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Strategic Management Analysis in Vitasoy

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Company overview
Vitasoy International Holding Ltd is the biggest Soymilk Supplier in Hong Kong.

It is also a listed company which manufacture and sale of food and beverages. The Group operates the following subsidy around the world, Vitasoy Hong Kong, Vitasoy China which produces and sale of Vitasoy (Soymilk) and Vita products (i.e. milk, tea and water). Vitasoy Australia, Vitasoy US produce and sale of Vitasoy (Soymilk) and Tofu in Australia and United States. Singapore Unicurd Food produces and sells Unicurd Tofu in Singapore.

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Vitaland Services Limited which operate tuck shops and student lunch meal services in Hong Kong primary and secondary school.[i] Hong Kong Gourmet which serves as centralized kitchen for Vitaland’s lunch box services and other catering services

History
After World War One, founder Dr. K S Lo has a dream to produce high protein milk alternative for Chinese people with affordable price. Vitasoy – a nutritious, high-protein soymilk drink was born on March 9, 1940 in Hong Kong. Because of perishable nature, Dr. Lo sell soymilk and delivered soymilk freshly. With the increasing demand for Soymilk, traditional way of producing Vitasoy could not satisfy customer’s need. In 1953, sterilization technology was included in producing Vitasoy which helps the drinks to be kept without the need of refrigeration. It is the first company to adopt Tetra Pak packing technology for manufacturing soymilk in 1975. (Technology which included UHT (Ultra High Temperature) sterilization, aseptic cartons packing which ensure products can be kept for months without refrigeration) The company became a famous brand name in Hong Kong and they expend their market to overseas markets from 1980s. [ii] Nowadays, it turns into international company which factories located around the world and even listed on the Stock Exchange of Hong Kong.

Product
Vitasoy offers drinks in the following categories: natural soybean, Vita tea, dairy milk, Vita juice, Vita water, Vita Supreme coffee. The famous brands in Natural soybean category includes its best sale product – Vitasoy and with various flavored (malt, rad bean, coconut, melon, chocolate and more), Calci-Plus (soymilk with high calcium and low fats), San Sui Tofu. Vita Lemon Tea, Vita Chrysanthemum tea are the most popular among several types of Vita Tea. For Dairy Milk category, Vita Chocolate milk and Vita fresh milk are the most successful brands in the market. Vita Tsing Sum Zhan is focus on ready-to-drink herbal drink.

Industry Analysis

Threat of New Entrants

When talk about the newly entrants which may threaten the Vitasoy’s dominative position, we firstly think about the Retail Owned Brand’s products. A retailer own-brand is a product or service that either carries the brand of the retailer or a separate brand name that is controlled by the retailer.[iii] For example, “No Frills”, “First Choice” are the retail owned brands for Wellcome. This brand usually charge for lower price than other brand. Another major threat is new beverage introduced by Supermarkets. Supermarkets seek for high profit margin beverage from oversea. This motion may increase the rivalry in the market.

Competitive Rivalry

The competence of beverages market is very fierce. Vitasoy’s most important rivalry is Coca-Cola. Hi-C, Nestea, Healthworks are some of the brands owned by Coca-cola. Hi-C is the weapon from Coca-Cola to threaten Vitasoy. It produces the similar carton packages of soy drink and tea, targeted teenagers and lower price to against Vitasoy. There is no obvious difference between those brands, many people choose Vitasoy just because it is the flavor of childhood.

Supplier Bargaining Power

To produce soymilk, the most important component is soy bean. To reduce the stress of soybean price, the company purchased soybean farm in northeast China to solve the part of demand. Sugar and tea are also the keys to good taste, future options are used for the purchase, this action helps the company to avoid the rapidly increase in raw material price. Carton packing are heavily used by Vitasoy and there is only one company called Tetra Pak which owes a dominant and almost monopolistic position in the world’s carton packing market. This may be threatening Vitasoy as well.

Buyer Bargaining Power

The retail market has dominated by several supermarket and chain stores which is not easy for Vitasoy to practice forward integration. As buyer Bargaining power is so strong, Vitasoy has to pay promotional fee, slotting fee, and advertising fee to the supermarkets. Substitutes

Every drink can be substitutes for Vitasoy. The most important substitute is Soft drink. However, customers prefer to take Vitasoy for breakfast or choose it as alternative healthy drink.

