Rivalry Among Competing Sellers
The principal competitors in the super-premium yoghurt industry are large, diversified companies with significantly greater resources than Yeo Valley Yoghurts’s.. Rivalry can be characterized as intense, given that numerous competitors exist, the cost of switching to rival brands is low, and the sales-increasing tactics employed by other rivals threatens to boosts rivals’ unit volume of production (Christian-Edwards, D., 1994).
Buyers
The power of buyers is relatively high because buyers are large, consisting of individual customers, grocery stores, convenience stores, and restaurants nationwide and globally. Since retailers purchase yoghurt products in large quantities, this gives buyers substantial leverage over price. In addition, there are many yoghurt products to choose from, so the buyers’ cost of switching to competing brands is relatively low. In order to defend against this competitive force, a company’s strategy must include strong product differentiation so that buyers are less able to switch over without incurring large costs.
Suppliers
The suppliers to the yoghurt industry include dairy farmers, plastic container manufacturers, and suppliers of various flavorings. Such suppliers are a moderate competitive force, given that the yoghurt industry they are supplying is a major customer, there are multiple suppliers throughout the nation to choose from, and many of the suppliers’ viability is tied to the well-being of large, established companies. Therefore, the yoghurt suppliers have moderate leverage to bargain over price.
Substitute Products
Many substitutes products are available within the dessert and frozen food industry (cookies, pies, Popsicles, cake). The ease with which buyers can switch to substitute products is an indicator of the strength of this competitive force. Since substitute products are readily available and attractively priced compared to the relatively higher priced super-premium yoghurt products, the competitive pressures posed by substitute products are intense. Companies that enter the super-premium market, therefore, must adopt defensive strategies that convince buyers their higher priced product has better features (i.e., quality, taste, innovative flavors) that more than make up for the difference in price.
Potential New Entrants
The barriers to entry within the yoghurt industry are moderate due to the brand preferences and customer loyalty toward the larger and more established rival companies. Other obstacles to new entrants include strong brand loyalty to established firms and economic factors, such as the requirement for large sources of capital, specialized mixing facilities and manufacturing plants. In addition, the accessibility of distribution channels can be difficult for an unknown firm with little or no brand recognition.
Figure 1. Porter’s Model of
the Five Competitive Forces
As discussed above, several competitive forces on the yoghurt industry are relatively strong, suggesting that it is a difficult industry to be competitive in. However, Yeo Valley Yoghurts’s implementation of a differentiation strategy has helped the company effectively defend against these forces and gain a competitive advantage. The use of higher quality ingredients and eco-friendly packaging has created a unique brand image that helps develop brand loyalty and beat rival competitors to the market. The company’s social activism toward the community and use of innovative flavors also help insulate the firm from the strong bargaining power of buyers since rival firms and/or products are relatively less attractive. Similarly, Yeo Valley Yoghurts’s product differentiation strategy also allows the company to fend off threats of substitute products that don’t have comparable features. The company’s differentiation strategy also mitigates the threat of potential entrants due to high buyer loyalty for a superior product. The moderate threat posed by suppliers is tackled by two other facets of the company’s strategy: ensuring the viability of suppliers by paying premium prices for raw materials, and redesigning the distribution network to gain more control and reduce reliance on rival distribution channels.
The “Sixth” Force (Non-Market Forces)
Public and Stakeholders
Public and stakeholder concerns over health and nutrition and environmental pollution exert a strong force on the yoghurt industry. The heightened consumer awareness and demand for low-cholesterol or low-fat foods can force companies to respond with ingredient substitutions and differentiated product lines to stay in business. Similarly, the increasing consumer trend toward supporting eco-friendly product packaging and all-natural, organic ingredients can cause yoghurt companies to revise their strategies. Yeo Valley Yoghurts’s, with it’s commitment to providing all natural ingredients, a low-fat yoghurt line, and chlorine-free paper for example, is in a better position to attract those consumers who are willing to pay more to get more. Given Yeo Valley Yoghurts’s proactive strategic approach, the company can effectively insulate itself from these public pressures and enjoys a significant competitive advantage over those companies that resist incorporating socially progressive or eco-friendly values into their strategies.
