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Market Strategy for Frucor

Market Strategy for Frucor

COUNTRY BASED PROJECT INT BUS 721 KUNAL HARIDASANI 1700105 Table of Contents 1. Executive Summary:3 2. Introduction:3 3. Company Background:3 4. Internal Analysis4 4. 1. Porter’s Generic Business Strategies4 4. 2. Value Chain Analysis:4 4. 3. 3 PRODUCT LIFE CYCLE:5 5. EXTERNAL ANALYSIS6 5. 1Initial Country Screening:6 5. 2 THE ECONOMIST MODEL OF COUNTRY ANALYSIS:7 5. 3. Porter’s Five Force:8 6. Recommendation8 7. APPENDICES10 8. REFERENCES:16 ? 1. Executive Summary: This study explores expansion opportunities for FrucorBeverages ,Energy Drink“V” ,a New Zealand based company .

The study focuses on possible problems faced by competitors, trade barriers, logistics, currency instability and preferable entry mode in potential target economies. Country screening technique shows two possible markets: India and Brazil. The macro-environment analysis, economist model, porters five force models, industry analysis trend identifies India as the better option to invest considering rapid growth of energy drink segment. Factors such as abundant source of raw materials, rapidly increasing consumer market, economic sustainability, constant market growth and limited entry barriers makes India as the best risk-return option. Srinivasan, 2009). Based on the SWOT analysis of competitors, it was found that joint venture with Pepsi co India would be the preferred mode of entry for Frucor to introduce “V” in Indian market. 2. Introduction: The purpose of this analysis is to look for possible expansion of” V” in rapidly growing non-alcoholic sector in developing economies. Indian market was found favourable to invest, the study looks at industry and economist model analysis of Indian and Brazilian market. It looks at opportunities of introducing V in the Indian market and looks at whether expanding in India would be a profitable decision or not.

Study identifies and analyses the competitor’s market share, looks at various entry mode strategies and identifies the best possible entry mode. 3. Company Background: Since its establishment as juice business entity in 1962, Frucor Beverages ltd has evolved into one of a leading beverage company in Australasia and New Zealand. The company is a wholly owned subsidiary of Suntory Ltd, Japanese brewing giant. With a workforce of 600 employees worldwide and headquarters based in Auckland, Frucor is the second largest non-alcoholic beverage company in New Zealand.

Frucor Beverages is owner of a wide range of non-alcoholic beverages that includes sports and energy drinks, carbonates, flavoured milk, bottled water and fruit juices. The various brands owned by FrucorBeverages are illustrated in Exhibit A. The company has a strong distribution network in New Zealand through which the PepsiCo brands are also distributed. The company currently exports its products to countries like South Africa, Ireland, UK and parts of Europe (e. g. Spain). The company entered the Chinese market in 2003 by introducing the Mizone brand (Euromonitor, 2010).

According to (Scoop Business,2010) acquisition of Frucor by Suntory has helped Frucor to compete in global market. “V” was launched by the company in 1997,and currently has 60 % of market share in energy drink segment in New Zealand and approximately 40 % in Australia. In 2010 , ‘V ‘entered Europe, through its launch by Frucor Brands in Europe in Amsterdam. Following year in 2011 ,through with their sister company Orangina Schweppes Frucorbevergaes launched ‘V’ in Spain. The expansion of ‘V’ into Spain would further increase Frucor’s current annual exports of approximately NZ$250 million .

The brand has received innumerable national and international awards. ‘V’ is definitely the brand that will lead Frucor’s expansion into the global market. (Scoop Business, 2010) 4. Internal Analysis 4. 1. Porter’s Generic Business Strategies Porter’s generic strategies focus on analysing and choosing the organisation’s competitive strategy. His model proved that differentiation strategy is as effective as cost leadership strategy. Currently Frucor’s ‘V’ is available in 18 different countries including New Zealand and Australia.

Company’s desire to compete globally can be seen that they introduced their brand,Mizonein china and ‘V’ in Spain. (Euromonitor, 2010). Company following cost leadership tend to earn profits in the event when products are undifferentiated mostly in energy drinks segment as illustrated in figure 1 . According to the company’s value that they are not scared to try out new things, but define their future based on risk taking decision’s and trailblazing. They call themselves as innovators. Though they focus on cost competitiveness strategy, it also contains bits of differentiation strategy focus 4. 2. Value Chain Analysis:

Value Chain Analysis helps in defining how much buyers are willing to spend for what they get from suppliers. It helps in outsourcing decisions, to understand the link between activities that lead to more optimum make-or –buy decision that would in turn determine whether it’s a cost advantage or a differentiation disadvantage. The value chain framework is an important framework for evaluating the activities in which an organisation can achieve its distinct core competencies. It is to be noted that the value chain analysis, when used suitably, makes the application of competitive strategies more efficient overall.