Vitasoy’s value chain (Graphic on Exhibit 1)

Inbound Logistics:
Vitasoy sources Genetically Modified Free (GM Free) Soybean globally to deliver the best healthy products to consumer. Since GM free Soybean is quite rare in the world, the price of it is increasing rapidly in the last few years, the company adopted backward vertically integration which operates it self-own Genetically Modified Free soybean farms in Northeast China[iv] to help reduce the bargaining power of the soybean supplies and resolve some of the soybean demand. Also, NIR (Near Infra-Red) is used to test the protein, oil and moisture of soybeans after they received soybeans from supplier and to ensure they meet Vitasoy’s strict quality specifications. Other than raw material, Vitasoy also used Sustainable packaging, partnered with Tetra Pak. The packing materials from Tetra Pak are 75% packaging composition is carton material which is environmentally friendly.

Manufacturing:

To ensure high quality products with good hygiene control, Vitasoy spend full effort to produce their products by using high level of machine automation. An Aseptic technology – Ultra-high-temperature (UHT) processing is being used to ensure the product is free of micro-organism and germs. Natural gas-fired boilers are used for UHT process helped to reducing the emission of nitric oxide and nitrogen dioxide. Waste water treatment facility was used to reduce 40-50% per cubic meter of energy consumption and 60% per cubic meter of the sludge generated from the waste treatment. 30-ton Okara tank (soya bean residue tank) was installed to collect by-products and turn Okara as animal feed for Livestock or poultry. [v] Outbound Logistics:

Vitasoy provides effective outbound logistics to their big buyers, Supermarket and chain stores. They usually submit their purchase order (PO) the day before required. Once PO was received, back office will assign distribution routes for the next day. Workers will load goods to the truck before their leave factory. Once drivers return factory on the next day, they will drive out their trucks and follow the assigned routes to distribute orders. The delivery team has divided into several sub-teams which focus on particular distribution channel, such as: supermarket’s warehouse, stores, schools and refill vending machines. Refrigerated trucks are used for fresh milk and fresh food. The company also upgraded delivery trucks for low power consumption. Marketing:

Vitasoy successfully delivers their core value (happiness and childhood memories) to customers. For TV commercial, they focus on showing people’s childhood memories, happiness and nurture customer that Vitasoy had grown up with them over the past decades. In order to strengthen the needs from children, the company operated “Vitaland Services Limited” which is school truck shop business for over 300 schools in Hong Kong, selling food, drinks and Healthy lunch boxes.[vi] With the help of the Vitaland, this educates customer since they are teenagers. Innovative method is used for 70th Anniversary Celebration (2010). Consumers could take part in an online competition to create their own packs. The most popular design has been produced. Product innovation is a main element for Vitasoy success. The company is good at analyzing customer behaviors and produce suitable favors to their customer, i.e. they are the pioneer of making low sugar drinks and successfully entered the new market.

Support Activities Analysis:
Human Resource:
Vitasoy knows the importance of Human capital. In order to make continuous improvement in corporate culture, they have formed a quality enhancement platform called “WIN Planet”. The platform won “Creating Best Value” Award from “Quality Improvement & Experience Sharing Convention 2011” which proved its commitment on promoting workplace improvement.[vii] Technology Development:

Vitasoy focuses on technology development to improve its product’s quality. The biggest constraint for soymilk was perishable in the old days. The company started to adopt sterilization technology in manufacture of Vitasoy soymilk drinks which enabled the drinks to be stored without refrigeration and help to expand the distribution and revolutionized the business. They also the first Hong Kong company to introduce Tetra Pak packaging technology for drinks productions in 1975. The Tetra Pak packaging system, which involves UHT (Ultra High Temperature) sterilization of the product and packaging in aseptic cartons, ensures that a drink product can be kept for months without refrigeration. [viii] Other than the aseptic cartons, the following technology are installed in production line , aseptic cold filling equipment for lighter PET plastic bottled drinks , natural gas-fired high-performing boilers, LED lighting ,natural ventilation to reduce electricity usage. The compressed air energy conversion project helped take heat from the compressors and be re-used for warming the plant in the winter, thus reducing energy usage. [ix] Firm Infrastructure:

The firm gains a strong brand image. When people think of soy, they will immediately think of Vitasoy. When people hold parties, they will prefer Vita Lemon Tea as drink. Vitasoy spend all ways to attain high quality. The most famous one was Sour Milk incident in 1995. [x]Consumers complain for sour taste in some Vitasoy products in Hong Kong in 1995. The company recalled 13 million units of soy milk and halt production temporarily.