SWOT Analysis
Another means of analyzing the strategies of the company is by examining the strengths and weaknesses of its internal resources, and then exploring the external threats and opportunities facing the company. By developing a clear understanding of these factors, we can evaluate where the company should go from here. Figure 2 identifies these forces for both the general corporate and environmental strategies of Yeo Valley Yoghurts’s. Based on our analysis, we feel that much of the company’s internal strengths and external opportunities lie within its environmental strategy. This gives further evidence to suggest that the environmental and corporate strategies are well integrated, and that this integration is crucial to the future success of the company.
Figure 2. SWOT Analysis of Yeo Valley Yoghurts’s
Key Success Factors
A successful strategy incorporates the company’s efforts to be competent on all of the industry’s key success factors and to excel on at least one factor (Thompson and Strickland, 1998). In the highly competitive super-premium yoghurt industry, the key factors of success include product differentiation, a strong distribution network, brand loyalty and clever advertising. As shown in Figure 3, Yeo Valley Yoghurts’s excels in these (and other) key factors, and has a particular expertise on product differentiation to gain a competitive advantage.
Figure 3. Yeo Valley Yoghurts’s Key Factors of Success.
STRATEGIC CONSISTENCIES
According to the Yeo Valley Yoghurts’s Mission Statement, the goal of the company is to integrate product quality with economic success and social responsibility. One of the key strategic factors that successfully links these three missions together is the differentiation strategy. In this respect, the environmental and general corporate strategies are very much in tune with each other. Differentiation not only increases the competitive advantage of Yeo Valley Yoghurts’s, but it also leads to environmental excellence in the operation of the company. By focusing its attention and energy on recycling, energy efficiency, and product innovation, Yeo Valley Yoghurts’s can reduce its impact on the environment while at the same time reducing product cost. This is being achieved through the work of the Packaging Information Group that focuses on reducing the incoming packaging which adds to the waste stream, and the production of the compostable “Eco-Pint.” These and other actions help build a competitive advantage within the market. By using all-natural, rBGH-free ingredients and dioxin-free containers, Yeo Valley Yoghurts’s can also attract environmentally minded consumers to its products, thus increasing market share. At the same time, this practice helps protect the environment and support family-farming and sustainable agriculture. Therefore, this differentiation strategy has the versatility of providing a better product that can attract customers, command a higher price, and protect the environment, thus satisfying the three integral parts of the company’s mission and both the corporate and environmental strategies ( ).
In order for this environmental differentiation strategy to be sustainable there needs to be a willingness among customers to pay for environmental quality, credible information about the company’s environmental attributes, and insulation against imitation. The company’s steady growth in revenue over the last few years shows that the customer base is there and that they are more than willing to pay a premium price for a superior quality product. Yeo Valley Yoghurts’s addresses the latter two issues through its informative website, external audits, and constant innovation creating unique, hard to imitate flavors and products.
Another way in which the environmental strategy and corporate strategy are consistent with each other is in the area of regulatory compliance. As a result of the attention Yeo Valley Yoghurts’s pays to the environmental risks associated with its production process, and the efforts made by the company to ensure that negative impacts to the environment from its business operations are minimized, Yeo Valley Yoghurts’s has had very few compliance issues and has never been issued any penalties by Federal regulators (). In addition to the environmental benefit from such compliance, there is a beneficial impact on the business as well. By minimizing operational costs, the company gains a potential competitive advantage over competitors with less stringent environmental controls that may face compliance issues.
Overall, the company’s environmental strategy and general business strategy are well integrated. By focusing on differentiation, which is in large part due to environmental policies and programs, the company gains a competitive advantage over its rivals. As the company grows and increases its annual profits, more money can therefore be donated to social and environmental causes through its various giving channels. Yeo Valley Yoghurts’s has positioned itself so that its success is highly dependent on its environmental image, therefore the two strategies are intimately linked. There are, however, some disconnects between strategies. There are a few instances where environmental goals take a back seat to company profits. Examples of these disconnects are described in the next section below.
