Snapple: Made From the Best Stuff in Vietnam Essay Example

for further research, Snapple must examine the facts and make a great decision.

Snapple is an international beverage producer specializing in specialty tea and fruit juice, which are both major substitutes for sugary soft drinks. Due to their convenient and easy-to-find, single-serving bottles, Snapple products are great for individuals who are "on the go" and need to quench their thirst while still searching for a healthy alternative to sodas. Snapple has been very successful in making its name synonymous with healthy drinks that are readily available and conveniently packaged. The brand is available in multiple continents and has a sound base to continue its global expansion with a product that is easily adapted to virtually any culture. Vietnam is a developing country with a growing economy.

Disposable incomes are rising and the Vietnamese government is open to foreign investment. Vietnam's culture continually becomes more westernized as foreign investors come in to operate in Vietnam. As the country becomes more mobile, Vietnam's citizens are seeing their schedules grow more demanding and less flexible than in past years. These busy individuals need nourishment in order to cope with taxing schedules; healthy beverage solutions are increasingly important. Vietnam has a true love for tea, and Snapple can surely provide different varieties that could easily be made available to the Vietnamese population. Snapple's website boasts their international involvement; the company's best interest could potentially be in gaining market share and increasing demand for their quality products in this developing country.

Current Competitive Environment

There is evident competition in Vietnam, however, the market is not saturated, and seems to present a favorable situation. In Vietnam, the culture is based on drinking many varieties of

hot and cold teas including hue, green, creeper, and the originally named Vietnamese tea (Festival & Culture, 2008). As Snapple offers an array of different cold tea drinks, the company would be able to compete in Vietnam's market based on the cultural trends in this country. Another possibility is selling these various teas in tea bags to support the hot tea drinkers market, as well.

The major competitors which are currently in Vietnam are small, local "Mom and Pop" type establishments. This is due to Vietnam's favorable attitude toward local loyalty and the need for fresh ingredients. As a result, these small, local shops still control the market share in the soft drink market (Euromonitor International [soft drinks], 2008). Despite the large market for local distributors, there are some major powerhouse companies that have been doing business in this region. Pepsi and Coca-Cola are the two major foreign companies, while Nectar Trio is the largest local company. Pepsi and Coca-Cola are struggling in this market due to a lack of non-carbonated products; they also struggle because the products are not considered one-hundred percent fruit juice.

Coca-Cola is currently considering pulling out of the market altogether. The only major products that are keeping these two powerhouse corporations afloat are their respective energy drink brands that are presently popular in Vietnam. Nectar Trio is thriving with their one hundred percent juice brands; they hold the majority of the market just behind the smaller local shops. A large factor that hurt the major foreign competitors, specifically Coca-Cola, is their chosen method of packaging. Because of the country's local loyalty mentality, customers and the government prefer that foreign companies use local

packaging plants rather than outside, foreign plants since they account for a large part of Vietnam's economy (Euromonitor International [soft drinks], 2008).

Vietnam is slowly progressing towards westernization. Sales are shifting to convenience stores and hypermarkets in order to satisfy the new "on-the-go" living trends and to take advantage of increasing disposable income throughout Vietnam. These factors give Snapple a reason to sell their products in convenience store-type locations; Snapple can also take advantage of the country's desire for fresh ingredients. Past sales figures in Vietnam validate this trend; in 2004, sales of all soft drinks grew in terms of volume and value by seven percent. This figure has steadily grown, reaching a growth rate of twenty percent in 2007. It is estimated that health and fruit drinks-falling into Snapple's category-accounted for nine of this twenty percent (Euromonitor International [soft drinks], 2008).

Global trends point to Vietnam as a major region of growth. Just in 2007, the global soft drink market grew by 2.5 percent. The global soft drink market is increasing in 2007 at a rate of 2.5 percent, much lower then the twenty percent in Vietnam (Industries, 2007). Experts also believe that future major areas of growth in the next five years include these five areas: Pakistan, India, China, Indonesia, and Vietnam. Vietnam is not only growing currently, but is expected to grow even more in the future. In addition to Vietnam heading the overall growth in the soft drink industry, the soft drink market is suspected to grow globally by five percent in 2008, double the 2.5 percent in 2007 (Soft Drinks Market, 2002).

Based on these figures and by understanding the Vietnamese culture and

their current wants and needs within the beverage market, Snapple needs to explore and jump into the market. Snapple provides a product that only one competitor in the area can compete with, Nectar Trio; this company is much smaller with limited resources for adaptation. Major companies like Pepsi and Coca-Cola do not provide a product based on the needs of the Vietnamese public. Snapple can provide the on-the-go product that the population has recently desired with the fresh ingredients that are so important to the culture. With Snapple's size and capital, the corporation could easily take the lead of the beverage market in Vietnam.

