Marketing plan – Yeo Valley

Family-owned Yeo Valley has been producing yoghurt for many years, mainly for other companies. But 10 years ago, a group of four dairy farmers approached the firm offering organic milk.

It decided to expand its range and the new lines proved so successful, a separate company was established in 1996 (www.yeovalley.co.uk). While the demand was clearly there. Yeo Valley was not able to grow as quickly as it mould have liked. It was not easy to get a pod supply of organic milk, so the company had to encourage more farmers to convert, “We put our money where our mouth is” says Graham Keating, managing director of Yeo Valley Organic. ” We give long term contracts the farmers can make some money so they can extend their growth in the organic sector.

The company helped formers to set up the Organic Milk Suppliers Cooperative, which now has 200 members. The company helped to establish

this organisation as it wonted to treat farmers fairly, rather than haggling for the lowest price possible.

Yeo Valley says it agrees an annual fair price for the milk it buys from the co-operative. The idea is to set this at a level that will allow the farmers to make a profit, Research to prove that there is a definite market could” encourage more farmers to switch to organic.

However, as going organic can take more than two years, and involves some cost to the farmer, Veo Valley also offers to buy non-organic milk from them during this period to sell on.

Last year, Yeo Valley, won the Queen’s Award for Enterprise for the way

it works and its commitment to organic farming.

New products

As the supply of milk became more secure, the company was able to launch new products. It acquired new premises with a workforce of 30 which has now expanded to 200. The next Step was to get .more organic fruit. Although Yeo Valley likes to source as much as pssible from the UK, it has to buy fruit from abroad. It is then processed locally into a fruit mix. Currently organic processors have to import 65% of their ingredients, although that figure is falling. There are now 2000 registered organic processors in the UK.

Yeo Valley has capitalised on spin-offs from the production process, Making yoghurt leaves a lot of cream, and now the company is operating OR such a large scale, it can sell this cream, Previously it would have been difficult to find a market if it could not guarantee a regular supply, More Staff have been taken on to develop new products, These have included a range of frontage frais. This involves a different production process and special equipment had to be purchased.

In fact in the past year alone, 27 new lines have been launched, A substantial plant expansion is planned both to increase production of the basic yoghurt and to continue developing new ideas.

The company’s current product range includes:

* Organic Virtually Fot Free Fruited Yoghurts

* Organic Children’s Yoghurt

* Organic Creme Fraiche

* Organic Cream

* Organic Fruit Compotes

* Organic Butter

* Organic Frozen Yoghurt

* Organic Ice Cream

The market

The company’s annual sales are �48m, about 5% of the total UK organic food market. One in every two organic yoghurts sold is a Yea Valley product. Ben Cull, the company’s marketing director, says the development of the brand has been about educating the consumer: “It’s very new in the marketplace so we need consumers to taste the product. The company has recently introduced a new type of pot, comprising a thin plastic inner and a cardboard! sleeve, designed so it can be split for recycling. That environmental philosophy applies to all parts of the business, from using as little water as possible and ensuring that every lorry is carrying a bad, to encouraging staff to cycle to work.

An analysis of the external and internal forces shaping the yoghurt industry is necessary in order to determine the effectiveness of Yeo Valley Yoghurts’s current (and prospective) corporate and environmental strategies. We will utilize several analytical tools to characterize the strengths and liabilities of the industry and the effectiveness of the company’s strategy, particularly through the use of the Five Forces Model of Competition, the Sixth (Non-Market) Force analysis, SWOT analysis, and the key factors of success.

Five Forces Model of Competition

In order to identify and assess the strength of external competitive forces on the yoghurt industry we utilized a common analytical tool, Porter’s Five Forces Model of Competition, which is based on the following five factors: rivalry among competing sellers, bargaining power of buyers, bargaining power of suppliers of key inputs, substitute products and potential new entrants to the market (Thomas and Strickland, 1995). Figure 1 summarizes the competitive strength of these forces on the yoghurt industry.

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.

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.