Zespri Group Limited is a grower owned main exporter of New Zealand grown kiwi. New Zealand was the world’s third largest kiwifruit producer and held a 30% share of the global trade market. Zespri had experienced strong growth in Asia where consumers were willing to pay top prices. Zespri had strict growing standards, quality control systems and invested in consumer branding and innovation. Kiwi fruit came to New Zealand in 1904, it was discovered that the monotonous soil and temperate climate produced high yields of large fruit, which once harvested in the fall ripened over a long period of time in the winter. With increased production, growers needed to find new markets to sell their kiwifruit. In the late 1970’s commercial growing started in Italy, France, Japan, U.S., Chile and several other countries. Since 2000 the world production of kiwifruit had increased by 75%. The four largest producers of kiwifruit in 2010 were China, Italy, New Zealand, and Chile.
Zespri’s Objectives:
Zespri was the leading marketer of kiwifruit worldwide and there main objective was to maintain its leadership position and to meet Zespri commitment to increase New Zealand’s kiwifruit exports to $3 billion by 2025. In order to do this there global sourcing needs to triple in size. Another one of Zespris goals was to help growers adopt the best technology and growing practices. Zespri focused mainly on growing great tasting, healthy, growing the number of people around the world who regularly enjoy kiwifruit and growing return for kiwifruit growers. They worked to be able to predict the volume and attributes of the kiwifruit so that they can develop a plan including timing of shipment and allocation to specific markets. Zespri worked with distributers and directly with retailers in large markets, they strived to form long-term relationships with customers who are willing to push New Zealand fruit.
Key Issues/ Challenged Encountered: The kiwi industry as well as Zespri as a company experienced several challenges. In 1992 for all fruit due to a fruit glut in Europe, in 1993 New Zealand growers received 40% less than the year before. Zespri was not able to increase sales in some parts of the world such as India and Indonesia, which have to of the largest populations in the world and only consumed one gram and four grams respectively. New Zealand also wasn’t able to import kiwifruit to China due to the various trade barriers, which greatly affected their sales in 2009.
Zespri was working towards finding a bite sized kiwifruit that could be eaten whole, skin and all, and could store well through the supply chain. One challenge in this development was that kiwifruit production was small and or fragmented in most countries making it difficult to fund the lengthy and costly process of new cultivar development.
Zespri’s Strategies:
An essential part of Zespris job was to understand and respond to differences between markets. Markets varied in retail structure and growth potential, as well as in consumer behavior. An analysis of strategies used in the Zespri case can be determined through an internal and external analysis.
Internal Analysis can be described using the VRINE model:
Value - Zespri has many sufficient resources that allow them to create market demand along with value. The global market for Zespri’s kiwi has increased global demand due to its nutritional properties and distinct taste. In order to be dominant and succeed, your product needs to generate value and due to these various properties it has created an increase in the value for their kiwi fruit. The growers in the New Zealand environment have an advantage over other growers in producing quality products because the New Zealand environment benefits the growers by providing them with the basics on how to produce the best product. Zespri’s only focus is on the kiwi fruit, since it’s their only product, allowing them the time to concentrate and perfect the fruit. Since this kiwi fruit has so much value, its leads to international market value because other countries such as Japan, Korea, and China are willing to pay a premium price for this quality product.
Rarity - Zespri and other producers serve a small niche market due to a specific fruit focus. Zespri has a unique location therefore increasing the rarity of kiwi. The New Zealand government is protecting the kiwi fruit market because they are in the process of eliminating competitors and putting Zespri in a competitive advantage because they are putting a regulation on export activities reducing the number of exporters to six.
Inimitability - Zespri has proven to obtain a sustained competitive advantage for their company. They have created a strong brand image, which is a key factor for a company. They have created a global sourcing to continuously maintain and supply kiwifruit all year round. Due to Zespri’s strong marketing strategies, they have made it very difficult for any competitor to imitate their product. Zespri’s kiwifruit is globally known as the world’s finest due to their marketing skills and efforts. Zespri has separated themselves from all competitors because of their strong brand image.
