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NPD and Innovation in Soft Drinks Winning Strategies for Britvic

Term Paper 2007 51 Pages

Business economics - Marketing, Corporate Communication, CRM, Market Research, Social Media

Excerpt

Table of Contents

List of Figures

(I) Executive Summary

(II) Aims and Objectives

1 Soft drink industry definition and scope
1.1 Market drivers
1.1.1 Economical and environmental perspective
1.1.2 Obesity and health concerns
1.2 Global and regional industry profile
1.2.1 Global
1.2.2 UK
1.3 Market outlook
1.3.1 Forecasts and growth opportunities

2 Key strategic issues in soft drinks to 2012
2.1 Innovation and NPD

3 Key success factors for Britvic
3.1 SWOT
3.2 Porter’s five forces
3.3 BGC –Matrix /Lifecycle
3.4 Strategic Group-Analysis

4 Strategic options
4.1 Strategic evaluation

5 Conclusion

Appendix 1 Macro-environment

Appendix 2 Soft Drink - Industry and Market Analysis

Appendix 3 Analysis of Britvic’s competitive position

Bibliography

List of Figures

Figure 1-1: Industry Lifcycle

Figure 1-2: UK volume sales of soft drinks by sector, 2000-05

Figure 1-3: Global Functional Drinks Market Share: % Share, by Volume (2005)

Figure 1-4: Industry Lifecycle in Sub – Categories

Figure 2-1: Areas of investment important for building a competitive position over the next 5 years

Figure 2-2: Most important trends for future food and drinks NPD

Figure 3-1: A Process Model of Value Chain Innovation at Britvic

Figure 4-1: Ansoff Matrix

Figure 4-2: Generic Strategies

(I) Executive Summary

Every industry is affected by significant and dynamic market drivers. The soft drink industry is not an exception to this and witnesses recently turbulent times, caused by essential environmental changes, especially from socio-cultural and environmental factors. Britvic mainly operates within the UK, but also in some parts of Europe. The company also has a growing overseas presence, exporting to over 50 countries through their subsidiary Britvic International Ltd. In the annual report 2006 the top management stated that their intention is to grow their sales aggressively, to drive profitable revenue growth in core brands, and to continue success from innovation and internationalisation. In order to achieve these goals the company has to adapt reasonable strategies, appropriate operational structures, and innovative processes which fit to the rapidly changing environmental forces.

(II) Aims and Objectives

The aim of this report is to provide a detailed analysis of the soft drink industry and furthermore potential strategic approaches for the selected company Britvic. For this purpose industry definition and its scope, as well as changing environmental factors will be considered in the first section, followed by key strategic issues for the industry to 2012. The third section will examine key success and key competitive factors for Britvic which will be elaborated to appropriate strategic options in the following chapter. The final section provides a conclusion based on the analysis of the previous chapters and will present how Britvic might be able to deal with the challenges of the 21st century. It should be pointed out that only the most significant factors of several frameworks are presented in the main part of this report. Further details of the analysis are described in the appendices. Moreover, the appendices should support and confirm the statements given in this work and assist the reader to get a clearer picture about the potential of the proposed strategic prospects.

1 Soft drink industry definition and scope

1.1 Market drivers

1.1.1 Economical and environmental perspective

The global economy continued to expand at a strong pace in all major regions, especially in some emerging markets. The UK economy is set to grow by 2.75% in 2007 after a setback in 2005, when it grew just 1.8%. The consumer prices index is predicted to reach 2.2 per cent by the end of this year. Opportunities arise from emerging markets like Eastern Europe, China, India, Russia and some parts of the Middle East (NIESR, 2007 & UNCTAD, 2006). In this case it should be pointed out that in many parts of Europe, and especially in the UK demographic trends are unfavourable compared to other regions in the world. The size of population in the UK grew just by 0.3 % in the period of 2001 and 2005. Nevertheless, the most significant factors affecting the global soft drinks industry are coming from essential environmental and consumer lifestyle changes. Water for instance is the main ingredient for most beverages especially for carbonates and is also a limited resource in many parts of the world. Consequently, water scarcity is a huge problem and might adversely affect profitability or net operating revenues of soft drink companies in the long run. Additionally, increasing pollution and Green house emission have devastating effects on the nature causing global warming and climate change[1] (Coca-Cola Annual report, 2006).