Market Potential

The country of Vietnam absolutely has a high market potential for Snapple. The following are the macro indicators for Snapple entering in Vietnam (Central Intelligence Agency, 2008):

•  Target Age Demographic: 15-64 years (68.6% of the total population)
• US Target Age Demographics: 15-64 years (67.1% of total population)
•  Population Density: 261.3 people per square kilometer
•  US Population Density: 30.92 people per square kilometer
•  Literacy Rate: 90.3% for ages 15+

Because Vietnam is very crowded compared to the United States, Snapple would be able to reach a large number of people in a smaller area. With such a high literacy rate, Snapple can continue to market its product in a humorous way with the "Snapple Real Facts" (Real facts, 2008). The "Snapple Real Facts" are trivia found under the caps of the bottle. Each piece of trivia has a number that the consumer can reference on the Snapple website.

The official language of Vietnam is Vietnamese, while English is still widely spoken throughout the country (CIA, 2008). The US has a trade agreement with Vietnam

called US-Vietnam Trade Agreement, which will make trading much between the two countries (CIA, 2008). The climate of Vietnam will also impact Snapple. In warmer climates, people tend to consume more beverages than people in colder climates. Luckily for Snapple, the climate in Vietnam is tropical in the south and monsoonal in the north. Vietnam also experiences a hot, rainy season and warm, dry season (CIA, 2008). This type of climate is positive for Snapple's sales.

Macro indicators would also include the GDP per capita, which for Vietnam is US$2,600. Vietnam's GDP, compared to the United States US$45,800, is extremely low (CIA, 2008). This means that many Vietnamese people would not be able to afford the beverage or at least make repeat purchases like Americans do. Snapple could lower the product's price, which would make the drink more affordable, but may not generate the necessary sales. Another issue is that 14.8% of the population in Vietnam is below the poverty level (CIA, 2008). However, Snapple can adapt to this statistic by modifying the product.

There are also many micro indicators that factor into the market potential for Snapple in Vietnam. Beverage and food manufacturing is one of the largest industries in Vietnam (Vietnam, 2008). Snapple can benefit from this by manufacturing the products in Vietnam. Vietnam is one of the major producers of tea in the world. The people of Vietnam are also major consumers of tea (Tea Marketing Research, 2008). Snapple's products mainly consist of different flavors and varieties of tea; Snapple's sales would be positively affected by penetrating the tea market in Vietnam. Tea is a beverage that is commonly consumed around the world. Vietnamese

could benefit from Snapple products because the rising competition for an "on-the-go" product is low when it comes to tea.

Vietnam's freshwater withdrawal is another helpful micro indicator. In Vietnam, the freshwater withdrawal is 71.39 cubic kilometers (CIA, 2008). Therefore, Snapple does not have an extreme amount of fresh water at its disposal. The freshwater withdrawal also shows that there is a high level of contamination in Vietnam's water system. This is an advantage to any corporation offering bottled drinks in the country. The transportation system in Vietnam includes (CIA, 2008):

•  44 airports
•  2,600 km of railways
•  222,179 km of roadways
•  3 ports and terminals: Da Nang, Hai Phong, and Ho Chi Minh City

Although the Vietnamese are large consumers of tea, the country is also a large exporter of tea as well. The chart below has the output and export totals of Tea in Vietnam (Future Generation Company, 2005).

The chart shows an obvious increase in the trend, with a slight drop from 2004 to 2005 in both the Output and Export categories. Tea is in demand throughout the world and Snapple definitely has the potential to turn a profit in Vietnam.

Competitive Advantages

After a revamping of the ad campaign, Snapple's advertising budget grew to $65 million. Firms like Unilever and Coca-Cola flood the advertising scene in Vietnam with budgets of US$30 million. This shows that smaller advertising firms and corporations in Vietnam have low budgets; budgets that Snapple is more than able to exceed. In Vietnam, 80% of all advertising is conducted by foreign firms. According to author Vu Long, "only 5 of Vietnam's 20 top domestic advertising companies are domestically run-- Dat Viet, Goldsun, Vien Minh

VMC, Youth, and Mailing". The International Directory of Company Histories (1995) describes Snapple's entrance into foreign markets with the following:

In addition to its efforts to expand domestic distribution, Snapple also began a push to sell its products in foreign markets in 1992. As the first step in this effort, the company began distributing its drinks to American military bases around the world. By the fall of that year, these moves had started to show fruit, as Snapple pulled ahead of Nestea to become the leader in the ready-to-drink iced tea market, earning 30 percent of all sales for the first eight months of the year.

This shows that Snapple not only has a way of entry into a foreign market but that it can also be resourceful and creative about market entry. Snapple also has more than 15 years of experience in foreign markets.