Although Vitasoy passed multiple sampling inspections from Hong Kong Department of Health, the company still decided to hire Swedish experts for detailed investigation. The investigation result showed the root cause was come from the packaging machine. To show pursue in high quality standards and to maintain customer confidence, the company dismantled and reassembled their entire production line to resolve the problem. With above case, Company image maintain healthy and shows they are target to produce nutritious and quality, great tasting drinks at affordable prices. Company financial strength is healthy and strong, it still have a stainable growth during economic downturn 2008 and 2009, the company still able to get 211m and 217 m respectively. (Exhibit 2)

RVB analysis
With above value chain analysis, our group thinks that Strong Brand Image and technical know-how and efforts in research will be Sustainable Competitive Advantage for Vitasoy. Strong Brand Image
The one of key successful factors for Vitasoy is the first positioning of the brand. The founder aimed to provide a low price substitute toward milk when peoples were very poor in the past. Many families only could afford to buy Vitasoy instead of milk. Those kids become parents and remember that Vitasoy is a health drink. Parents will prefer to buy Vitasoy soymilk more rather than buy soft drinks to their children. So Parents buy Vitasoy soymilk to show their love to children.

Thru, this idea has been spread out from generation to generation which made Vitasoy success. Discussed in Value Chain analysis, “Vitaland Service Limited” has formed to create needs from children. Nowadays, when people think of soybean, they will immediately think of Vitasoy and when people think of paper package lemon tea, they will think of Vita Lemon Tea. As concept in customers’ mind is not easy to be removed, we believed that this strong brand image is not easy to be inimitable and rare to be found. Technical know-how and efforts in research

The Company is good at Technical know-how and efforts in research. For technical know-how, the most successful one is how they solve the perishable of soymilk. As mentioned in value chain analysis, the company adopted Tetra Pak sterilization technology to resolve the problem and created an uncontested market space for the business. For efforts in research, it spends full effort on analyzing customer needs and response the demand form customer. The company introduced “low sugar” product lines in 2011 which boosted market demands. “Low sugar” product is not easy to be produced. It required high level of technical know-how and efforts on modify formula of drink. Competitors required more time on copying the model. This keeps Vitasoy to gain new market section. The companies also launch a lot of difference favors of soy milk to satisfy people’s needs. The new products are always out of stock after launch.

Succinct SWOT analysis of Vitasoy
From the industry analysis and firm analysis given above, we can summarize that:

The strengths

Are the Strong brand image, the high quality, which come from the firm infrastructure, and special consuming habits which we can observe from both of the two analyses. The weaknesses
Are higher labor costs and escalating transportation costs, which due to the bad economic environment, also there is increasing logistics pressure because of the expansion of market both in supermarkets like Taste and convenient stores like 7-11.

The opportunities

Mainly rise from the new markets in Mainland China and North America. Also we should notice that the Tofu, Asian Pasta and Asian Imported Beverages which are sold in America and Singapore, and the plastic bottled drinks selling in Hong Kong, are the new profitable products.

The threats

Are the fierce competitions from Coke Cola and other companies like VVGroup of China, and the customer’s preference in milk may also be an obstacle for its soymilk selling in mainland china.

Strategic Position

We recommend that the Vitasoy choose the position in the middle of the productivity frontier, because if the company wants to achieve sustainable competitive advantage, it has to make good use of its brand name and customers’ eating habits achieved in Hong Kong to maintain the dominative position in soy milk, then it must reduce its cost while keeping a relatively high price. However, in oversea markets like North America, it should keep the differentiation strategy, for the costumers there like milk more than soy milk, so focus on the tofu selling should be highly recommended. According to this, we suggest the middle position like in the exhibit below.

Optimal Strategy

We suggest the cost focus strategy, for these three aspects of analysis: Unique and valuable position:
The Hong Kong customers have already form the habit to drink soy milk since 1970s, so it serve the few need like breakfast of most customers; for the broad needs in drinks, it offers tea, distilled water, juice drinks to many customers. Trade-off:

For the unique position in soy milk and tea drinks, it has to partly quit the competition in milk and soft drinks like cola as a trade-off, so it can focus and invest more resource to soy milk. Fit:

The strong brand name and technology, also the leading position in soy milk which brings much profit make it possible to build up its new profit growth point in food industry like the tofu series food production and lunch box providing in Hong Kong to the local students in primary and middle school. All these three aspects are constructed on the basis of cost focused strategy, only when the company keep a low cost with the control of finance and production while achieve the economic scale, can it maintain and promote the brand name and market share in soy milk, which is its fundamental source of broaden other businesses.

Cite this Strategic Management Analysis in Vitasoy

Strategic Management Analysis in Vitasoy. (2016, Nov 24). Retrieved from https://graduateway.com/strategic-management-analysis-in-vitasoy/

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