1.1.2 Obesity and health concerns

The increasing public and governmental awareness of health concerns regarding soft drinks in recent years changed extensively the beverage industry. Medical researchers agued that obesity is caused by fatty, high calories and sweet foods and drinks. According to the World Health Organisation 171 million people worldwide suffer from diabetes (WHO, 2007). Therefore, soft drinks are often blamed as a driver for obesity and diabetes in the public. As a result, a trend emerged towards a greater rate of growth in the low or no-sugar alternatives than in the regular versions of soft drinks. Moreover, consumers increasingly seek products which are perceived as ‘‘better for you’’ and healthy for consumption by themselves as well as for their families[2] (Sadler, 2006).

1.2 Global and regional industry profile

The soft drinks industry reached in many parts of the world mature, especially in the carbonates sub-category. Nevertheless, there are existing growth opportunities in emerging markets, and also in developed countries.

1.2.1 Global

The compound annual growth rate of the soft drinks market in value terms in the period 2001-2005 was 3.2%. Furthermore, the market grew by 3.2% in 2005 to reach a volume of 333.7 billion litres. Market leader Coca-Cola holds an 18.6% share by volume. Pepsi which has a partnership with Britvic maintains a 17.5% share of the market's volumes[3] (Datamonitor, 2006)

1.2.2 UK

The United Kingdom soft drinks market shrank by 0.2% in 2005 to reach a value of $18.7 billion. This can be ascribed to the essential decrease in carbonated drinks within the UK both in terms of value and volume. This poses a great risk to soft drink companies operating in the UK, due to the fact that sales of carbonates account for 53.5% of the UK soft drink market's value. Britvic accounts a market share of 12.6% in terms of market volume and maintains second place behind the market leader Coca-Cola[4] (Datamonitor, 2006)

illustration not visible in this excerpt

Figure 1-1: Industry Lifcycle

1.3 Market outlook

1.3.1 Forecasts and growth opportunities

An interesting observation from the industry lifecycle is that growth opportunities will arise from niche sectors, namely functional and healthy drinks. Results from recent analysis of the soft drink industry produced several forecasts were it is expected that particular functional drinks, e.g. smoothies, energy, and sports drinks have the greatest growth opportunities. Especially in the UK this trend can be observed by the figure and product life cycle below. The forerunner in the smoothies sector, which grew remarkably by 773.3 % in the 2000 -05 period is the British company Innocent [5] (Mintel Reports, 2006).

illustration not visible in this excerpt

Figure 1-2: UK volume sales of soft drinks by sector, 2000-05

Source: http://academic.mintel.com/

The compound annual growth rate of the UK carbonated soft drink market in the period 2005-2010 is predicted to be 0.9% in terms of value and 0.1 % in terms of volume. In 2010, the market is forecast to have then a volume of 6,077.3 million Litres, only an increase of 0.5% since 2005.[6] On the other hand in 2010, the global functional drinks market is forecast to have a value of $34 billion, an increase of 30.6% since 2005 and in the United Kingdom functional drinks market is forecast to have a value of $2.1 billion, an increase of 24.3% since 2005[7] (Datamonitor, 2006).

Notable is that Britvic’s’ ally PepsiCo generates 24.9% of the global functional drinks market's revenue. In comparison, The Coca-Cola Company has only a share of 12.9% of the overall market's revenue.

illustration not visible in this excerpt

Figure 1-3: Global Functional Drinks Market Share: % Share, by Volume (2005)

Source: http://dbic.datamonitor.com/industries/profile/?pid=4CEEE322-23F5-4D6E-B37D-1ADADAC20104

Additionally, the earlier mentioned environmental changes and the fact that the climate is becoming warmer, particular the bottled water segments of the drinks industry will benefit greatly form the increasing temperatures and sales can be expected to have a steady growth in the future.

illustration not visible in this excerpt

Figure 1 - 4 : Industry Lifecycle in Sub – Categories

2 Key strategic issues in soft drinks to 2012

2.1 Innovation and NPD

Health is the most important innovation driver in the global soft drink market, and is set to remain at the forefront of new product development strategies. This can be related to one of Igor Ansoff‘s growth strategies, which will be explained more detailed in chapter 4. Figure 2-1 highlights that NPD is regarded as the most important key factor for success, followed by marketing and sales which are crucial factors for introducing new and innovative products successfully (Meziane, 2007).[8]

illustration not visible in this excerpt

Figure 2-1: Areas of investment important for building a competitive position over the next 5 years

Source: http://www.globalbusinessinsights.com/rbi/dload.asp?id=rbcg0158&uniqueid=8267.

