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New Zealand Institute of Education (NZIE) Diploma in Applied Business Business Research Methods
ASSESSMENT 1 SITUATIONAL ANALYSIS
L&P Soft Drink of Coca Cola Amatil (NZ) Ltd.
Prepared for: Dr. Robert Davis Prepared by: Team ZHAR (Zharina, Has And Rikin)
Zharina Pelea (ID# 27763)
Hasarath Bulumulla (ID# 27646) Rikin Shah (ID# 27440)
Due Date: 05 September 2014
Table of Contents
I. Project Plan
II. Executive Summary
4
III. Business Definition and Scope
5
IV. Internal Environment
9
V. External Environment (Macro)
17
VI. External Environment (Micro) and Competitor Analysis
23
VII. Target Customer Segment Analysis
26
VIII. Conclusion
27
IX. Recommendations (Critical Success Factors)
28
X. References 29
Activity Deadline Person RemarksI. Learning and ResearchRead Annual Reports (2011-‐2013) 8/19/14 Everyone Completed on timeWrite down notes and findings on readings and annual reports 8/19/14 Everyone Completed on timeRead other relevant articles and sources of information on the company and product 8/19/14 Everyone Completed on timeDiscuss and share findings and notes with the group 8/20/14 Everyone Completed on timeMake outline for Assessment 1 8/20/14 Zharina Completed on timeMake Project Plan and assign tasks to team members 8/22/14 Everyone Completed on timeInterview L&P consumers -‐ exploratory research 8/22/14 Everyone Completed on time
II. Writing the Situational Analysis
Title page and Table of ContentsMaker: 09/01/14 Checker: 09/02/14
Maker: Rikin Checker: Zharina Completed on time
Executive SummaryMaker: 09/01/14 Checker: 09/02/14
Maker: Zharina Checker: Has Completed on time
Introduction or Business Definition and ScopeMaker: 08/31/14 Checker: 09/01/14
Maker: Rikin & Zharina Checker: Has Completed on time
Internal Environment Maker: 08/31/14 Checker: 09/01/14
Maker: Has & Zharina Checker: Rikin Completed on time
External Environment (Macro)Maker: 08/31/14 Checker: 09/01/14
Maker: Zharina Checker: Has Completed on time
External Environment (Micro) and Competitor AnalysisMaker: 08/31/14 Checker: 09/01/14
Maker: Zharina Checker: Rikin Completed on time
Target Customer Segment AnalysisMaker: 08/31/14 Checker: 09/01/14
Maker: Has & Zharina Checker: Rikin Completed on time
ConclusionMaker: 09/01/14 Checker: 09/02/14
Maker: Zharina Checker: Has Completed on time
Recommendations (Critical Success Factors)Maker: 09/01/14 Checker: 09/02/14
Maker: Zharina Checker: Rikin Completed on time
ReferencesMaker: 09/01/14 Checker: 09/02/14
Maker: Zharina & Rikin Checker: Has Completed on time
Revisions & Compilation 09/04/14 Zharina
Revisions and compilation were done during the whole week of September 1-‐4, 2014
Submit to Robert 09/05/14 Zharina Submitted on time
Assessment 1: Situational Analysis
Executive Summary Coca-Cola Amatil (CCA) is one of the leading bottlers of carbonated beverages in the world. To retain its top position, it has expanded and diversified its portfolio of beverage products through new product launches and acquisitions to address the changing needs of its target markets. In New Zealand, one of the key brands in the carbonated beverage category is L&P (Lemon & Paeroa). L&P is considered to be an iconic soft drink brand in New Zealand for the past hundred years hence it’s slogan “World Famous in New Zealand since AGES ago”. The purpose of this situational analysis is to investigate the internal and external environment, competitors, target customer segments, as well as critical factors for L&P to succeed in the soft drink industry. Each analysis will include various elements, which are vital in assessing its influence on L&P’s brand and consumption. A critical examination of the business environments, industry trends and consumer preferences will lead to a more appropriate selection of marketing strategies for the L&P brand.
Key Findings
• In New Zealand’s carbonated beverages industry, CCA has 70% market share and one of the locally well-recognized brand in this category is L&P
• In 2013, the positives in the revenues of CCA was due to the solid recovery of the New Zealand economy and improvement in consumer market
• L&P can leverage on the experience and strength of CCA as the industry leader from excellent revenue management to effective marketing strategies
• L&P’s competitive advantage lies on maintaining and reinforcing a strong brand image in the minds of its consumers
Key Strategic Recommendations It is recommended that the L&P brand aligns its strategies to the critical success factors of the industry:
• Product Innovation • Price • Authenticity and Product Quality • Customer Satisfaction • Brand Loyalty
Business Definition and Scope Coca- Cola Amatil (NZ) Ltd. Coca-Cola Amatil (CCA) is a New Zealand manufacturer and a licensed bottler of The Coca-Cola Company since the early 1900s (Coca-Cola Amatil, 2011).