Frucor Beverages believes in concept of one team, and collective effort . They regard employees as one of their biggest assets, and follow the motto of one team, one dream. They call them as innovators, and encourage their employees to contribute with ideas and encourage innovation. Which gives them an advantage, and extra edge to experiment with launching of different types of beverages being first in their segment. Research and Development is considered an important aspect at Frucor Beverages ,and they are known throughout the industry as a pioneer in product and packaging innovation.

And their success could be seen with launch The Company has an extensive and efficient distribution network, which makes logistics and supply chain management easier for them. All the inbound logistics activities like warehousing, storage, transportation are well in place. And for that reason they even distribute other beverage companies’ products and have an efficient export system. ” They give special attention on production, branding, designing, marketing and research and development of their products On one hand company talks about risk taking and on other hand it does not compromise on its quality .

Collaboration with different companies all over the world, does give them additional benefit of global exposure. Through which they can anticipate consumer’s demands, and work towards product innovation and have 4. 3. 3 PRODUCT LIFE CYCLE: A product life cycle refers to time taken for launch of a product into market till it finally withdraws from the market. It is the period of time a product is introduced in the market, as the demand grows competitors enter the market, eventually product grows, followed by face of maturity and eventually the stage of decline.

Frucor Beverages grew from 50 million dollar to become 450 million dollar beverages company. It mainly exports its products to Australia and UK. Frucor Beverages products are diversified further into sports drink, energy drink, fruit juice, bottled water, soft drinks. However most of the products in this segment are very popular among consumers and most of the brands of Frucor Beverages ltd. have been highly appreciated by industry critics and consumers, and has been widely accepted in the market. Frucor Beverages products are diversified further into sports drink, energy drink, fruit juice, bottled water, soft drinks.

With the launch of The Big V in 2008 company experienced a overall 30 percent growth in the energy drink market . H2GO was the first sipper top bottled launched in water segment in New Zealand. It is second best selling brand in water market. Improvement in distribution and point-of-sale activity delivered outstanding sales, and this campaign ensured that H2GO grew rapidly in the market, while its main competitor and the target segment declined. (“Frucor vs goliath,” 2010). BCG matrix, created by Bruce Henderson is based on product life cycle theory and it used to prioritize the product portfolio in department.

According to the matrix, profitability of a product is maximum during its mature stage and production costs could be lowered to get higher market share or to increase profits. Four categories of BCG growth matrix are : Question Marks, Stars ,Dogs and Cash Cows. Energy drink ‘V’ is pretty popular in Australasia, and the company is in process of making ‘V’ a global brand. Frucor’s exports have surpassed 250 million dollars as of 2010. (Scoop,2011) Energy drink segment has experienced enormous growth and it completely fits with the Frucor strategy of global expansion with launching of ‘V’ globally in recent years.

According to BSG matrix ‘V’ can represent question mark for Frucor,because ‘V’s market share is growing rapidly and Frucor is investing large amount of money to fit ‘V’ in the company’s global expansion vision But still its struggling to get a bigger market share around the globe and strives to transform the product from Question Mark to a Star. 5. EXTERNAL ANALYSIS: 5. 1Initial Country Screening: The study shows that Frucor needs to penetrate a market with large consumer base and strong growth of energy drink segment with limited competitors.

According to BRIC data energy drink market it set to cross 1 billion dollars in 2011. With sales volume increased by 75 % since 2000, energy drinks sector no more a niche market, but is being consumed by everyone. it has progressed from niche market mass –market. (“Two BRICS: India,” 2010)) Brazil and India are quite similar in many ways. Both countries has similar trade policies, started their liberalisation during the decade of 1990. India has increased its investment share of GDP by encouraging foreign direct investment. It achieved that by lowering its trade barriers.