Non-Substitutability - Zespri competitor’s, Turners and Growers, from Italy and Chile are developing their own kiwi fruit for a cheaper price. To eliminate the threat of competition, Zespri decided to expand their kiwi fruits to Zespri Green, Gold, and Organic. Hopefully this will help them minimize the problem of substitution. Since Kiwifruit is the only product they sell they have the ability to perfect the fruit as they manage, and maintain the standards of quality, food safety, and sustainability to differentiate themselves from their competitors. Due to their distinctive features, such as antioxidants and vitamins, Zespri has the ability to differentiate them from competition and it also protects them from competitors substituting their product.
Exploitability - Zespri has done a very good job of exploiting business opportunities for bigger profits. They are taking advantage of having a competitive advantage and are marketing their product through medium call centers, websites, monthly newspapers, and journals. They have taken the necessary steps in becoming a strong brand with excellent qualities because they strive on building long-term positive relationships with their consumers as well as suppliers and distributers. They also allow the growers to go to the market to brand their products. Zepri is trying to build partnerships with suppliers from Italy, France, Japan, and Korea in order to create their products all year round.
External Analysis can be determined by using Porter’s five force model:
Threat of new entry - To dominate this industry, a company needs to learn how to strictly manage, and maintain the quality of kiwifruits. Zespri has done the marketing and executed their strategies to the best of their abilities, making them become established and making it difficult for others to penetrate into the industry. New Zealand’s government is also protecting Zespri’s kiwifruit exporters. They want to make it difficult for new entrants to do business in their already established industry.
Supplier power - The power of suppliers is less due to the large amount of growers in New Zealand for this particular market.
Threat of substitutes - There are many competitors creating a product to compete with Zespri’s Kiwifruit at a cheaper price making the threat of substitutes high, but Zepri’s kiwi fruit contains great health benefits and it is also classified as an exotic fruit. With these key essentials, Zespri has the ability to reduce the threat of substitutes if they market their product based upon their advantages, attracting the attention of their customers.
Buyer power - The producers of kiwi fruit has found different markets where they can export kiwi in several different countries due to the growing demand. Due to the fact that there are several cheap fruits in the market, it has made competition intense also making the buyer power moderate. In order to achieve this goal and dominate the entire market, Zespri should segment their target markets so that they can dominate each country one at a time.
Rivalry - Competition is increasing and other exporters around the world are starting to improve the quality of their fruits and lowering the price. If Zespri doesn’t continue to be leaders in the industry they will start to incur big losses because as of right now Zespri’s differentiation strategy has provided them with the top spot in the fruit industry. Zespri has established their brand as the world’s finest, this allows them the competitive advantage over others and makes it tough for new entrants to compete. In order to remain at the top they need to maintain their brand image. Zespri needs to remain a leader for the industry and continue to grow their brand globally. They need to continue to strictly manage, maintain the standards of quality, food safety, traceability and sustainability in order to set their product aside from other competitors and exporters. Since Zespri’s kiwi fruits are known as exotic and contain great health benefits, it allows them to market their product based upon those criteria.
Zespri can develop long-term relationships with their customers who are willing to push New Zealand fruit further simply by being strategic leaders, the industry has to communicate with their customers and listen to what they have to say. Customers like to have a good sense as to where the company is headed and how they will achieve their goals. Customers want to see value in a product and Zespri has managed to do that through several ways as mentioned above. Zespri is loyal to there customers; they have an established brand with strong credentials and have been continuously growing their business. Long-term relationships are based on trust and loyalty, which is exactly what Zespri is striving for.
