Leeds Metropolitan University

Contemporary Strategic Issues

Individual Assignment

NPD and Innovation in Soft Drinks

Winning Strategies for Britvic

Student:

Atilla Kibar

Course:

BA (Hons) International Business

Tutor:

Ollie Jones

Hand in Date:

14th May 2007

Word Count:

2711

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Table of Contents

Table of Contents II

List of Figures III

(I) Executive Summary 1

(II) Aims and Objectives 1

1

Soft drink industry definition and scope 2

1.1 Market

drivers 2

1.1.1

Economical and environmental perspective 2

1.1.2

Obesity and health concerns 2

1.2

Global and regional industry profile 3

1.2.1 Global 3

1.2.2 UK 3

1.3 Market

outlook 4

1.3.1

Forecasts and growth opportunities 4

2

Key strategic issues in soft drinks to 2012 7

2.1

Innovation and NPD 7

3

Key success factors for Britvic 8

3.1 SWOT 8

3.2

Porter′s five forces 9

3.3

BGC ­Matrix /Lifecycle 9

3.4 Strategic

Group-Analysis 10

4 Strategic

options 12

4.1 Strategic

evaluation 12

5 Conclusion 15

Appendix 1 Macro-environment 16

Appendix 2 Soft Drink - Industry and Market Analysis 20

Appendix 3 Analysis of Britvic′s competitive position 33

Bibliography 45

2

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List of Figures

Figure 1-1: Industry Lifcycle 4

Figure 1-2: UK volume sales of soft drinks by sector, 2000-05 4

Figure 1-3: Global Functional Drinks Market Share: % Share, by Volume (2005) 5

Figure 1-4: Industry Lifecycle in Sub ­ Categories 6

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

years 7

Figure 2-2: Most important trends for future food and drinks NPD 8

Figure 3-1: A Process Model of Value Chain Innovation at Britvic 11

Figure 4-1: Ansoff Matrix 12

Figure 4-2: Generic Strategies 14

3

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(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

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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 change1 (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 families2 (Sadler, 2006).

1 See Appendix 1 EPISTLE-Analysis on p. 16

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

2

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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 volumes3 (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-Cola4 (Datamonitor, 2006)

3 See Appendix 2 on p. 20

4 See Appendix 2 on p. 21

3

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Carbonated Soft Drink Industry

Functional & Healthy Drink Industry

s
e

Sal

oduct
Pr

Time

Introduction

Growth

Maturity

Decline

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).

2000

2003

2005 (est)

% change

m litres %

m litres %

m litres

%

2000-05

Carbonates 5,900

63.8 6,597

59.3

6,057

54.5

+2.7

Juice & juice drinks

1,692 18.3 2,064 18.5

2,202

19.8

+30.1

Bottled water

1,366 14.8 1,930 17.3

2,158

19.4

+58.0

Sports

drinks

97 1.0 248 2.2 348 3.1

+258.8

Energy & stimulant drinks 190

2.1

275

2.5

333

3.0

+75.3

Smoothies

3 0.0 14 0.1 25 0.2 +733.3

Total

9,248

100.0 11,128 100.0 11,123

100.0

+20.3

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

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

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.

4

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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 20057

(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.

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.

6 See Appendix 2 on p. 24 - 27

7 See Appendix 2 on p. 28 -29

5

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