CCA “operates in four (4) reportable segments, based on a combination of factors including geography, products and services. The Australia, New Zealand and Fiji and Indonesia & PNG segments derive their revenues from the manufacture, distribution and marketing of carbonated soft drinks and other alcohol free beverages” (Coca-Cola Amatil, 2011). CCA has continued to retain its strong position as a leading bottling company of carbonated beverages through product and package innovation and expansion of availablity of CCA products into new outlets. According to the Coca-Cola Amatil 2011 Fact Book, in the New Zealand and Fiji segment, 59% of the beverage market is composed of soft drinks and 70% of that is the market share of CCA’s carbonated beverages. In the NZ and Fiji channel mix, 58% are sold in supermarkets while 42% are available at convenience, leisure and other stores (Coca-Cola Amatil, 2011).
Operational sites -5 production facilities in Auckland, Putaruru and Christchurch
-13 bottling lines and 3 warehouses in Auckland, Palmerston North and Christchurch
Product categories -carbonated soft drinks, spring water, sports and energy drinks, fruit
juice, coffee, tea & flavored milk
Brands L&P, Coca-Cola, Coke Zero, Diet Coca-Cola, Powerade,
Pump, Fanta, Sprite, Keri Juice, Schweppes NZ Brands: L&P, Pump, Baker Halls and Grinders Coffee
Lemon & Paeroa (L&P) history L&P or Lemon and Paeroa is a soft drink which originated in New Zealand. In 1800's when Europeans came for gold digging in the lands of Paeroa, a small town in the northern Waikato region of the Thames Valley, they found a special mineral water bubbling from the springs. They believed the water had special medicinal and thirst quenching properties. Locals were very curious about the spring water and they started experimenting by mixing it with lemon. It was enjoyed not only as a refreshing drink but as a drink that aids in digestion. Analysts confirmed that the Paeroa mineral water is a composition of Magnesium Bicarbonate, Sodium Bicarbonate, Calcium Bicarbonate, Ferrous Bicarbonate and dissolved solids which made it a unique drink. In the early days, L&P was manufactured in a factory located in Pearoa, later on the production moved up to Auckland. Now it is manufactured by the world's leading and largest soft drink manufacturer Coca – Cola Amatil (NZ) Ltd. (Watton, 2011). The L&P Product L&P is one of the key brands in the carbonated beverage category of CCA. It has a strong Kiwi heritage that dates back to a hundred years ago hence L&P’s famous slogan “World Famous in New Zealand since AGES ago”. According to the Reader’s Digest 2012 Trusted Brands, L&P ranked 7th among New Zealand known brands, 3 notches higher than its ranking in 2011 which was at the 10th position (Idealog, 2012). However, in 2013 and 2014, it lost its ranking in the Reader’s Digest list of Most Trusted Brands in New Zealand.
Recently, L&P has collaborated with design specialists and advertising agencies to revitalize the brand and cater to the younger generation while still maintaing its historical roots and elements. Given the intense competition in the soft drinks industry, CCA continuously makes huge investments to promote the brand and establish a stronger emphasis on L&P’s unique taste and refreshment guarantee (StopPress, 2012). In 2013, L&P joined forces with the most trusted brand in New Zealand (Reader’s Digest, 2014), Whittaker’s, to launch the Whittaker’s L&P chocolate.
Product categories targeted by the organization and products/brands competing in those categories CCA’s beverage product selection includes “carbonated soft drinks, spring water, sports and energy drinks, fruit juice, coffee, tea and flavored milk” (Coca-Cola Amatil, 2011). Found below are the key brands in New Zealand for various beverage product categories. In the carbonated beverages, L&P competes with the brands below.
