct mail in terms of advertising brochures can be mailed to target companies in London. This, together with the telemarketing strategy will be effective in creating awareness in the market of Fruitness. 6. Distribution Channels In 2004, on-trade volume sales growth was subdued with 5% compared to off-trade with 9%. This supports the Fruitness distribution decision to target corporate entities offering food/ drink services to employees. Market research also shows that in 2004, there was more 'cocooning' behaviour among English in 2004, with less being spent in bars and restaurants (on-trade). To start with in 2007, Fruitness will have one distribution channel, namely the distribution by vehicle from 7am to 11am to +- 12 corporate clients. From there, each client will sell/ distribute the fresh juice to employees. In 2008, delivery will take place in the morning and afternoon as Fruitness will have employed an additional employee. In 2009, two deliverers will deliver simultaneously in the morning, while one delivery will occur in the afternoon as in 2008. Other small distribution channels could be considered in the future in order to develop synergies. An example, is the development of a relationship and shared delivery service with a soup company delivering to corporate/ institutional clients. 7. Marketing communications 7.1. Advertising and Promotion A large sticker with the Fruitness logo and slogan '100% fresh juice daily' will be placed on the delivery vehicle. The employee responsible for deliveries will be given a shirt with the Fruitness logo and slogan embroidered/ printed on it. This will distinguish him as the Fruitness rep. When Fruitness expands, Lynka zoo. in Poland will be approached to embroider shirts for Fruitness. Lynka is a competitive company specializing in the production and printing of promotional items and corporate gifts. Their prices undercut those of similar firms in UK tremendously and an added advantage is that Fruitness has already established contacts with Lynka through a company visit during the MGM 2006 seminar in Poland. Promotion will be done by means of small, colourful advertising menus which will be placed on the tables in seated areas in company cafes, bars or canteens. These will also be placed on the bar counter from which the drink will be served. These will show photos of the juices available and will describe the fruits used and the nutritional information and benefits of the juice as a 100% pure fresh juice that is unpasteurized. As such, as many vitamins are retained as possible. In addition, Fruitness will have no added sugar, in comparison with Tropicana's juices with 'less sugar'. As sugar depletes the immune system and Fruitness juices will be rich in natural vitamin C with no added sugar, it can be marketed as a true immune boosting juice. Once the relationship with each customer is established, Fruitness will be advertised through corporate communication channels so that employees can be communicated to directly. Sampling promotions will also be organized in order to create product awareness as well as promotional cards, where a free drink is obtained for every 9 bought, for example. 7.2. Packaging and Labeling As the share of glass (which is frequently used for chilled juices) in the packaging mix declined in Western Europe, Fruitness is following the trend and using the lighter and more convenient opaque 2l HDPE bottles for the storage and distribution of the freshly squeezed juices. These bottles are dark inside and thereby prevent light from reaching the juice and destroying the vitamins. Labels will be printed on cold temperature durable plastic stickers using a laser printer. These will depict the fresh Fruitness logo and slogan: 100% fresh juice daily. 7.3. Service and Warranties As all bottles produced will have the date of manufacture printed on the label, we will be able to offer a warranty that any product delivered that shows to be defective in terms of sweetness/ quality can be returned for a full refund. 8. Review and Control 8.1. Receiving Orders All administration concerning the orders will be done by a full-time employee in an office space accompanying the production space. Orders will be processed through a secured website where our clients have a personal login code. Privacy policies will be adhered to. Orders will be regulated through accounts. Contracts will be set up with companies with a fixed demand for longer periods (month, year, 3-years) for a specified volume. Within these contracts there is a small flexibility to change this volume over time on the website. But unless specified, the delivered volume will be based on historic data. All transactions for existing accounts will be done via an automated system using the internet. Changes to orders will only go into effect the day after the change is made. For big changes in volume (affecting our production) or new clients, new contracts will have to be created through interaction with the Management Assistant. 8.2. Billing the Customers Through an automated script the daily demand for each customer is recorded from the internet database into a central local database. This database allows for easy billing at the end of each month. (Customers who want to have a different payment schedule -for longer periods than a month to cut on administration costs- can have a different billing system in which they pay a fixed fee every month through a bank order based on estimated demand for the year. At the end of the year the actual difference will be accounted. The monthly payments will allow Fruitness to bridge the gap between paying the suppliers and collecting the money from the customers.) 8.3. Paying the Suppliers Through our ordering system we try to guarantee a stable demand of fresh fruits and bottles. The payment schedule will have to be negotiated with the supplier, but we will aim for a payment period of 30 days. 8.4. Collecting the Accounts Receivable At the end of every month the customers will receive a bill which has to be paid within 30 days. All payments will be electronically matched to the bills for verification purposes. Customers that do not pay in time will be put on a 'blacklist' which automatically generates an e-mail message to those customers. 8.5. Reporting to Management The database allows the easy creation of weekly reports depending on predefined KPI's including variables such as the evolution of the number of customers, the distribution of demand across customers, evolution of total production, Less frequently, monthly reports will be made showing the efficiency of the system (number of on-line changes to the demanded volume by customers, cost-evaluation of delivery,). 8.6. Monitoring the Company Budgets Through the reporting system integrated in the database, financial reports will be created which will be evaluated weekly by the CFO's for irregularities. Bibliography: 1. Aaker, David and Joachimsthaler, E. (2005). The Lure of Global Branding. Harvard Business Review (November-December):137-144 2. Barczak, Gloria (2003). Managing Global New Product Development Teams. Institute for Global Innovation Management Working Papers. 3. Calantone, R., Kim, D., Schmidt, J., Shin, G. (2002). The influence of internal and external firm factors on export performance and international product strategy. AMA educators' proceedings, American Marketing Association. 4. Goizueta, Roberto C. Globalization: A Soft Drink Perspective Executive Speeches; Sep 2004; 4, 2; pg. 1 Read More