Snapple has been in the fruit juice and tea production business for 36 years. This not only has given Snapple the experience in domestic and foreign markets but has also helped them develop new products and have pricing leverage for existing products. Snapple products are generally single-serving and priced a bit higher than the average single-serving beverage. For instance, in the first ten years of operation, Snapple priced beverages at about US$1.00 per bottle. This has not changed; A Snapple bottle in 2008 costs about US$1.29 per bottle while competitors like Lipton sell for $1.19 (Shaw, 2008). With the rising disposable income in Vietnam, Snapple will be able to take advantage of the "luxury" category for its tea and fruit juice products.

Especially in central, urban areas, consumers are now buying products that are

convenient and could be considered small luxuries. Because people are buying more, the interest is growing in many different markets, including the soft drink market, which has become much more active in recent years (Euromonitor International [soft drinks], 2008). "Per capita, disposable income rose from VND3.7 million to VND5.5 million during 2000-2006" (Euromonitor International [Vietnam], 2008). Snapple's long-time existence in the market and "luxury" image to some give Snapple an advantage in Vietnam.

Snapple has many competitive advantages in foreign markets. Not only is Snapple a producer of fruit drinks, but they also produce many types of teas. In Vietnam, the drinking of tea is extremely important. People drink tea at many different gatherings, including business meetings, funerals, weddings, etc. This gives Snapple the perfect entrance into a new foreign market. Similarly, tea drinkers in Vietnam do not use additives such as milk or sugar in tea. Therefore, the tagline, "Made From the Best Stuff on Earth," which exhibits the purity of the product, will appeal to consumers who do not use or want additives in their tea (Haivenu, 2002). As tea is already a very popular and culturally significant product, Snapple will have no problem appealing to tea drinkers.

Greatest Difficulties and Problem Areas

Some of the greatest difficulties Snapple will face when introducing products in Vietnam deal with the current economy in the country. The per capita GDP is only US$2600.00; even Cuba is higher with a GDP of US$4500.00. Vietnam's unemployment rate currently stands at 5.3%. As a comparison, China's unemployment rate is 4%, while the population is over 1.3 billion. Inflation in Vietnam is also very high, comparing unfavorably to Snapple's other markets such

as the U.K. at 2.3%, China at 4.8% and America at 2.9%. Based on these statistics, Snapple will need to adjust the product's price in Vietnam (CIA, 2008).

Even though Vietnam's economy is fairly weak on a global scale, Snapple will still be able to be successful in this regional market. Snapple will be able to succeed due to the preexisting popularity of tea in Vietnamese culture. In fact, green tea is very commonly served at the beginning of every meal in restaurants around Vietnam. To highlight the need for Snapple to enter the Vietnamese market, the country must import over 100,000 tons of tea each year due to its small local supply (Vnn.com, 2008). The variety of tea is very scarce within Vietnam. As green tea is the most commonly consumed and produced, the need for other flavors and varieties is satisfied by outside producers.

This leads to the question of adaptation for the Snapple product: should the company consider adding a few new flavors of tea to the Snapple line for the market or simply advertise the current flavors of Snapple? Americans can choose from a variety of different Snapple flavors, from white to green to black teas, the Vietnamese may have different tastes in teas. They prefer not to use additives, such as sugar, unlike Americans (Haivenu, 2002). They prefer fresh products rather than preservatives and artificial flavorings (Euromonitor International [soft drinks], 2008). One way to test out this market is to offer many teas at first and cut back when one variety proves unfavorable.

With Vietnam's increasing westernization, which supports individual freedom and better education, the Vietnamese are more inclined to desire success and

wealth (Vietnamese Culture, 2000). This supports the rising disposable income, despite its low ranking on the global scale. While all of these factors work in favor of Vietnam's economic stance, the difficulty here will be deciding a price scale relative to income, westernization, and inflation.

Although the Vietnamese culture is slowly transitioning to a more westernized culture, people still hold family values as a high priority; this is illustrated by the fact that the entire extended family lives under one roof. Daily, there is time set aside for drinking tea together as a family. Should there be an unfortunate death in the family, tea drinking is one ritual that the living family members carry out during the course of the funeral (Haivenu, 2002). Due to the previously discussed issues, Snapple will have to fully incorporate the production of hot tea bags into its product line for this market. Snapple does not currently carry a wide range of hot tea bags; four different kinds of hot tea bags were introduced in 2006 (Weston, 2006).

As Vietnam has a widely popular packaging and labeling industry, both residents and the government oppose outside or foreign production. If we choose to produce outside of the country, it would be to Snapple's benefit to package and label the products within Vietnam in order to avoid governmental barriers to entry. This would also play favorably towards the Vietnamese consumer, whose economy is greatly influenced by the packaging industry (Euromonitor International [soft drinks], 2008).