(Source: Coca-Cola Amatil 2011 Fact Book)
Competitors and their products/ brands competing in CCA’s carbonated beverage product categories
Frucor is leading Australasian Drinks Company and the one of the leading manufacturers of energy drinks in Australia and New Zealand. Frucor produces and sells a variety of “fruit juices, fruit drinks, energy drinks, waters and soft drinks, many of which are household names throughout New Zealand and Australia” (Frucor, 2014). Frucor has acquired the franchise to sell PepsiCo products in New Zealand. Below are the brands of Frucor according to their beverage category (Frucor, 2014): Soft drinks (carbonated): Appletiser, Just Juice Bubbles, Frank, Fresh Up Big Fizz, Pepsi Max, Pepsi, Mountain Dew and 7UP Sports drinks: Gatorade Energy: “V” and Rockstar Energy Drink Juice and Drinks: Just Juice, Simply Squeezed, Fresh Up, McCoy and Citrus Tree Hydration: h2go, Mizone Active Water and NZ Natural Milk: Wave and Up & Go Liquid Breakfast Functional: G Force
The Better Drinks Co. Limited (formerly, Charlie’s) is a subsidiary of the Asahi Beverages New Zealand Limited. It manufactures the full selection of Charlie’s, Phoenix Organics, Juicy Lucy and Stash Tea premium beverages (The Better Drinks Co., 2013). Below are the brands of Charlie’s that competes in the beverage category (Charlie’s, n.d.): Sparkling drinks (carbonated): Honest Fizz drinks—Honest Lemonade, Honest Raspberry and Honest Orange Mango Juices: Honest Orange Juice and Honest Apple Juice 50% Less Sugar drinks: Orange, Summer Fruits, Raspberry and Apple and Blackcurrant and Apple Quenchers: Lemonade, Blackcurrant, Mango Orange, Raspberry, Limeade, Feijoa, White Peach & Passionfruit and Sicilian Blood Orange Smoothies: Honest Berry Whole Fruit, Honest Mango Whole Fruit, Honest Spirulina Whole Fruit, Honest Feijoa Whole Fruit and Honest Guava Whole Fruit Smoothies Water: Honest Water Juice Drinks: Honest Charlie’s Juice Drink Orange and Honest Charlie’s Juice Drink Apple
Scope The scope of the strategic plan focuses on New Zealand’s domestic consumer market for soft drinks particularly for the L&P product. This is a three-year strategic plan for the period of November 2014- November 2017. However, there will be regular and consistent monitoring and assessment of internal and external environments as well as the product’s competitors and target customers to evaluate the effectiveness of the marketing strategies in place. Developments and innovations in the marketing strategies will be constant and relevant to keep up with industry and market trends.
Internal Environment Internal environmental factors are forces that can affect the business and to some degree are within the control of the company. This section covers L&P’s business strengths, weaknesses and competencies. To gain market share and be the top of mind of consumers, L&P must capitalize on its strenghts, eliminate its weaknesses to achieve a stronger competitive advantage in the soft drinks industry. L&P’s competencies are its “resources and capabilities that allow the business to differentiate itself and its products and services, or reduce its costs, when compared with competitors” (SmallBizConnect, n.d). L&P’s “ resources are its assets, which may be tangible assets (equipment or technology), or intangible assets (brands, knowledge and expertise)” (SmallBizConnect, n.d). L&P is a product of CCA and the internal business environment of CCA directly affects the brand. An assesment of the internal factors of CCA is presented in this section. Financial position The financial position of CCA can be better understood through its annual reports and shareholder news. In the next pages are the financial highlights for the past three years (2011-2013).
• 2.8% increase in earnings before interest and tax • 5% increase in net profit • 17.1% increase in return on invested capital • 8.2% increase in dividends per share
2011 Coca-Cola Amatil Fact Book
• Project Zero capital investment programs - deliver operational efficiencies and enhanced customer servicing capability across
• CCA now produces some of the world’s lightest PET beverage bottles and has reduced the carbon footprint of every bottle by more than 20%
• Strong balance sheet and global brand recognition helped refinance debt for the next two years and reduce funding costs
• Strong free cash flow generation - 8.2% increase in full year dividends and increase to 74.9% in the dividend payout ratio (net profit after tax before significant items)
• Total revenue excluding finance income was $4856.1 million for non- alcoholic beverages and NZ and Fiji contribution was only $426.3 million. Compared to 2010, 2011 Total revenue for no alcoholic beverages has increased but the NZ & Fiji contributions have decreased.
2011 Annual Report
• “NZ business delivered local currency earnings growth of around 3%, a very good outcome given the continuation of the soft consumer spending environment that has persisted for the last two years”.
• “The business has maintained its strong market share position and delivered positive volume growth in the second half”.
• “While the Rugby World Cup provided a lift in volumes, it was not enough to overcome the ongoing impact to volumes and earnings from the Christchurch earthquakes and the record rainfall which affected large parts of the north island in the lead up to Christmas”
2011 Managing Director’s Review on New Zealand and Fiji segments
• 3.1% increase in earnings before interest and tax • 5% increase in net profit • 17% return on invested capital • 13.3% increase in dividends per share
2012 Coca-Cola Amatil Fact Book
• “CCA has delivered another excellent result with 5.0% growth in net profit to $558.4 million (before significant items)”.
• “Earnings growth was moderated by disappointing performances from New Zealand and SPC Ardmona”.
• Total revenue for the non-alcoholic beverages was $5139.2 million, NZ & Fiji contribution was $412 million, which is again a loss compared to 2011. The total revenue however has increased by a large margin.
2012 Annual Report
• “The New Zea land bus iness de l ivered a disappointing result with a decline in volume and earnings”.
