Comparison of the Olive Oil companies
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Published: Mon, 5 Dec 2016
The number of the companies that are managing to go internationally is raising every day. Organizations benefit from the globalisation because now there are much more opportunities to expand internationally and enter new markets. As the world is becoming more and more connected most of the companies are getting excited with the idea of increasing their market share in other countries (Root, 1994). There are a lot of countries which are trying to participate in the global industry of the olive oil and are attempting to produce and export this golden liquid. The main players in this marketing field are the countries which are located in the Mediterranean sea, such as Italy, Spain, Greece and Portugal (Appendix A1). Countries with no traditional backgrounds such as America, Tunisia and Australia are getting also competitive.
The competition firstly started with Spain and Italy being the leaders of the market. Globally, the olive oil industry is regulated by three main bodies (Olive oil council, EU, World trade organization) that support and help them controlling the trade of olive oil and ensure the high quality. According to internationaloliveoil 2009, Spain is the main producer of olive oil (Appendix A).
Due to overcapacity in the market the European Commission has increased the standards of olive oil’s quality. A strategy called “Olive Oil Quality” was introduced in order to make possible a better distinction of high and low quality (Appendix A2). Valceschini, (1999) stated that the aims of this strategy was to certify the quality in order to meet different customer demands.
Spanish olive oil market
According to Mintel (2009) in 2008 the sales of olive oil fall 2.5% expecting the rates to reach 1.896 million for 2009. The sector has been having difficult times because of fall in unit prices caused by heavy olive harvest, overstocking, falling export – decline in demand mainly in countries where olive oil is considered a premium product. As there is almost no innovation, the competition is concentrated mostly on price, which diverse the consumer choice. The economic crisis is forcing the companies to concentrate more on quality, brands diversifications, and products that are more affordable. The model of Spanish olive oil industry is based on family own businesses and this condition has little chances to bring any innovation and promotion changes to the olive oil sector.
Nowadays the companies have put a lot of efforts on promotion and the quality of the olive oil which must fill all the European standard as far as olive oil is concerned (Mintel 2009)
Established in Spain in the middle of 19th century is one of the main dominant players that operate successfully in the olive oil market. Initially the firm was involved in buying and selling small amounts of olive oil. Having a successful history of 70 years, now Petroliva, a family owned company, is one of the most famous companies in its industry. The product list of the company includes several types of oil, such as: extra virgin olive oil and sunflower oil. Petroliva’s products are currently used all over the world by millions of people and its products are present in twelve countries of Europe, Asia and America. A high percentage of its revenue is derives from its export activities. Having developed efficient distribution channels worldwide the company now seeks to grow more entering also other countries. Of high importance is the fact that company’s customers include big companies such as restaurants and hotels.
Its main target now is to enter the developed UK market. Spain and UK are members of the European Union, which makes the trade between them even easier. Having built a strong brand image in its home market and in other countries Petroliva has all the necessary qualities to expand even more (notes from case study) (Appendix B).
The PEST analysis is a functional tool which helps the company in scanning the market (either development or market decrease), understand the market situation, points the possibilities and the guidance for a business.(Chapman, 2006). In order to enter the UK market, a PEST analysis is needed for Petroliva to evaluate the market conditions.
The UK presently is a steady and prolific environment for making business. Being part of organizations like the EU, NATO, United Nations, WTO, G8, and OECD means that its performance is connected with these organizations. Great Britain is a region of the world’s biggest trading entity. UK is a stable country meaning that the government is balanced and there are not political risk .In UK there are many regulations about the csr system, building many market regulations for exporting companies.UK laws on retailers are not so strict if we take into consideration that there are supermarkets that operates 24 hours. Due to the fact that UK is part of EU makes it easier for Spanish companies to enter its market and comply with the existing regulations (Economy watch, 2010).
According to Economy watch (2010) the British economy is the 2nd largest in Europe and the 5th in the world with GDP of 2,789 million US $. The UK economy is still trying to recover from one of the worst recession ever. The higher volume sales of olive oil are caused by the tendency of cooking at home due to that recession. It is positive for Petroliva the fact that the British pound now is weaker and there is not a big difference between two currencies. So the exchange rate is not going to have high impact on the price of the product. The British pound currency is quite stable making the export less risky. Comparing to other countries the taxation and the entry barriers are not high for entrepreneurs in UK (Economy watch, 2010). Looking the food market in UK we can see that the spreadable oils, the fats and the olive oil are expected to be the fastest growing sectors. Values sales in 2009 are estimated to grow at a rate of 8% (Mintel 2009)
The UK has the best international reputation for being a working country and possesses the most skillful workforce in Europe. The country is the most international in Europe, with a lot of cultures, many religions, leading the customers to be open for new products (e.g. olive oil).The UK citizens are environmental friendly, so Petroliva must be friendly to the environment (e.g. must do recycling and have waste collaboration devices.). British people are changing their eating habits because they have realised the health benefits that are associated with Mediterranean food and the ingredients that make that food (e.g. olive oil).
