Zespri Case Analysis Essay
Zespri Case Analysis
The + sign means that Zespri is positively using the resource/capability to their advantage, and it fits with the description of the VRINE model. The – sign means that Zespri is not using the resource/capability to their advantage, and the resource or capability is not fitting in with the specific aspect of the VRINE model.
As the model shows, Zespri has many resources that are valuable and exploitable, but not all resources/capabilities fall into all of the VRINE categories. The most notable of the resources and capabilities that ZESPRI has are their brand name, the cultivars, their innovation in R&D, and the potential for a 12-month supply of kiwifruit. Zespri’s research and development staff have created new types of kiwifruit (the Gold and Red), as well as the organic types and family brands. Recent research has proved that the kiwifruit is one of the most nutrient dense fruits. In addition to the R&D advancements, the Zespri brand also contributes to the competitive advantage of the company. The name is known for quality and availability. Their name brand allows them to set prices, rather than take them, and the brand creates value for the firm. Another advantage that Zespri has, is that they are solely invested in the production and distribution of kiwifruit, whereas the competition generally works with a variety of different products. All of these traits that Zespri has are exploitable and will remain exploitable in the future.
Unfortunately, the kiwifruit is not inimitable. Competitors can recreate all the fruit they have developed through their R&D efforts. This also means that the Zespri products (the green varieties they offer) are not non-substitutable to customers. In addition to substituting the Zespri kiwifruit with other kiwifruit, there are all the other varieties of fruit available to consumers worldwide. The competition also has the same market research and promotional opportunities as Zespri. The logistics system they are currently using is working, however if they are to expand into providing a 12-month supply of kiwifruit, then they will need to expand their supply chain. Overall, the VRINE analysis shows that Zespri is using their resources to their advantage, and providing they continue to grow as a company and expand their allocated spending in R&D as well as market research and promotion. In continuing both of these activities, the Zespri brand will proceed to flourish in the market.
Value Chain Analysis
Zespri has many primary and support activities that add value to the company. The main primary activities of Zespri include outbound logistics, marketing, and services, and the main support activities include technology development and company infrastructure. These activities are what make Zespri such a successful company.
The primary activities that Zespri has are outbound logistics, marketing, and services. Their outbound logistics activities include warehousing and order fulfillment are managed effective and efficiently since Zespri will cool the kiwifruit to ensure freshness, they are the main exporter of this fruit in New Zealand. In the future the outbound logistics will continue to be excellent and grow and adapt by new technology but they are currently able to successfully move 100 million trays of kiwifruit a year. Marketing is another primary activity that Zespri manages phenomenally, they are able to create market pull due to the strong brand name they have created. They have done this by educating the consumers on their practices as well as investing greatly in many different forms of advertising to ensure customers are aware of the brand.
In the future with their current differential marketing strategy as being top quality, will surely continue to allow Zespri to be successful. Services are another very important primary activity that adds value through customer support. Zespri ensures open communication amongst their customers through call centres and even developed a website so growers could access information specific to their orchards. In the future this importance Zespri has placed on customer service will surely continue to pay off. Since they work closely with retail customers they are able to obtain the long lead-time needed in order to satisfy customer demands. Without these valuable primary activities Zespri would not survive.
The support activities that Zespri has are technology development and company infrastructure. Technology development is a very critical support activity that must be invested in. Luckily Zespri is aware of this and is able to manage it effectively by ensuring growers use best technology and growing practices as well as investing in research in health and nutrition. By doing this Zespri ensures future success due to being able to have proactive growing practices as well as being able to continue to differentiate their product from other substitutions by educating the consumer on the added benefits of kiwifruits. Company infrastructure is another valuable support activity that includes such things as quality management. Quality management is very important since Zespri markets a differential strategy to its consumers on being top quality, this is done by allowing two way communication with growers and retailers. In the future, Zespri will continue to benefit from this strategy since it allows them to have long lead times to adapt their kiwifruit. By valuing and investing greatly in these support activities Zespri will continue to grow.
Zespri has many primary and support activities that add value to the organization due to the effective and efficient management and proactive approach. The main primary activities of Zespri include outbound logistics, marketing, and services, and the main support activities include technology development and company infrastructure. These activities will continue to create value to Zespri into the foreseeable future due to the approach this successful company has taken.
The consulting team needs to focus on the environment in which Zespri operates in order to recommend a plan they can have success with. To properly scan and understand the operating environment, the team performed a PESTLE analysis, industry analysis, a Porters Five Forces analysis, and projected some financial ratios for the company.
Political: Kiwi fruit supply in general is highly regulated and a largely exported commodity. There are stipulations in place for different countries which restrict were kiwi fruit is imported from. An example of this is that China only allows Kiwi’s from New Zealand and China to be sold in its market. This is an upside for Zespri however with their customers consisting of 60 different countries they have to abide by the regulations of of each individual import restrictions. Economic: The economy in this situation is on the rise with demand increasing as well as overall expenditure on kiwi fruit per capita. The kiwi fruit industry has experienced price drops per tray before due to a tremendous increase in supply from world growers and de-regulation of the industry. This being said, suppliers are price takers and can be hurt by demand and per capita expenditure of its customers. Zespri effects the industry the most in an economic sense in that they are the price setters of the industry providing a price umbrella for the fruit thus stimulating the demand that ultimately grows the economy.