• “The business experienced a very poor start to 2012 as New Zealand recorded one of the coolest and wettest summers on record and the economy and consumer confidence remained very soft throughout the year”.
• “The energy category has continued to grow in New Zealand, with Mother growing volumes by over 5.0% driven by the successful “Mother made me do it” campaign and the Grinders coffee business also continued to grow driven by the expansion of its customer base”.
2012 Managing Director’s Review on New Zealand and Fiji segments
Based on these financial findings, it is important for CCA to capitalize on the improving economy of New Zealand and continue to be the market leader in the beverage industry.
• 6.9% decline in earnings before interest and tax • 9.6% decline in net profit • 16.5% return in invested capital • 1.7% decline in total dividends per share
• In 2013 the total revenue of CCA's non-alcoholic division decreased from $5139.2 million to $5083.7 million. Where as in the NZ and Fiji segment, revenue has increased from $412 million to $460.6 million, which is the highest recorded from 2011 – 2013.
2013 Financial Highlights
• “The positives for the year included the Australian beverage non-grocery channel which delivered volume and earnings growth, the strong return to growth by New Zealand and Fiji and CCA’s re-entry into the Australian beer and cider market in mid-December.”
• “Strong return to growth in New Zealand with over 10% local currency EBIT growth”.
• “NZ & Fiji delivered 18.0% earnings growth with Australian dollar reported regional EBIT benefiting from around eight points of currency translation as a result of the appreciation of the NZD”
• “The NZ business experienced a solid recovery with a return to growth following a strong summer trading season”.
• “Momentum improved throughout the year as a result of a number of successful new product launches as well as benefit t ing from the improvement in economic conditions in NZ”
2013 Shareholder
News
Management and leadership Leadership provides direction, inspiration, motivation and encouragement to a team to achieve organizational success and sustainability. Lack of effective leadership will result in decrease in an organization's growth and lack of direction. Management on the other hand is an organisational role where coordinating people's efforts and allocating resources to maximise efficiency to achieve set targets. Leadership and Management work hand in hand, a good manager should have good leadership skills , and a good leader should have their own and other's leadership skills. Leadership and management are complimentary to each other ( SmallBizConnect, n.d.). Coca-Cola company's organizational structure shows that the leadership and management decisions are made by the top management and the set tasks are then distributed to the sub divisions. To be the number one soft drink company in the world, the decision makers of the company should have exceptional leadership and management skills. CCA’s group leadership team is composed of experienced professionals from diverse backgrounds and experiences that all contribute to ensuring CCA’s success and market leadership. Presently, the management team of CCA includes (Coca-Cola Amatil, n.d.):
• Chairman- David Gonski, AC • Group Managing Director- Alison Atkins • Group Chief Financial Officer- Nessa O’ Sullivan • New Zealand & Fiji Managing Director- Chris Litchfield
Human resource
• The most important resource out of all the internal factors. CCA always make sure they have the best of the best working for them. CCA has more than 1000 employees from diverse backgrounds performing different roles in the company. CCA ensures that it creates “an environment that embraces initiative, inspires our people and celebrates achievement” (Coca-Cola Amatil, 2014). CCA’s core values are: “Take the Lead, Keep It Real, and Stand Together” (Coca-Cola Amatil, 2014). CCA provides opportunities for its employees to move up the corporate ladder and work in its companies abroad.
Employee rewards and benefits (Coca-Cola Amatil, 2014) • Superannuation Scheme- CCA matches every dollar the employee
saves, up to 5% of the salary amount. • Share Scheme- CCA matches every share in the company that the
employee buys up to 3% of his/her salary • Product Allowance- Permanent employees receive $500 worth of
beverages annually • Others- Medical scheme options, incentive programs and staff
purchasing privileges
News features that show how CCA values its human resources (Coca-Cola Amatil, 2014)
• NZ Herald News on Retiring and Aging Workforce- CCA has job share arrangements, part-time reduced hours, transition support and holistic retirement planning seminars for its matured employees
• Workchoice Day- CCA provided a tour and first hand experience of the company to senior secondary school students
• CCA Voted NZ’s 2nd Most Attractive Employer- This was given during the annual Randstad Award ceremony. CCA was only beaten by 1st place TVNZ by only 0.01%
• Parents returning to work- CCA offers “flexible working hours, 6 week’s paid parental leave and inclusion of women on maternity leave in annual salary reviews”
In CCA’s continued to employ only the best team of talents, according to the Chairman's review in 2013 they have hired a new group Managing Director Alison Watkins. The chairman strongly believes that her “skills and background will assist CCA to deliver strong performance outcomes from CCA’s existing operations and progress the strong development opportunities in the emerging businesses” (Coca-Cola Amatil, 2013). Research and Development (R&D) CCA continues to excel in the beverage industry through product innovation to cater to various target markets. CCA’s L&P has three variations namely:
• L&P Original - classic L&P that Kiwis love • L&P Sugar Free – for Kiwis concerned about health issues brought
about by excessive sugar intake • L&P Sour Lemon- twist to the original L&P with a sharper lemon
taste (limited)
L&P as an Ingredient Brand
It would be interesting to find out what’s brewing in L&P’s R&D as it ventures more into ingredient branding to further promote the L&P brand. Operations CCA continues to make its products readily available and accessible to a broader and more diverse consumer market. Apart from their usual supply channels through supermarkets, convenience and leisure stores. Production capabilities and supply (Coca-Cola Amatil, 2005)
• Innovation in cold drink coolers- customized size, style and functionality • Expansion into non-traditional outlets- pharmacies, florists and
butchers • Innovation in vending machines • Development of model markets- unique merchandising and cold drink
cooler placement Marketing capabilities CCA employs effective and targeted marketing strategies to boost the numerous brands it houses. They have worked with design specialist, Dow Design and advertising agency, Saatchi & Saatchi NZ to revitalize the L&P brand and make it more appealing to the younger generations.
