The Incorporation of Maltmen in Glasgow Assignment
The Incorporation of Maltmen in Glasgow:
The Sustainability of MacB’s Global Value Chain
1. Provide an overview of the value chain activities and stakeholder involvement
2. Discuss key contemporary issues and barriers, either economic, environmental or social the company faces
3. Identify potential value chain upgrading opportunities (practical recommendations for the company)
MG316
Word Count: 2429
Rebecca Mason | 201705979
Abstract
This paper will introduce Scottish flavoured water manufacturer and brand, MacB. Several key issues and external factors are brought to light. From the pressures placed on the drinks industry by the Scottish Government, to the power of elements of the Global Value Chain including consumers and retailers many key forces must be taken into consideration. The central issue of sustainability is discussed throughout, encompassing the social, economic and largely environmental features within the GVC. Key aspects of Global Value Chain theory are used in the discussion of MacB and considers the favourable aspects of the business as well as the vital modifications which may possibly be made. Other academic literature and theory surrounding, PEST analysis, Freeman Stakeholder approach, Porter’s Generic Value Chain, as well as Value Chain Upgrading will be used to outline the sustainability of MacB’s supply and distribution to consumers.Overall it is then recommended an upgrade which MacB themselves can make in order to combat the previous issues, barriers and external factors. This comes in the form of a functional upgrade by making changes to the existing product and introducing it to a different segment of consumers. This will consider the positioning of the product, the improvements necessary and the ways in which it will be distributed to consumers. The overarching message to be in the consideration of the environment and the needs of the customers themselves.
The rediscovery of a well in the heart of MacDuff in 1996, a source of natural Scottish water, saw the creation of MacB. With the addition of real fruit flavourings and sweeteners, a range of primarily still water drinks was created, which reputedly rivals the very best mineral water drinks in the UK (MacB. 2019). The biased view of the Scottish being that the best water in the world is that of the Scottish Highlands (Visit Scotland, 2019). One key unique selling point of MacB’s products is the zero-sugar claim. This placed them in a good position when the sugar tax was enforced in Scotland in 2018 (NHS Scotland. 2018). One of the key drivers behind the sugar tax is the Scottish Government’s wish to reduce child obesity and therefore lower the volume of preventable conditions such as diabetes in Scotland (Scottish Government, 2018). It is with factors like these that many companies must continually assess their macro-marketing environment and strive to keep up to date with the latest tastes and trends of their market. With this social factor in mind, MacB, despite being a healthy alternative, still lose out against many large competitors. Therefore, demonstrating the need for a constantly changing business goal and marketing objectives. This piece will introduce the value chain behind the Scottish company MacB, and the many stakeholders and customers they must adhere to. Following on, it will then look at the current issues and barriers this company face, in terms of the strong competition, as well as current economic and social factors playing a key role in the changing industry, using the PEST analysis framework. Overall it will then be suggested as to the future potential of MacB and the necessary action to upgrade their value activities to compete within the drinks industry.
As discussed by Strange and Humphrey (2019), the Global Value Chain (GVC) offers insight into many stakeholders, as well as the wider economic situation of a company in the current market. Porter’s Generic Value Chain outlines the five primary activities businesses carry out alongside four supporting activities (Ensign 2001). These consist of inbound and outbound logistics, operations, marketing and service as well as procurement, human resources, technological development and infrastructure for support (Appendix A). Porters theory will here be used to demonstrate the key roles within MacB’s Value Chain.
The key aspect of this for MacB are inbound logistics and operations, consisting of the suppliers and the manufacturing of the product itself (Mozota, B. 2010). Much of the MacB product range comes from the North-East of Scotland within their own factory in MacDuff where they source the spring water (MacB. 2019). This is then combined with natural fruit flavourings, sourced from overseas. Refresco Beverages (2019), claim to source only the best produce and with truly ethical suppliers. Within their factory they not only source and manufacture the product, but bottle and label it (MacB. 2019). This demonstrates the lack of key players, as MacB carry out the process themselves, and therefore minimise any supplier discrepancy.