Social: Zespri is a conglomerate of growers in New Zealand and inherently reflects the livelihood and well being of the farmers. Growers were issued shares in the company based on their individual production and as their total output directly correlates with their standard of living. Demand and expenditure per capita is increasing around the world as people are incorporating kiwi fruit into their diet. The social impact of supplying Kiwi fruit is huge at this point as it affects the lives of the growers and customers who are demanding more of it. Technological: Innovation in the industry regarding the growing of the fruit is more or less minimal with the exception of purchasing new field equipment. One advantage Zespri holds is the “Zespri System” which garners extreme quality standards and sets their product apart from other industry suppliers. Zespri uses more advanced techniques such as griddling and supplemental pollination to make sweeter fruit and enhance quality. Zespri also provides a unique Gold product that it holds the rights to produce that has is yellow in colour and special to the market.
Zespri has successfully created a different strand of the kiwi fruit and is the only one capable of producing the fruit unless contracted out to other producers. They also have in the works a red version of the fruit which indicates they have created a technological barrier for its competition to create unique products. Legal: A number of legal bodies govern the success of Zespri which sets it apart from other industry competitors. The first major legal aspect is Zespri Group Limited which allocated shares to growers based on their production. They created a legal entity to combat global competitors as a group and not take out New Zealand growers in the process. With Zespri in place, a global marketing effort was put into action as they were able to gain property rights on the “Zespri System” and Zespri Gold products.
This being said, Zespri possesses a legal advantage in quality and product uniqueness that sets it apart from the industry. Environmental: Weather obviously plays a crucial role in production but the main factor in question is the sustainability of the production land. The goal of Zespri is to increase production and sell more kiwi fruit however the production is coming at a cost to the environment. Land usage has increased from 3600 hectares to 18000 in a short period of time due to the fact that everyone wants to share in the success of Zespri. The realization of over farming and lack of crop rotation leads to the destruction of the landscape and the draining of resources in exchange for profits.
Industry: Zespri Group Limited is a exporter of New Zealand’s kiwifruit. Zespri is the leading marketer of kiwifruit worldwide. They use the differentiation strategy by ensuring they are producing top quality kiwifruit. They solely focus on kiwifruit which makes its possible for them to be the best at producing it. They offer Zespri Gold, Zespri Green and Zespri Organic Green and Gold as well as a “value” brand in certain markets. Life Cycle: Zespri Group limited is currently in their maturity stage. There is a lot of other competition out there but they are still turning a profit. From 1979 to 1986 the industry went through rapid growth due to investor interests. Since the kiwifruit industry is currently in the maturity phase of the life cycle there are a lot of government regulations as well as a lot of competition with Zespri.
Porters 5 Forces Model
In order to determine the profitability of the industry we must look at the five forces model. This will determine if there are any threats of new entrants or substitutions, the degree of buyer and supplier power, as well as the degree of rivalry. After conducting this model it should be evident what the profit drivers are. Threat of New Entrants: Threat of new entrants is low due to the established name Zespri has obtained due to their strict standards to produce top quality kiwifruits. Since Zespri implements a differentiation strategy they do not have to worry about being the least expensive in the industry, there are 4 big producers that compete amongst each other. In order to enter the market, the government of New Zealand had a few policies that must be abided by in relations to exporting the fruit. Since there are only 4 main countries that are highly competitive it would be very difficult to enter this industry and strive due to these established names, therefore threat of new entrants is low. Buyer Power: Since kiwifruit is a niche market, buyer power is very high. In order to satisfy the buyers and profit, Zespri and other companies must differentiate their product. By offering quality products, Zespri and its competitors are able to attract and retain buyers due to their excellent brand name.
But because kiwifruit is a niche market you must satisfy the buyer in order for them to pay more then the minimum, which means that buyer power is quite high. Supplier Power: Since there are a lot of suppliers in New Zealand, supplier power is low. Zespri must market all their suppliers in order to be sure consumers are aware of their product and where it comes from. Zespri has high growing standards but due to the ideal climate to grow kiwifruit in New Zealand there are a lot of suppliers, which means supplier power is low. Threat of Substitution: Threat of substitution of kiwifruit is very high. Since this is a niche fruit, many consumers could easily substitute kiwifruit for a different relatable fruit. In order to avoid this occurring, Zespri must educate consumers on the unique nutritional value of kiwifruit and more importantly on how their product has better nutritional value. Zespri has implemented a taste test program in order to attempt to obtain new consumers by slightly modifying their product to fit consumers preferences. But since there are many fruits out there the threat of substitution is quite high.