In 2013, the Whittaker’s L&P chocolate was launched. It was a collaboration between two iconic brands in New Zealand. By teaming up in a unique way with the most trusted brand in NZ, L&P continues to remain in the minds of its consumers and capture more markets, this time the chocolate-loving kind.
Also in 2013, L&P’Okey was launched by Holy Moly Ice Cream. Another development in the L&P’s growing list of product brand team ups.
Saatchi & Saatchi NZ ran two marketing campaigns for L&P:
• Outdoor campaign to increase L&P consumption despite the end of summer through giving away beach towels and flip flops that people can just pull out from adshels
• Advertisement that makes L&P stand out and shows an edgy, quirky and different side of the L&P product with images of lemons wearing spiky latex, wrestling and clown masks.
When it comes to L&P, surveys showed them that L&P is very popular among the youth. However the packaging and the bottles were old fashioned. Therefore they decided to revitalse L&P brand partcularly the design of the bottle without any radical changes and still retaining the familiar elements of the iconic soft drink. For this exercise they hired branding specialists Dow Designs. Dow's mission was to reintroduce the same old drink to the new youth, focusing mainly on L&P 's unique flavour and the refreshing features (StopPress Team, 2012).
Left: Old bottle; Right: New bottle
Also, it can be seen clearly how the drink packaging developed over time.
External Environment (Macro) External environmental focuses on the “broad area of the environment that impacts on society as a whole” (Reed, 2010). Thus, forces in the external environmant can indirectly influence the industry, companies or organisations and competing markets. In developing strategies for L&P, it is important to be able to identify the business opportunities and threats. To remain competitive in the soft drink industry and maintain its brand image in the minds of its consumers, L&P must be able to seize opportunities and lessen the risks of threats. L&P is a product of CCA and the external business environment of CCA directly affects the brand. Below is an assesment of the external (macro) factors: Economic factors
Economic Standing
Economic activity was up 3.3% GDP Expenditure measure was up 1.3% Exports was up 3.1% Investment increased by 2.1% propelled by increases in residential and non-residential building, partly offset by decreases in plant machinery, equipment and intangible assets Imports increased by 1.7% (Statistics of New Zealand, 2014)
“An international report rated New Zealand’s housing market the most overvalued in the world” (Kloeten, 2014). A chief economist of the New Zealand Institute of Economic Research, Shamubeel Eaqub, said that extreme housing prices are concentrated in the Auckland and Christchurch regions. NZ houses were also over-valued by 32 % compared to incomes (Kloeten, 2014). NZ also had the fastest rate of growth in house prices in 2013 at 8.5% (Kloeten, 2014). In the GDP Review ending March 2014, the NZ household consumption expenditure remained flat (Statistics New Zealand, 2014).
Based on that report, notwithstanding the improvement in the NZ economy, housing pricing increases can decrease the consumers’ disposable income which can in turn reduce spending levels for soft drink products.
It is anticipated that the recent increase in housing prices will have less impact on consumption than in the previous periods, as consumers become more pragmatic. Consequently, “consumption grows with increase in income, with only a small scope for housing equity withdrawal as a means of funding additional spending” (The Treasury, 2013).
Based on the report, consumers are relatively at ease with the “amount of debt reduction (as a share of income) undertaken over recent years given developments in their net worth, partly driven by house price developments, reduced uncertainty about future economic growth, and income prospects”. Despite these, they remain wary of spending behavior with increases in consumption stemming from income instead of debts or asset reduction.