When it comes to the standards of living the private consumption is approximately 26 million euro, meaning that the market is big and the customers are rich. (Answers, 2010). (Appendix C)
The UK is ranked in the 6th place in the world for the high technology used by manufacturers. Improvements in new technologies and UK online services may help Petroliva in the marketing and promotion of its products. The country is technological developed meaning that there are plenty of information for companies to exploit in order to make their supplying channels. Benefiting from the new technology there must be an enduring development from the companies in the UK in order to be more competitive (Innovate UK, 2010). Moreover, to meet the UK quality control requirements companies must multiply the needs for technological equipments.
Petroliva should choose to enter the UK market because:
There is a huge base of potential customers.
There is an increasing demand for olive oil.
The British are changing their eating habits.
Within the EU there are not barriers, and the UK government rules are not strict.
UK has one of the highest GDP in EU and the country is getting out of the recession which should impact the level of consumption spending.
PORTER’S FIVE FORCE ANALYSIS
According to Porter (2008) there are five forces that direct every company and affect the strength, the direction of the competition and the profits of a company. These forces are:
The bargaining power of the buyers. The ability that customers have to force down the prices. In commodity market customers are price conscious making them able to decrease the prices as there are also other choices. To have power the company should provide to them packages of excellent quality, logical price and use its environmental image in order to create loyalty between customers and company (Lee, D.Y. 2000)(Appendix D)
The bargaining power of the suppliers. The ability of the suppliers to increase the delivery price/time of the products. Most of the problems in this field come from the wrong agreements between firms and supplying companies. Having a good contract with the suppliers and making sure that the agreement benefits both supplier and company, the competition will slow down. (Jones P et al, 2005)(Appendix E)
Rivalry among existing competitors. The competition in the UK olive oil market is fierce with main players companies from countries such as Italy, Spain and Greece. According to Haymarket business (2003) the UK market leaders are Filippo Berio and Carapelli (Appendix F, G). Both of them have Italian backgrounds and share a big percentage of the olive oil market in the UK (Appendix G1). (See figure 2).
Threat of new entrants. Countries with no traditional background such as America, Africa, Asia, Syria and Turkey are trying to enter the market making the competition even more difficult. Having a strong brand image and high quality Petroliva may avoid threats that come from new entrants.
Threat of substitutes. Nowadays more and more technologically advanced materials are used in order to find which olive oil possible choice is more environmental and cheap. The supermarkets promote in an active manner their own-label products (Vegetable oils, Sunflower oils, Tesco oil, Asda oil) making it difficult for the consumers to chose between the low cost products and quality products. This variety of oils can confuse the British customers because they are not aware of the differences between the oils and the olive oil health benefits (the Independent, 2009).
MODES OF ENTRY
When a company has made the decision to go into a foreign market, there is a big question of choosing the best way to enter the market. Companies can use exporting, licensing, joint venture or WOS (new wholly owned subsidiary) in order to enter a new market (Ireland et al, 2007)
This strategy is the easiest way to enter a new market. According to this mode products are produced in the domestic market and then are transferred to the foreign target market. There are two stages in this category:
Direct export- The exporter deals with every aspect of the procedure.
(agents, distributors, foreign retailers)
Indirect export- this method does not require large amounts for marketing investment, but the company loses the control.
(piggyback marketing, franchising, contract
(Kotler & Keller, 2006, p 674 – 675)
The licensing mode is an arrangement between the importing company and the domestic company. The lifetime of the contract is small and aims in the utilization of licensor’s industrial assets (Kotler & Keller, 2006, p 676)
This manner of operation is the less risky mode of entering a market because there is an arrangement with the hosting company for sharing equity and the business command (Kotler & Keller, 2006, p 676-677)
WOS (new Wholly Owned Subsidiary)
According to Ireland et al (2007) this entry mode is referring to firms that want to fully own the facilities of their production. In this mode company has the overall control but it is costly and also it has higher risks.(Ireland et al, 2007, p. 228).
According to Woodcock et al, (1994) in the entering process at a foreign market a company must identify three attributes:
The recourse commitment that is required. (The company is a SME, and there is no need of risks and big investments)
The company control amount (Petroliva is already present in many markets, meaning that company wants the total control in UK)
Technology risk ( Having the best quality and the right managerial control, it is not difficult for petroliva to adjust)
(Woodcock et al, 1994)
PETROLIVA’S MODE OF ENTRY IN UK
Taking into consideration the modes of entry the less expensive and risky way to enter the market is by exporting. According to Ireland et al (2007), exporting does not demand the products to be produced in the objective-target country (Ireland et al, 2007). It is better for Petroliva to use the direct exporting mode because there will be no investment in the UK for production facilities. Petroliva is already present in many markets through exporting its products. Therefore, we can draw the conclusion that the company has high experience and has established its channels and created distributorships to export its products. In this mode Petroliva can have control over the entire export transaction. This way of direct-exporting will also be the best way for Petroliva to obtain maximum profits and the economic growth will be long termed. Company should make contracts with distributors who will carry the product and then supply them to retailers or dealers. Furthermore, Petroliva may sell as well at foreign retailers and then the retailers will make the connection with the customers. Being a SME company, Petroliva cannot use other modes of entry because the competition is high and the company must avoid risky moves in the market.