This follows on to the Freeman stakeholder approach which introduces a four-step process in identifying stakeholders, determining importance, assessing needs and rectifying issues (Merrilees, et al 2005). The first vital stakeholder are distributors who are somewhat considered customers, consisting of wholesalers such as Brakes and Booker which buy in bulk and distribute across Scotland to schools, hotels and various SMEs (Brake. 2019). Additionally, retailers including the Big Four supermarkets such as Tesco play a key role (MacB. 2019).Reimann and Ketchen (2017) discuss an unhealthy balance of power in the supply chain when smaller manufacturers sell through retailers. This is mirrored in the case of MacB as they hand over the power in product display and sales to the retailer. This has been further discussed by Porter in 1974 and is still relevant today, in his suggestion that the performance of companies within the manufacturing industry is very much at the mercy of the retailers in which they sell through (Porter, 1974). This is minimising the control in the positioning of MacB water and could be restricting their success. Following on is the secondary customer of MacB, the people of Scotland, who hold strong power in decision making, preferences and tastes. This is supported by Jackson (2001) where it is suggested that alongside managers and employees, customers have the most control within a business. As well as regular customers, another stakeholder to be considered is the B2B supply. Every school, pub, hotel or café for example, who purchase MacB are stakeholders and a valued part of the GVC as they can choose between an extensive range of competition.
A last key stakeholder in all businesses, particularly in the food and drink sector is the Scottish Government. As discussed previously, the Government are introducing many legislative terms which affect the companies in this sector (Scottish Government, 2018). MacB are currently appeasing this stakeholder as they offer zero sugar drinks in a bid to help improve public health as well as efforts for reducing carbon emissions, however more changes will arise (MacB. 2019). This demonstrates the changes a company such as MacB must make in order to comply with the Government. From changing products in order to comply with regulations, to introducing a new flavour for the customer segment, nearly everything MacB does is for elements of this value chain.
Much of the key issues and obstacles which MacB contend with can be categorised into both economic and social factors, both well-known aspects of the PEST analysis (Gupta, 2013). The social factors include customer trends and tastes, often coinciding with Government movements and industry patterns. This, in turn, affects the company economically in terms of the overall success and profits of an organisation as well as its competitors.
The first clear issue for MacB arises from the stakeholders discussed; the Government and the people of Scotland and their drive for sustainability and green products. This is supported by research carried out by OnePulse which combines UK and USA responses noting that ‘88% of consumers’ want brands to provide them with the capability to make better choices in their purchasing (Townsend, 2018). Eco-friendly processes are a difficulty for MacB with their Green Pledge to minimise transportation, as fruit flavours which are demanded by consumers cannot often be found within the climate of the North-East of Scotland. The strawberries, apples and raspberries are among the only fruit which MacB can aim to source within Scotland (NFUS. 2019), whereas flavours such as peach, lemon and lime and kiwi are hard to guarantee. Another aspect within their Green Pledge is lowering non-sustainable plastic in their processes (MacB. 2019). This is equally a focus of the Scottish Government as well as the consumer base of MacB. Recent news and social media focus heavily on the necessity of reusing items, saving our oceans and recycling, aided enormously by influencers such as Greta Thunberg (Murray, 2019). This demonstrates the environmental issues which MacB face as well as socially as customers adopt eco-friendly purchasing habits.
The next obvious obstacle for MacB, is the sugar tax and healthy eating drive of the market. The Government, as mentioned, has legislation in place to reduce childhood obesity (Scottish Government, 2018). This is reflected in the sales of MacB as it targets primarily children. As discussed by nutritionist Karen Appold (2011), many children choose flavoured water as they may not be allowed sugar filled soft drinks and equally do not enjoy the taste of water. However, the barrier here is equally discussed as it is suggested that children will copy parents. Therefore, the difficulty for MacB is that adults and many children would still prefer to opt for a soft drink such as Coca-Cola, Fanta or Oasis despite the sugar content. This equally shows that although children may be the market for MacB products, they may prefer a soft drink over the flavoured water and wish to mirror their parents.
This ties into the economic factor of competition for MacB, currently sitting heavily among other flavoured water products such as Volvic – ‘Touch of Fruit’ (Appendix C). This is supported by Rani et al (2012) which shows that flavoured water was introduced to encourage people to drink more water and as a healthy option instead of soft drinks. However, due to a lack of effective marketing, flavoured water such as MacB is yet to be considered an alternative as many consciously choose higher sugar drink options. This is clearly outlined by Simpson (2018) where it is discussed that despite the overall rise in flavoured water sales as a result of the sugar tax, high numbers are still reaching for full sugar and carbonated drinks whilst on-the-go. This shows that although many may choose to purchase multi-packs of flavoured water for the home or for children, they are still purchasing high sugar drinks as a ‘one off’ refreshment. In addition to this, it is also apparent that despite being a Scottish product, they must contend with not only other Scottish and British competitors such as A.G Barr, but also Global ‘Mega-Brands’. This is discussed, as internationalisation and the simplicity at which products can be shipped from country to country, has resulted in the domination of global brands such as Coca-Cola (Banutu-Gomez, 2012). This demonstrates an issue for MacB as they must do more to compete with rival flavoured water products as well as with the wider soft drinks industry.