Economic Outlook
Growth in March 2015 onwards is expected to pick up as business and residential investment rise, driven by the Canterbury rebuild and recovery from the drought. Growing consumption, as incomes improve Net exports are expected to lag on growth from 2013 - 2016 (March years), due to the effect on export and import industries by NZD appreciation Increase in imports due to demand from Canterbury rebuild Low interest rates, better business confidence, high exchange rate are projected to result in stronger growth over 2013 and 2014 (Source: NZ Budget Economic Outlook, Thre Treasury, 2013)
Private consumption will grow over 2013 and 2014 with increase in consumer confidence and income Annual real private consumption growth is projected to peak at 2.8% in the 2014 and 2015 March years Growth in residential investment, especially with the Canterbury rebuild (additional durables consumption)
Consumer Savings “Household saving is around 10% higher than its low 10 years ago” (The Treasury, 2013).
Housing Higher housing prices are expected to foster new home building to control increase in house prices Annual house price inflation forecast at around 7% in each of the March 2013 and 2014 quarters Canterbury rebuild to boost residential investment
These economic indicators point to a positive outlook for the consumer market of CCA’s L&P as well as the over-all economy of New Zealand. It is important for L&P to take advantage of these economic upturns in developing marketing and business strategies. Sociocultural factors In order to better understand the consumer market of L&P, sociocultural factors such as population, age and gender structure, education, occupation, income levels, ethnic groups and geographical locations must be determined (Reed, 2010).
Below is essential information on demographic and social values that can affect the consumption behavior of L&P based on the Statistics of New Zealand and The World Fact Book of Central Intelligence Agency. Demographic Population 4.4 million with a population growth
rate of 0.83% (est. 2014) Geographic locations NZ is largely an urban country with
86% of the population found in urban areas (14% live in rural areas). More than 50% of that percentage lives in the largest cities of NZ—Auckland, Christchurch, Wellington and Hamilton (Statistics of New Zealand)
Ethnic groups 71.2%- European 14.1% - Maori 11.3% - Asians 7.6% - Pacific peoples 1.1% -Middle-Eastern, Latin American, and African 1.6% - others 5.4%- unidentified (2013 Census)
Age structure Majority of the population (74.3%) is found in ages 0-54 years of age where males exceed females in terms of ratio (est. 2014)
Gender ratio Ratio of males to females is 0.99:1 while the average ratio for males and females ages 0- 54 is 1:1 (est. 2014)
Immigration The net migration rate is 2.23 migrant(s)/1,000 population (est. 2014) There is an increasing influx of immigrants to New Zealand coming mostly from Australia, United Kingdom, China and India and other
countries. Thus, making the consumer market in NZ more diverse. L&P’s strategies must consider these migration developments to properly align its product promotion and targets.
Education The adult literacy rate of NZ is 99% with over ½ of the population 15 -29 years of age have a tertiary education. 14.2% of the adult population hold a bachelor’s degree or higher, 30.4% have secondary education and 22.4% have no formal education
Social Values Growing recognition of negative health impacts of soft drinks
Numerous studies and researches on the harmful effects of soft drinks among consumers especially on the younger generations have caused soft drink consumers switch to healthier beverage alternatives such as ready-to-drink teas, bottled water and reduced sugar juice drinks. However, despite this health craze, soft drinks still holds the bigger market share in the beverage market in New Zealand.
Political-legal factors With the increased scrutiny on the negative effects of soft drinks on the obesity, diabetes and oral health issues of its consumers especially among the younger segments, the New Zealand Beverage Guidance Panel composed of public health experts has recently approached the government with a policy brief last June 19, 2014 that recommends the following (Anderson, 2014):
• 20% excise tax to reduce consumption among poorer households • Regulating sales within schools and hospitals • Educating families and communities about problems associated with
high sugar intake.
Further in the report, the Greens and the Maori Party as well as the Associate Health Minister publicly agree and promote these recommendations. But the Health Minister Tony Ryall has continually said that the 20% excise tax won't
work and refuses to pose more constraining policies that include sugar taxes and advertising restrictions.