On the other hand Brazilian economy is growing at a slower rate compared to India. Consumption is as large as 64% of GDP. Currently Indian energy drink segment is rapidly growing at the rate of 60 % . Energy drink market in India is expected to surpass 350 million dollars by the end of 2011. At present, Red Bull holds the advantage in India as it has mass appeal and is very popular among youth. For a new brand to be launched in this segment it requires proper brand positioning with strong advertising. Coca-cola India has already launched its energy drink “Burn”in Indian market.

For frucor to gain market share it has to lower the price of “V” than its main competitors, Red bull and Burn (Malviya, 2008 ) It is estimated that non-alcoholic drink sector in India will be experiencing a bullish growth in the next few years with volume sales forecast of over 50% between 2010 and 2015 and value sales of over 71% during the same time period (BMI, 2010). 5. 2 THE ECONOMIST MODEL OF COUNTRY ANALYSIS: Exhaustive analysis of proposed countries has been undertaken with the help of Economist model and is given in Exhibit .

Each country was measured in lieu of categories suggested by Economist model. Study of economist model will look for a country those fares well among the two. Brazil is a developing economy with maximum share of GDP in services. With less restriction on Foreign Direct Investment, growing young urban population, open capital markets makes it a good option to conduct business. Moreover it is a member of LAIA, which provides a good option to explore or penetrate market opportunities in South America The country has been affected from instability in the political system in the past.

It needs to improve its infrastructure and upgrade the distribution system. Also the overall population is quite low, which means limited consumers and does not guarantee good volume sales. (BMI 2010)Brazil has a complex tax system and labour cost inflation in brazil is among the highest in Latin America. (Cobo, 2011) Abundance of natural agricultural resources and rapidly growing middle class consumer market makes India an attractive option to expand. Indian economy is growing rapidly and has one of the highest GDP and growth rates.

Moreover the government of India is seeking investment in food and beverages industry and suggesting that companies investing would be granted liberal investment conditions. Rising urbanization and presence of Multi nationals favours India. ( BMI 2010) 5. 3. Porter’s Five Force: Competitive force such as entry of new competitors, bargaining power of buyer and seller, competitive rivalry between companies already in the market and threats of substitutes help in determining the strategy, company needs to adapt to enter foreign market. The year 2010 saw a growth of 49% in off-trade sales of energy and sports drinks in India, amounting to Rs 1. billion. According to (Euromonitor,2011) growth rate of 29% in retail value sales is expected for energy drinks between 2010-2011. Study regarding competition proved that India is yet to tap the potential of energy drink segment, though the sector is expected to cross 350 million dollars by 2011. With only one major rival, Red Bull, and presence of small brands at local level such as Rhino’s Bullet and Cloud 9(BMI,2010) entry in India would give ‘V’ an opportunity to capture early market share, before other beverage giants look to tap the market and competition gets intense.

With not many players in the segment, early entry would definitely give an added advantage in expansion . On the other hand Brazil’s energy drink market is already competitive with major energy drinks available, and finding a market share for frucor’s ‘V’ would be challenging task. This indicates that competition in this market is fierce and competitions with already established brand would be intense. And according to (BMI,2010) with rapidly increasing population that don’t favour non-alcoholic beverages and poor distribution system means Frucor has to develop effective supply system. . Recommendation Considering the target market, country screening, economist model and keeping the global expansion plan of Frucor,study recommends India as the best country to expand into. MARKET ENTRY STRATEGY-INDIA: On the basis of detailed evaluation done in Exhibit C and C. 1 ,it was found that either a Joint Venture or franchising/licensing would be the most realistic and profitable strategy to expand in India. Frucor’s primary brand V, plays a key role in their internationalisation strategy. Company has managed to keep up a standard global strategy as their expansion plan.

If it engages in licensed manufacturing, their is a risk of the product and pricing being altered. There is a risk of quality being compromised, as there is growing doubts among people about energy drinks, they are already under scanner for harmful effects on human body. Moreover New Zealand brands are well known all over the world for its quality products. Frucor would not like to engage in controversy like Fonterra in China. Any involvement in controversy would affect V’s image and future expansion plan.

