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Competitive Strategies in the Organic Juices
Industry
Introduction
The
European organic juices market is becoming increasingly competitive with
growth rates slowing and consumer demand stabilising in many countries.
Competition is stepping up and companies need to re-examine their
strategies if they are to achieve positive business growth.
The
strategic options available to juice companies can be illustrated by
Porter’s Generic Competitive Strategies*. This states that a
company can achieve sustainable competitive advantage in one of three
fundamental ways. Organic Monitor outlines the application of these in
the European organic juices industry:
Cost Leadership Strategy
Juice companies can acquire competitive advantage via a cost leadership
strategy. This is usually gained by companies that are able to achieve
economies of scale in production and marketing. Such companies buy raw
materials in bulk and they produce organic juices on a large-scale. They
are thus able to market organic juices at low prices and this is usually
to the mainstream food retailers.
France and the UK have organic juice companies that have gained market
leadership via this strategy. Conventional juice companies undertake
this strategy in the organic juices market because of their large
production capacity and established contacts.
This strategy is not viable for new entrants that have low financial
resources and specialised products.
Differentiation Strategy
A
differentiation strategy involves companies marketing a product that is
clearly distinguishable from others in the marketplace. In the organic
juices market, this means the product has attributes that are distinct
from others, which can be in the form of flavour, juice type or other
characteristics.
Examples of companies undertaking this strategy are those that
specialise in Not From Concentrate (NFC) or freshly pressed organic
juices. Competitive advantage is gained by these products positioned
differently from those organic juices that compete on price (-Cost
Leadership Strategy). The Grove Fresh brand in the British organic juice
market is an example of this strategy put in practice.
Focus Strategy
Whereas the previous two strategies are industry-wide strategies, this
involves a segmentation approach. This strategy involves companies
focusing on specific segments of the organic juice market, and segments
can be in terms of flavours, juice type, or marketing channels.
Competitive advantage is gained via a Cost Focus or a Differentiation
Focus.
A Cost Focus strategy involves a company gaining competitive advantage
by being the low cost provider to the segment. An example would be a
company that offers a wide range of specialised juices (e.g. organic
mixed vegetable juices) at low prices.
A Differentiation Focus strategy involves companies marketing a distinct
or unique product in the target segment. There are many examples of
companies undertaking this strategy in the European organic juices
market. The leading companies in Germany undertake this strategy whereby
they specialise in supplying organic juices to certain marketing
channels. An example is the Demeter brand of organic juices.
What Strategy to Deploy?
As
competition steps up in the European organic juices market, it is
essential that companies adopt one of the three fundamental strategies
outlined in the model. According to Porter, companies that ‘get stuck in
the middle’ and do not have a clear strategy, business failure could
result. So which strategy is the most applicable?
The most appropriate strategy depends upon a number of factors that
include the company’s ambitions, corporate resources, current market
position, and the stage of market development. Small dedicated organic
food companies could obviously not adopt a Cost Leadership strategy, and
this strategy would also be difficult for new entrants in countries that
are showing slow market growth.
The Cost Leadership strategy is the most fancied route of conventional
juice companies and such companies have achieved success in countries
like Italy and the UK. A Focus Strategy is probably the most practical
for smaller companies however the potential of target segments has to be
accurately measured.
Conclusions
There are over 100 companies involved in producing and supplying organic
juices in the European market. As market growth rates slow and consumer
demand stabilises, only those companies that have a sustainable
competitive advantage will survive. Organic Monitor advises companies to
undertake one of the three competitive strategies outlined.
*
Reference: M.E. Porter, Competitive Advantage, Free Press 1985 © Michael
E. Porter 1985
Related Report:
#1001-47 The
European Market for Organic Juices
Posted: October 20th 2002
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