Health Minister Tony Ryall also said that the government wherein they invest millions of dollars to better address the health concerns initiates numerous anti-obesity programs such as—Healthy Families NZ, Kiwisport in schools and green prescriptions and fruit in schools. CCA added that the tax implementation would impact more on smaller drinks range and promote bigger sized drinks to consumers. However, CCA said that they would continue to work on ways to reduce the added sugar in their beverages. Moreover, the New Zealand Juice and Beverage Association added that the beverage industry would keep on providing smaller sized drinks and find sugar substitutes in their drinks (Anderson, 2014). Technological factors The impact of technology covers almost all facets of the company and its consumers. Various technological platforms are now used by consumers to obtain information about a company product or brand. Television advertisements and print ads have a minor effect on consumers as compared to product promotions made in the social media and digital channels. In efforts to keep up with technological trends, “myCCA” website is CCA’s online customer portal for its business consumers apart from its presence in the social media community. Product offerings, tips and insights on business profitability as well as customer care are available in the website. CCA continues to maintain and promote brand presence through various technological avenues with the help of advertising agencies. It also uses technology to better understand its consumers through online surveys and social media sites wherein feedbacks and comments on the products are seen. Additionally, it also made a sizeable investment of NZ$15 million in its technology platform that allows CCA to self-manufacture its own PET plastic (Polyethylene terephthalate) bottles using lighter and fewer raw materials. CCA’s further investments in the upgrade of its Auckland and Christchurch facilities to blow-fill technology will bring an approximate 20% decrease in the carbon footprint of every bottle (Coca-Cola Amatil, n.d.). Additional investments of NZ$80 million in 2008 were made to produce an advanced and improved distribution center in Auckland to simplify warehousing and distribution processes. This ensures that consumers have easier and faster access to CCA’s products. Through these efforts, the consumers have a better appreciation of the company. They would see the company as not simply focused on reaping sales or profits from them but more concerned on the total experience with any CCA product. The experience involves not only tangible elements such as the physical benefits of the product but also intangible elements that goes
beyond the soft drink bottle and extends to concern for customer convenience and the protection of the environment. Natural environment CCA Annual reports show the effects of changes or conditions of the natural environment on its company profitability. Year Natural event 2011 The Christchurch earthquakes and
record rainfall, which affected the major parts of the North Island, had a negative impact on the sales volumes and earnings of CCA.
2012 CCA experienced a slow start as “New Zealand recorded one of the coolest and wettest summers on record”.
2013 CCA experienced a “solid recovery with a return to growth following a strong summer trading season”.
Based on the findings above, the natural environment plays an important role in the supply and demand for CCA’s beverage products. Extreme weather conditions can greatly impact the consumption behavior for the products. L&P consumption usually goes down during the winter season.
Concerns for global warming and environmental sustainability have long been considered of great importance among industries and companies. Government policies concerning pollution factors and recycling have been issued to protect the environment and the consumers. CCA has done its share in the preservation of the environment and innovation in waste reduction. It has implemented various initiatives for the environment such as the following (MYCCA, n.d):
• All packs and raw materials are 100% recyclable • Use of only the minimal amount of raw materials in products (light
weighting) • Recycling of over 99% of solid waste produced by Christchurch CSD
and Putaruru Water Plant
External Environment (Micro) and Competitor Analysis
Assessing the micro external environment of CCA would mean evaluating the industry that CCA operates in. The forces at play have a more direct impact on CCA’s market attractiveness, profitability and competitive advantage. The strength of the industry competition and attractiveness of the market are functions of five forces of competition namely, threat of new entrants, bargaining power of buyers, threat of substitute products or services, bargaining power of suppliers and rivalry among existing firms. These forces make up Porter’s five-forces model (diagram shown below) that provides a framework for analyzing the industry and competition of CCA.
Below is an application of the said framework on the soft drink industry.
Threat of new
entrants
Bargaining power of buyers Bargaining power
of suppliers
Threat of substitute products or service
Rivalry among
competing firms
Threat of New Entrants Bargaining power of buyers Capital intensive and high fixed costs Large number of consumers Entails economics of scale Many retail channels- supermarkets,
convenience, stores, restaurants, fast food chains and vending machines, etc.
Requires direct supply and strong distribution networks
High price sensitivity
Relatively high sunk costs that prevent new entrants
High buyer power
Need advanced technologies in the production and distribution process
Requires insurance, government regulations, licenses, and other qualifications
High brand loyalty among consumers (from heavy and expensive advertising)
Low threats of new entrants (if you are a leading and known brand)
Threat of substitute products or services
Bargaining power of suppliers
Many alternative beverages- water, juice, tea, sports drinks, etc.