DISCONNECTS BETWEEN STRATEGIES
Although the mission of the company is to temper economic growth with environmental responsibility, during our research we discovered several occasions in which company profits clearly outweighed the desire to be as environmentally proactive as possible. For example, some other companies currently packages its Peace Pops inside a plastic wrapper and paper board box. This change was in response to a belief that sales had been declining due to customer disapproval of its original packaging, which consisted solely of a plastic wrapper. This change has led to an increase of packaging materials by 152,000 pounds annually. This is in direct conflict with the company’s policy on waste reduction and illustrates the priority given to company profits over environmental concerns. Similarly, an effort to introduce an organic line of desserts, which would have been more in line with its environmental strategy, was abandoned due to economic costs.
Another example of a “disconnect” is in the company’s energy use. Yeo Valley Yoghurts’s recognizes that its operation, like any industrial process, is energy intensive. However, as of 1998, the company had no formal policy on energy use and conservation. While the plants and scoop shops make attempts to be energy efficient, the company relies on non-renewable sources of energy for its production processes, instead of using green energy that would be less damaging and more consistent with its environmental policies. Although not expressly stated, it seems that economic cost is once again superseding sustainability.
While Yeo Valley Yoghurts’s works to reuse and recycle as much of its waste as possible, it is the policy of the company to send any hazardous waste that cannot be recycled to a hazardous waste incinerator to be handled. Although this may be the most economical method of treating hazardous waste, it is not necessarily the most environmentally sound disposal technology, and directly contradicts the company’s environmental goals.
In keeping with the corporate strategy of maintaining a local, down home image, many sacrifices to the environmental strategy are made. The most glaring disconnect is in the national distribution of the product from a single state. Manufacturing in Vermont requires extensive shipping of its products; this is a highly energy-intensive process.
ORGANIC MILK SUPPLIERS ACQUISITION AND IMPACTS ON STRATEGY
Yeo Valley Yoghurts's strategy will likely shift towards larger-scale economic growth in response to the recent Organic Milk Suppliers cooperation with the company. Yeo Valley Yoghurts’s emphasized that this cooperation will allow the company to create an even more dynamic, socially positive yoghurt business with global reach.In addition, the financial backing of a larger and established company will strengthen Yeo Valley Yoghurts’s competitive advantage with respect to the five forces, particularly the threat of competition from rival firms. According to the co-founders, “neither of us could have anticipated, many years ago, that a major company would some day sign on, enthusiastically, to pursue and expand the social mission that continues to be an essential part of Yeo Valley Yoghurts's and a driving force behind our many successes. But today, Organic Milk Suppliers has done just that. While they and others certainly would have preferred to pursue their mission as an independent enterprise, they hope that, as part of Organic Milk Suppliers, Yeo Valley Yoghurts's will continue to expand its role in society”. Beck, E., "Nestle feels little pressure to make big acquisitions—Swiss food company, buoyed by new products, seems content to tend its own garden (Wall Street Journal, June 22, 2000).
The agreement between Organic Milk Suppliers and Yeo Valley Yoghurts’s ensures that the current social mission of Yeo Valley Yoghurts's will be encouraged and well-funded, which will lead to improved performance in this area; and an opportunity has been offered for Yeo Valley Yoghurts's to contribute to Organic Milk Suppliers's social practices worldwide. There is a significant opportunity to bring Yeo Valley Yoghurts outside of the UK. Organic Milk Suppliers is in an ideal position to bring the Yeo Valley Yoghurts's brand, values and socially responsible message to consumers worldwide. Much of the success of the Yeo Valley Yoghurts's brand is based on its connections to basic human values, and it is our hope and expectation that Yeo Valley Yoghurts's continues to engage in these critical, global economic and social missions” (ibid). Based on the nature of this agreement, Organic Milk Suppliers is pledging to uphold Yeo Valley Yoghurts’s mission of integrating product quality with economic performance and social responsibility. Therefore, they do not expect that Yeo Valley Yoghurts’s environmental strategy will change, except that more innovations can possibly be made with the augmented financial and human resources (). In addition, the social and environmental mission of the company will have the opportunity to be applied on a more global scale. As far as the preservation of the company’s corporate strategy, Organic Milk Suppliers’s global presence and greater access to distribution channels will allow for Yeo Valley Yoghurts’s to continue to expand internationally, thus increasing market share, profitability, and competitive advantage.