Degree of Rivalry: Rivalry in this industry is quite high due to the niche market making up only a small portion on supermarket shelves. Since grocery retailers generally stock many different varieties of fruit, kiwifruit is only one of many fruits fighting for space. Competition continues to grow for the kiwifruit industry making it increasingly difficult to gain shelf space in grocery stores. In order to compete Zespri and its competitors must be able to differentiate their product by having a unique advantage. Zespri has been able to achieve this by marketing their higher quality then competitors. Even with this rivalry is still very high so Zespri must continue to find ways to differentiate themselves. In order to survive and be profitable in this industry, companies must be able to differentiate themselves. They must invest largely in educating the consumer on the benefits of their kiwifruit in relation to that of their competitors.
Since buyer power is high for this niche fruit satisfying the consumer is the top priority to obtaining profitability. Luckily both supplier power and the threat of new entrants is quite low so at the moment these are not a concern. Key Success Factors: In order to be successful in the kiwifruit industry there are many areas that must be addressed. Firstly, Zespri and its competitors must market themselves with a differentiation strategy. This is necessary since kiwifruit is a niche fruit that can be easily substituted for another fruit. Secondly, Zespri and its competitors must invest a large sum in marketing their kiwifruit’s unique benefits in relations to their competitors. Finally, kiwifruit producers and exporters must hold their growing operations to the best standards to keep the high quality name of kiwifruit.
The above alternatives need to be weighed in terms of the below criteria before choosing a recommendation. Exports must reach $3 Billion by 2025
Promote future growth which is deemed sustainable
The plan must continue to promote Zespri as a premium brand with positive health benefits Zespri will find the right outsourcing to provide the kiwifruit 12 months of the year
Upon undergoing extensive amounts of analysis’ ranging from Industry, VRINE, PESTLE, Value Chain and Porter’s 5 Forces, our firm recommends Zespri to continue to operate their business as status quo. In doing so, this alternative will minimize Zespri’s risk in day-to-day business operations while allowing them to focus on consistent incremental growth annually. As evidenced by our Porter’s 5 Forces model, Zespri is a unique company that offers a product line different than the main competitors in the niche market. As a result, they have a relatively sustainable competitive advantage from their high-quality product offerings and rare variations of kiwifruit. Additionally, our firm strongly feels that in order for their business to continue to grow exponentially, they must increase their research and development, as well as their global marketing efforts. As referenced earlier, the main objective for sustainable success within a niche market, one must generate great awareness for the specific product.
Although Zespri already bests their main competitors in marketing expenditures by spending 6% of revenues on promotion as opposed to the average of .7%, they can still increase marketing and promotional spending. By increasing their marketing efforts, Zespri will be able to purchase additional TV time, more print advertisements, and launch an online advertising campaign. Overall, by increasing all advertising, promotional, and R&D expenditures, Zespri will continue to have a large portion of the market and keep a leg up on the competition. Additionally, they will continue to experience incremental growth on track with their targeted export earnings reaching $3 billion in 2025.
In order to properly implement the above recommendation, the consulting team suggests both short and long term plans for Zespri to follow, in order to meet the goal of $3 billion in exports by 2025.
In order to implement our initial plan in the short-term, Zespri has to simply continue to maintain their business operations as they normally have in previous months. Since they have established numerous growers in a wide array of locations and in staggered seasons they can continue to operate with no real short-term changes. During the short-run, Zespri will be able to take available capital and invest these funds into various mediums of advertisements. Upon investing in additional television advertisement slots, print advertisements, and hopefully an attempt to launch an online ad campaign, Zespri can continue to grow their brand through strong awareness and an outreach to a broader customer demographic. As referenced earlier, the unique product offerings, the premium product offering, and the niche market they are in can be highly exploitable with this competitive if done properly.
Much like the short-term implementation process, Zespri will sink a larger portion of revenues into research and development. In doing so, Zespri will be able to conduct market research on all levels of operations ranging from product assortment, marketing research, technological advancements, and supply chain logistics. Conducting extensive research in these areas will allow Zespri to gain a better understanding of how to optimally run their company while achieve the largest possible profit margins at an efficient rate.
In the event our initial recommendation does not pan out the way our firm envisioned, we recommend that Zespri liquidate some of their assets to remain profitable. Zespri is consistently experiencing steady growth, and increased competition. However, it would be wise to sell off and/or downsize some of the locations they currently operate in. In doing so, they will have liquidated machinery, land, and a large amount of expenses that each supplier entails. Additionally, although downscaling the size of the business may create added costs logistically, it will allow the firm to operate at a more sustainable margin of profitability. Similarly, liquidating some of the company’s assets will not compromise the competitive advantage they have sustained as a premium growing company from New Zealand.
As an established kiwifruit produce company with unique product assortment, sales will not decline from a decreased scale of operations. Long-term, Zespri may be able to increase suppliers globally. However, in short-term looking towards a $3 billion dollar goal in 2025, it may make more sense to down-size the amount of suppliers and liquidate any available assets. Another last-resort option for Zespri is to issue and sell more shares to growers outside of New Zealand. In doing so, this will create an added interest of the companies success long-term for the farmers and will act as an added source of capital to the company. This share issuance will provide the farmers with an invested interest in the company and create a greater intrinsic value to Zespri for years to come.