It is highly recommended that Frucor should enter India with a joint venture with a local beverage company preferably Pepsico India would be a profitable venture in long term. Other companies like Coca-cola,parle agro have already plans to launch their energy drinks in India. Frucor can enjoy pepsi’s efficient distribution network and strong hold on Indian beverage market. With Coca-Cola all set to launch its energy drink ,Pepsi would be benefited by launching ‘V’ in joint venture with Frucor. 7. APPENDICES FIGURE 1: EXHIBIT A: Frucors brands

Source: www. Frucor. co. nz EXHIBIT B: COUNTRYINDIA BRAZIL POLITICAL ENVIRONMENT WTOYESYES POLITICAL ORGANIZATIONFEDERAL REPUBLICFEDERAL REPUBLIC POLITICALY STABILITYSTABLESTABLE NOW MACRO ECONOMIC ENVIRONMENT INFLATION RATE7. 9% as of20086. 7 % as of2008 GOVERNMENT DEBT79% of GDP (2008)32. 4% as of2009 CURRENT ACOUNT BALANCE(-38. 40 Billion) as of2008(-5. 443billion) as of2007 MARKET OPPORTUNITIES GDP(USD) BILLION3. 265 Trillion as of20082. 7 Trillion as of2008 REAL GDP GROWTH6. 7% as of20085. 2% as of2008 TRADE SERVICES53. % as of200865% Of GDP as of2008 PRIVATE ENTERPRISE INTELLECTUAL PROPERTY COLLECTIONFollows world Intellectual property organisation. Has own copyright council. Signatory to Paris ,Berne and UCC conventions on IP protection. Constant with western standards. GOVT REGULATION ON NEW BUSINESS SET UPPrivate company has to pay 100000 INR ,public limited has to pay 500000 INR. No minimum capital required TAXES CORPORATE TAX30-40%35% PERSONAL INCOME TAX30%29% VAT12. 5%16%-26% LABOUR MARKET POPULATION1. 18 billion as of2009191. 30 as of2009

UNEMPLOYMENT RATE6. 9% as of20089 % as of2008 LABOR FORCE523. 7 million as of200899. 46 million as of2008 FOREIGN TRADE AND EXCHANGE CONTROL REGULATIONSMust adhere to EXIM,FEMA 1999. Strict import and export regulation CUSTOM DUTIES,IMPORT TAXESAS PER CUSTOM TARIFF ACT,1975 AND EXIM POLICYVARIES FROM PRODUCT TO PRODUCT IN ACCORDING TO CUSTOM CODES BY RUSSIAN FEDERATION. EXHIBIT C: SWOT ANALYSIS OF PEPSI Strengths Weaknesses 1) Large number of brands 2) Solid supply and finance available from parent company 1) Its distribution channel is expensive. ) Over exposure to the carbonate drink sector Opportunities Threats 1)Huge market available for Non-carbonates product sector. 2)Returns from large scale investments in its value chain 1)Sales driven by consumer price sensitivity 2)Price competition with Coca-Cola impacts its profit margins EXHIBIT C. 1 : Market Entry Strategy Entry mode Whether it is feasible? Reasons. 1. Exporting All products to be exported from New Zealand to Indian ports. To be then further distributed by company sales offices or distributors

No 1) The basic custom duty for the import of all non-alcoholic beverages in India is a massive 30%. 2) With such high duties it would be tough to maintain in the Indian drink market. Price wars are dominated by the pricing strategies of PepsiCo India and Coca-Cola India. 3) India – New Zealand Free trade agreement (NFTA) is not stable and seems unlikely to be in place. Could face some minor trade barriers. 2) Merger and Acquisition Permanent integration with a local beverage company in India. No ) No Indian beverage company till now has showed interest to be acquired or is looking for a merger with a New Zealand company as the New Zealand market has never been an attractive market for Indian beverage companies. Also till date no Indian beverage company has expressed interest to expand into New Zealand . Mergers And Acquistion wont be a viable option for frucor, as no Indian beverage company would be interested, though NZ made good are valued in the country. 3. Joint Ventures YES 1)Physical presence in the country could be achieved without a significant investment. And acess to natural resources . )Access to invaluable local market and environment ,supply chian management,knowledge, contatcs with vendor and distributors and suppliers 3 3) Will counter all the disadvantages of the licensing mode of entry . And protects brands image 8. REFERENCES: Business Monitor International. (2011). India Food & Drink Report Q2 2011 [ISSN 1749-2742]. London: Business Monitor International. Central Board of Excise and Customs. (2011). Central Excise Tarrif. Retrieved from http://www. cbec. gov. in/excise/cx-tariff0910/cxt0910-idx. htm Danone. (2008). DANONE sells Frucor to Suntory. Paris: Danone. Retrieved from