Low bargaining power of suppliers because of many suppliers
Low product differentiation Ingredients and packaging are similar products or undifferentiated
Low switching costs on consumers Numerous suppliers of equipment Low threat of substitutes if brand is strong and recognized
Easy to switch suppliers
Rivalry among competing firms Large industry size Many small soft drink companies Presence of widely recognized and very strong brands (ex. Coca-Cola and Pepsi) The analysis above shows that the soft drink industry is competitive but profitable especially for established players in the market. Moreover, this model places CCA (L&P) in a comfortable position within the soft drink industry while recognizing potential threats to its market share. It is also shown that in the soft drink industry there is low threat of new entrants, which makes it easy for CCA to maintain its market share since it already has the experience, capital, distribution channels, production facilities and processes as well as brand identities in place. Although there is high buyer power and some threat of substitution, consumers in this industry tend to be brand loyal. In a 2002 survey conducted, 37% of participants chose carbonated soft drinks
because of its brand while only 10% said that of bottled water (Winston, 2013). Thus, CCA has an upper hand as the industry leader as it has a long history of providing numerous brands of beverages to its consumers as well as maintaining loyal online and offline communities because of its effective marketing strategies. There may be up and coming industry competitors and the presence of its biggest and long time rival, PepsiCo, however, Coca Cola Company’s or CCA’s (L&P) investments in advertising, sponsorships and product innovations help maintain its market share and survive its rivalry with its competitors. Competitive Advantage The brand image of CCA and more particularly, L&P is one of the most important sources of competitive advantage. By investing in R&D, CCA and its brand L&P can obtain product portfolio flexibility and expand its captured segments. Being a long and well-established organization, CCA delivers substantial economies of scale in manufacturing, distribution and marketing. Contributing to the brand image and another source of competitive advantage is CCA’s constant strive for product innovation through product launches and acquisitions. CCA has numerous brands in different beverage categories to serve various customer segments, while L&P has the Sugar Free L&P and L&P Sour to cater to other types of consumers. CCA and the L&P brand ensures they focusing on providing products that not only benefits the consumer but also adds value to the experience of the consumer when he or she drinks an L&P product.
Target Customer Segment Analysis Market segmentation is one of the important initial stages in coming up with marketing strategies. For this section, L&P consumers are grouped into segments that have similarities in terms of preferences, needs and reactions to promotional activities.
The current target markets of L&P will be incorporated in developing strategies. The youth (teenagers and young adults) consumers of L&P make up majority of its consumer market. This can also be attributed to the common fact that most older or mature segments are more conscious about their health and sugar intake from this type of beverage. In hindsight, L&P has the potential to still capture the older segments by leveraging the historical elements of the brand and using past experiences and memories of older consumers to promote the brand. Furthermore, ethnic segments will also be considered given the increase in international immigration in New Zealand. However, if further research on L&P’s consumption behavior reveals emerging or untapped markets then these will be taken into consideration in deciding on the marketing objectives and strategies.
GEOGRAPHIC New Zealand
DEMOGRAPHIC Businesses E n d c o n s u m e r s : male and female teenagers and young adults
BEHAVIORAL C o n s u m p t i o n behavior Desired benfit for refreshment Lifestyle- fun, active, exciting
PSYCHOGRAPHIC SEGMENTATION Insights and values Attitudes Pre ferences and interests
Conclusion Coca-Cola Amatil is a well-established international company with vast and time-tested experience in competing in the soft drink industry. It has proven track records of successful revenue management and cost discipline that enables it to remain profitable despite organisation and competition setbacks. It has numerous known brands that cater to different market segments. The steady growth of the New Zealand economy contributes to economic optimism that translates to healthy spending levels and consumption behavior. The L&P brand can leverage on the strength of CCA and take advantage of the improving economic conditions in New Zealand. Moreover, its strong historical roots are already in the minds of its Kiwi consumers and it would just be a matter of reawakening that brand image. Further analysis of the different markets need to be conducted to obtain further insight on the consumption behavior. Strategic promotional activities and thoroughly designed marketing mix can aid in influencing the consumers’ perception of the L&P brand. It is vital for L&P to obtain a healthy balance of sticking close to its roots and keeping up with current market trends (fun, active and healthy lifestyle) to remain relevant and fresh in the minds of its consumers.
Recommendations The following are the recommendations for L&P in formulating marketing strategies geared towards possessing the critical success factors in the industry.
Product Innovation
• always ensure L&P products are relevant, fun and exciting while addressing consumer needs and wants
• develop creative and functional product packaging to increase impact of L&P on consumers
• come up with L&P brand variaties that are related to the core brand and its established strength
• enhance technologies that will bring down costs to CCA and the L&P consumers
• extend products to cater to various consumer segments and lifestyles (eg. health conscious consumers)
Price
• remain competitive in product pricing • offer discounts and incentives that further promote L&P in distributions channels
Authenticity & Product Quality
• promote L&P as the original soft drink brand that every Kiwi grew up with and loves
• emphasize on the key ingredients of the L&P drink that make it different from other competing brands
• build on L&P's relative perceived health value (more mineral salts compared to other soft drink brands)
Customer Satisfaction
• consumers must be at the heart in all of L&P's activities • anticipate and meet consumer needs • develop customer solutions that make it easier for the consumer to access the products and services of CCA
• strive to add value in the product experience and improve the quality of life of L&P consumers
Brand Loyalty
• create stronger emotional relationships between L&P and the consumer • come up with marketing strategies that allow the consumers to identify with the L&P brand
• build on the strong cultural heritage of L&P with Kiwis (link ads to consumer past experiences)
• develop strategies that promote brand associations that are based on L&P's product features and consumer benefits
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