In the discussion of Global Value Chain theory, there are suggested to be four ways a business can upgrade. These include process (cost and efficiency improvements), product (new innovations or development of current products), functional (adding new functions or appealing to a new market) and chain (moving new products to different markets) (Blažek 2015). It is here recommended that MacB upgrade functionally, by offering the same product to customers in a different way, thus attracting a new bracket of previously untapped consumers.
As discussed throughout it is clear there are four overarching issues which the company MacB face with its flavoured water product. This includes; the target market currently based on children, the sugar tax and the fight to be compared against global high-sugar drinks, lack of full control due to retailers and the environmental impact of carbon emissions and single-use plastic. The recommended upgrade necessary to address these issues and barriers is for MacB to offer a premium, rebranded version of their product in a glass bottle, promoted through many local cafes and bistros in Aberdeenshire.
The first aspect of this upgrade is in improving the packaging to offer a more premium, high end result. This is achieved through the glass bottle and more sophisticated branding to attract the market of adults looking to opt for a sugar free drink for its healthy but also flavour benefit. This will result in an additional competitor base for MacB as they are then up against premium soft drinks such as San Pellegrino and Appletiser (Appendix C). This is reflected in Fentiman’s (2019) Market Report showing that 11.5% of the soft drink market is now dominated by premium brands. This shows the obvious existing market for MacB to expand its product portfolio to not only offer kids juice but also a premium adult drink which is low in sugar. The second aspect of the upgraded glass bottle will help the company to reduce the volume of plastic which it distributes around Scotland. Many rivals are equally swapping to glass alternatives to reduce the single-use plastic of this generation. Despite uncertainty around glass from the Green Alliance (2019), it will help to limit the plastic crisis now and will offer a widely recycled glass option for its customers. This not only aligns with the premium look of the product, as shown in Appendix C, Appletiser and many other new competitors use glass, but also considers the current consumer view towards plastic bottles.
The next aspect of the new strategy for MacB is in selling through local cafes in Aberdeenshire. This strategy can be found in literature surrounding new product development as by releasing the product to a market in close proximity, the company have a greater understanding of their needs and wants (Mosey, 2005). This is equally supported further in the suggestion that companies should release a product to a smaller set first before developing it for larger market potential. This is ideal in the case of MacB as it allows them to have a greater control of their product in its placement and positioning in the eyes of customers. By selling through local SME’s they have a greater power than previously through large retailers. Following closely on from this, the distribution of the upgrade is ideal for MacB as it is within their plan to keep distribution emissions to a minimum as they are targeting cafes within the Aberdeenshire district near to their factory in MacDuff. In addition to this, there is a clear gap in the market in terms of selling through cafes and family-run SME’s. In researching the stock of small-upmarket cafes, it is clear they often stock kids’ juice such as cartons, plain bottled water, or up-market and expensive drinks such as J2O alongside high-sugar smoothies and milkshakes (Appendix D). In offering MacB glass bottles, they would be providing a drink for both children and adults, a low sugar and non-carbonated alternative as well as a local business which is environmentally conscious and promotes good health. This demonstrates the ideal gap in the market which MacB could fill with their pre-existing product.
Overall the aim of this GVC upgrade is to improve the image of the MacB brand and its products. They face many obstacles in the current market as outlined with Government pressure and legislation as well as consumer tastes and strains in the supply chain. With this in mind, MacB must make a change and should endeavour to grow and position themselves well within the highly competitive drinks industry in Scotland. In encouraging an adult base to consider their drinks as a viable alternative, they may improve the likeability amongst children and therefore encourage all to choose the no sugar replacement. In keeping their child-friendly option in combination with their premium adult extension, they can open themselves up to a wider market and more chance of success. In turn, combatting the previous issue of the global brands such as Coca-Cola being the go-to drink. This will equally promote a better image and future for the soft-drinks industry as if still, sugar free water can become a hit, the environment, as well as people’s health may be a lot better off.
Appendices
Appendix A:
Porter’s Generic Value Chain
Source: Ensign, (2001).
Appendix B:
Freeman Stakeholder Approach – Key Players
Source: Merrilees, et al (2005).
Appendix C:
Table of Key Competitors Before and After Upgrade
Existing Competitors – Flavoured Water |  Volvic – Touch of Fruit |  Supermarket Brand Water |  Juicy Water |  Fruit Shoot |
New Potential Competitors – Premium Soft Drinks | J2O |  Fentimans |  Appletiser | San Pellegrino |
Source: Primary source created using Mintel (2019) Industry Reports.
Appendix D:
Example Soft Drinks Fridge in Local Café.
Source: Café Espresso (2019).
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