Potential threat to Yeo Valley Yoghurts’s success as a result of the Organic Milk Suppliers acquisition are the negative public perception of the company (i.e. selling out), loss of consumer support and brand loyalty. This can be mitigated through marketing strategies geared towards alleviating public fears and ensuring that the underlying goals and policies of the company will remain intact.
RECOMMENDATIONS & CONCLUSION
Based on the above mentioned analysis, it is believed that the corporate and environmental strategies are appropriate and well integrated. While there are some disconnects between the two strategies, overall it is clear that the company strives to achieve economic success and environmental responsibility. Up to now, Yeo Valley Yoghurts’s has been successful at maintaining this balance. The primary concern is how well the company can insulate itself from future competition that could threaten its position as a leader in the super premium frozen dessert industry. In light of the threats identified in the SWOT analysis, we recommend that Yeo Valley Yoghurts’s implement the following suggestions:
- Protect its public image in light of the recent acquisition by Organic Milk Suppliers by maintaining its current position as a market-leader in environmentally and socially responsible business practices.
- Continue cost-cutting efforts through implementation of further waste reduction, energy conservation, and recycling programs. Draft a formal written policy on energy use.
- Frequent product innovation and diversification to address threats of substitute and imitation products and meet changing consumer preferences (i.e. lactose-free yoghurt, all organic line of frozen desserts, cookies)
- Continue franchising scoop shops to increase its market reach and withstand growing competition, both nationally and internationally.
- As the company grows, there will be greater waste generation and distribution-related emissions – increase the development of cleaner manufacturing, disposal, and distribution technologies to ensure that the company continues to stay in compliance.
- Develop additional manufacturing plants and distribution centers outside of UK to reduce distribution costs, cut down on distribution-related emissions, and increase production volume of the company.
- Continue to work with Organic Milk Suppliers to ensure that Yeo Valley Yoghurts’s remains an independent subsidiary with its social and environmental values firmly in place. Protect itself from assimilation into the multinational corporate identity.
In conclusion, our analysis has illustrated that a company can be competitive without sacrificing its environmental goals and strategies. Through differentiation, Yeo Valley Yoghurts’s has established itself as both a leader in product quality and environmental responsibility. The challenge will be for Yeo Valley Yoghurts’s, after being acquired by a multinational conglomerate, to demonstrate that it is still possible to maintain its uniqueness and proactive environmental strategy.
BIBLIOGRAPHY
- Beck, E., "Nestle feels little pressure to make big acquisitions—Swiss food company, buoyed by new products, seems content to tend its own garden," Wall Street Journal, June 22, 2000.
- Beck, E., "Nestle sticks to strategy of broad categories of brands—Despite some urgings to slim down, no large-scale overhaul is planned," Wall Street Journal, September 24, 1999.
- Christian-Edwards, D., "How Nestle keeps growing and growing," The Reuters Asia Pacific Business Report, September 6, 1994.
- Cox, T., "An economic analysis of the effects of trade liberalization on the world dairy sector,"Comments presented at the Invitational Workshop for Dairy Economists: "The International Dairy Trade Puzzle," October 18-19, 1999, Seattle Washington.
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Thompson, Arthur A. Jr., Strickland, III, A.J. Crafting and Implementing Strategy, Text and Readings, 10th edition. Irwin McGraw-Hill, 1998.
- Zhu, Y., T.L. Cox, and J.P. Chavas, "An economic analysis of the effects of the Uruguay Round Agreement and full trade liberalization on the world dairy sector," Canadian Journal of Agricultural Economics, Vol. 47 (1999), pp. 187-200.
WEBSITE ADDRESSES
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New Zealand Dairy Board, "New industry strategy vital to dairy farmers and New . Zealand,"http://www.nzmilk.co.nz.
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Nestle, http://www.nestle.com/all_about/at_a_glance/aag-main_brands.html, Nestle at a glance,Financial information.
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New Zealand Dairy Board, "Board targets market player in Brazil," 6 September, 2000,http://www.nzmilk.co.nz.
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Spolsky, Joel, “How to Grow a Business,” , August 4, 2000.