Company’s benefits for applying the direct exporting mode of entry in UK are:
Entry very fast in the UK market.
Increase the company/product scale using facilities that already exist.
Reduce the investments in the UK.
Overall control from the company.
Minimize the risk with competitors or government rules.
The importing policies are very liberal making the transporting easier.
According to Ireland at al (2007) an appropriate and interesting position for a company is the situation that allows the firm to hold competitive advantage over its competitors (Ireland et al, 2007)
There are three generic strategies for a company:
Cost leadership. The company focus on obtaining a low cost competitive position compared to rival companies.
Focus strategy. This category is a set of actions which are used to make products for a particular target group.
Differentiation strategy. The company focuses on the creation of a unique product of high quality and features to build a strong brand image. (Ireland et al, 2007).
PETROLIVA’S STRATEGY (Differentiation)
Entering the UK market with a cost leadership strategy may be a mistake because Petroliva’s oil quality is excellent and there is no need to drop off the quality in order to offer lower prices. The focus strategy is not appropriate for Petroliva because olive oil can be used by all the social ranks and ages. Petroliva targets almost all the groups of customers and regions in UK that seek for a product of high quality so focusing on specific groups is not necessary. Implementing a differentiation strategy is the most suitable for Petroliva because the company has an excellent quality of oil. A different product of high quality with a unique design-image will benefit the company when entering UK. To figure out why a company will stand out from its competitors in Uk market it should be answered the question why customers will choose to buy its products? The reason that customer will choose to buy Petroliva’s product is because it is going to offer them olive oil of high quality at reasonable price.
This strategy’s aims are to offer to the customers a unique product with excellent features. Petroliva should emphasize on its unique product features (size, design, quality, package and health benefits) in order to increase sales and gain market share. By pursuing this strategy the company will have as a main goal to meet customer’s specific needs. Entering the UK for the first time, it will be difficult for the company to focus only on supplying companies. Therefore, Petroliva should consider both B2B (business to business) and B2C (business to consumer) ways. Company can implement the differentiation strategy by applying the Marketing Mix concept which is commonly used by International Businesses which are implementing an International Marketing Strategy (Bennett, A. 1997). According to Armstrong & Kotler (2003) the key factors of the marketing mix are: price, product, place and promotion. These key factors have a target of influencing the buyer’s decision (Armstrong & Kotler, 2003 p. 17). To differentiate its products I suggest the below features that Petroliva’s products should have.
Bottle size: To differentiate from existing companies in UK an emphasis in the bottle should be given because it is an important element that influences the sales. Petroliva should focus in the category of 125ml and 250ml because these sizes offer to customers two benefits: firstly to introduce Petroliva’s products to them and secondly to inspire them to try and experience its olive oil. (Appendix H1)
Package: PET bottle is the best solution for the company. Being cheap and environmental friendly this kind of bottle will benefit company in its costs and also will attract customers (envis-icpe.com, 2010). (Appendix H2)
According to Griffin and Pustay (2007) pricing policies are very important because they affect the success of the firm. Petroliva should try to find the best possible price after making a research in UK prices and also calculating the costs that the olive oil has from its production until delivering to the customer. In this way company can find a price that attracts customers and also offers good margins to the company.
The best combination of communication channels, retailers and the perfect distributors it is needed in this category (Griffin and Pustay, 2007). The product will be distributed at the most profitable supermarkets, small and big retail shops, and gift shops. The retailers below are the best choice to sell its products.
For the promotion stage Petroliva should use three marketing approaches.
The best promotion ways to reach faster market response are:
Billboard advertising of Petroliva’s product in UK ( creates curiosity to the customers)
Cooking magazines- Cooking lifestyle magazines
Sponsoring( Food TV, Jamie Oliver, Nigella Lawson)
Cooking & Lifestyle TV programs.
Offer gifts (cups, cooking accessories).
(Appendix H3) Cavusgil et al (2008)
CONCLUSION (Appendix I)
Taking into consideration the above analysis from my point of view the best way for Petroliva to enter the UK market is by exporting (direct) and by using a differentiation strategy. Petroliva is a small company and there are a lot of risks if the company chooses other options in order to enter the market. The benefits of direct exporting for Petroliva will be to minimize the needed investment in UK, to enter the market fast and to minimize government/rival risks. Moreover, knowing that the competition in UK market is fierce in this industry, it is better for the company to choose a differentiation strategy in order to attract customers by offering them a product of better quality. Following the strategies, practices and processes that I suggested above in this paper the company will have the most possible success entering this market. A new different product of high quality at a reasonable price has all the potential to have great success in a new market where customers are price conscious and also want the best possible quality (Appendix I).
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