The most significant change occurring in the soft drink market is the increasing need to satisfy consumer’s desire of new product attributes. Key trends in this case are attributes such as health, premium/indulgence, convenience, and ethical. Also mentionable here is the emergence of ethnical diversified products, especially in the US market concerning the Latino population. This indicates that innovation and NPD are the most important issues in the global soft drink market, and remains as key factors in building competitive advantages in the next five years (Massey, 2006).

illustration not visible in this excerpt

Figure 2-2: Most important trends for future food and drinks NPD

Source: http://www.globalbusinessinsights.com/rbi/dload.asp?id=rbcg0158&uniqueid=8267.

3 Key success factors for Britvic

3.1 SWOT

In order to achieve a company’s goals managers have to formulate strategies focusing on a clear purpose. The basic steps in preparing a strategic plan are to analyse external and internal environmental forces. The SWOT-Analysis is an approach that examines the main strengths weaknesses, opportunities, and threats of an organisation and then attempts to highlight unused resources and capabilities in order to create competitive advantages against major rivals. Once a company has identified its strength and weaknesses, it has to build on its strengths and to minimise its weaknesses (De Witt & Meyer, 2004).

Britvic as a leading soft drinks company within the UK derives its major strengths from its diversified and strong brand portfolio, which also enables the company to reduce risks occurring from the declining carbonated drinks sector. Furthermore, the firm has a partnership with the global player Pepsi Co by which they can achieve synergies.

Weaknesses of the company are declining sales in the carbonated sector with a significant decline in 2006. Moreover, Britvic has not a high level of experience in operating on a global scale which is crucial for their intention to internationalise their business in such a globalised industry.

Opportunities for the company arise from niche sectors, particular in the UK where consumption of smoothies, bottled water, and functional drinks increased substantially. Further opportunities are coming from emerging markets such as Eastern Europe and Asia –Pacific, which might be the right locations for expanding their business.

Growing abroad might be also a threat due to the huge amount of capital which is necesseray to opertate in foreign markets. Also unstable consumer attitudes, increased health awareness, and governmental interventions poses certain threats to the company which may result in further undermining carbonated drinks consumption[9].

3.2 Porter’s five forces

The rivalry in the soft drink industry is very intense, especially between Coca-Cola and Pepsi. These companies are the biggest threat for every company in the soft drink sector, especially for small and medium-sized enterprises, because of their enormous size and the aggressive way to reach as much market share as possible.

An intense competition often creates a pressure on the product price, which can affect profitability, and a substantial investment in marketing and advertising campaigns in order to strengthen brand image and consumer loyalty.

There are also strong barriers to new entrants in the soft drink industry. It is very difficult for a new beverages producer to enter the market. However through innovative new products a company might gain accesses to the soft drink market. Developed countries have experienced stagnating or falling carbonated drinks sales. Therefore there is an increased growth in the consumption of smoothies and other carbonated drinks substitutes.[10]

3.3 BGC –Matrix /Lifecycle

The results of the BCG-Matrix and the attending Product-Lifecycle[11] of Britvic’s brand portfolio highlights some strategic issues which the company should pursue. The company is in five categories market leader within the UK, namely Lemonade, Squash, Mixers, Juice drinks and Fruit Juice. Britvic also maintains second place in the cola sector behind market leader Coca-Cola, although Pepsi-Max performed better than the recent introduced Cola Zero (Britvic Annual Report, 2007).

[...]


[1] See Appendix 1 EPISTLE-Analysis on p. 16

[2] See Appendix 1 on p. 18 and on Appendix 2 on p. 30 - 31

[3] See Appendix 2 on p. 20

[4] See Appendix 2 on p. 21

[5] Innocent is a beverage producer that makes and distributes a line of all-natural fruit drinks. Its products include smoothies, thickies (made from yogurt and fruit), juices and fruit-enhanced water.

[6] See Appendix 2 on p. 24 - 27

[7] See Appendix 2 on p. 28 -29

[8] New Product Development

[9] For further details of the SWOT-Analysis see Appendix 3 on p. 34 - 35

[10] For further details of porter’s five forces framework see Appendix 3 on p. 35 - 37

[11] See both on Appendix 3 on p. 38 and 39

Details

Pages
51
Year
2007
ISBN (eBook)
9783638048545
File size
1.6 MB
Language
English
Catalog Number
v90735
Institution / College
Leeds Metropolitan University
Grade
B (Good)
Tags
Innovation Soft Drinks Winning Strategies Britvic Contemporary Strategic Issues

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Title: NPD and Innovation in Soft Drinks Winning Strategies for Britvic