Zespri’s Marketing:
The Zespri Company produces and ships premium made quality New Zealand kiwis all around the world. Their market is massive ranging and reaching all 6 continents, from the busy streets of Tokyo to the warm beaches of Argentina. Zespri however deals with different consumer with different preferences. Zespri has different markets based on region to greater represent the attributes attractive to selling kiwi in that area. What makes things more complicated is that Zespri doesn’t just sell normal green kiwis they also sell premium yellow kiwis and organic ones. This product mix means you must know your clients preferences and maximize your effort to fulfill them. As mentioned in the case consumers from Japan tended to be drawn to the "beauty of the kiwi" and their purchase was largely superficial based, meaning that yellow kiwis tended to sell better than their green counterparts. Contrast this to the Europeans, which primarily were focused on the nutritional benefits of the kiwi rather that its look, leading to green kiwis not being marginalized like in Japan. This is different from Chinese marketing, which shows the benefits of feeding kiwis to your children so they will grow up healthier. Organic kiwis would sell well in China as they are seen as more natural and therefore healthier. Zespri is very aware of the promotion aspect of the 4P's in marketing. This promotion comes at a cost from $60 000 to $100 000 in research just to see why customers bought a product in a given region. In addition to the surveys Zespri has a mass media effort to display their brand. Store displays, digital media on the side of Shanghai taxicabs, and television commercials are just some of the tactics used to bring across the Zespri message of kiwi consumption around the world. This delivery system combined with regional preferences in advertising content creates effective spearhead capable of not only expanding in current regions but also penetrating new untapped markets. Although Zespri ships kiwis to customers all around the world that doesn't necessarily mean that all of its markets are equally profitable. Zespri's top markets are Japan, Spain, Korea and Germany. The regions of Europe and Asia are well represented but market share in the Americas is lacking. Both in North and South America, Zespri presence is nowhere as strong. The market for these regions could be weak relatively as a result of the Chile kiwi exports. As mentioned in the case Chile is a very large producer of kiwis and a large competitor for the NZ kiwi. This is the result not only of geographic location but also of price, as the cost of business in Chile is relatively cheap on a world scale. This in turn allows the Chile kiwi to undercut the price of the NZ kiwi and hold the budget conscious consumer market. Zespri has always been a luxury brand choice of kiwi, operating on quality. Zespri might find success in marketing their kiwis as unique and the superior alternative to Chile kiwis. Branding and advertising would be based towards consumers with moderate to large incomes with the majority of advertisement being in store tastings. As mentioned in the case these store tastings can increase sales dramatically and hopefully create a strong base of consumers. Also these customers could themselves taste the difference between the Chile kiwis and NZ kiwis, hopefully making the choice to go for the higher quality NZ kiwis. This strategy would be similarly implemented in North America but in addition to the in store tastings a large television, online media advertisement campaign would unfold. The major challenge in this region is again competing with the Chile kiwi but unlike South America, North American consumers tend to be wealthier and more willing to pay for organic foods. Zespris marketing budget is greatly larger than other fruit growers as a result of their product. This is an effect of NZ kiwis being a very niche product. A lot of information has to be presented to the consumer before they would consider buying a NZ kiwi. In a situation in which you cannot beat your competitor in price you must battle in the arena of quality, this is a battle that Zespri wins every time. But this is only successful if the consumer knows about the benefits of their product. Given a consumer who knows nothing about kiwis with the choice of a 1$ kiwi and a 1.50$ kiwi, the $1 kiwi will be chosen based on the price because to the consumer price is the only difference. With good marketing an informed consumer filled with knowledge of the higher quality better tasting NZ kiwis are perfectly okay paying a little more because they know the benefits of spending the extra money. Through careful research Zespri is able to study regions and tailor advertisements accordingly. Exposure in these regions in turn drives sales over their competitors. This process isn’t cheap and requires quite a bit of resources but it is important for the market position they are in. The marketing budget may be high but it seems like Zespri’s investment isn’t wasted.
Financial Analysis: The kiwifruit industry is a very competitive and demanding industry, with only a few large players creating an oligopoly. Italy held top spots from 1997-2000, followed by New Zealand, then China, and Chile close behind. But in 2007 onwards to 2010 China has quadrupled its growing capacity, taking first place, with Italy just behind, then a large gap for third with New Zealand holding that spot firmly with Chile still in fourth. New Zealand may not have the highest production levels, but the quality of the fruit that Zespri produces for worldwide consumption still gives a competitive advantage over any other global producer. New Zealand's industry performance is rising consistently every year, with their revenues increasing by roughly 43% from 2005 to 2010, which is due to the creation of their gold kiwi product lines, which is in high demand worldwide. Even with gold in high demand, currently supply cannot keep up with consumer demand. Year after year, Zespri has positive outlooks in regards to its balance sheets, overall assets have gone up, but as of recent, so have their liabilities, accounts payable in particular, once that account is null, or at least cut down they can advance forward at an increased pace. In the fruit growing business, margins and returns per area of land are key. Since 2001, average orchard gate return per hectare of both green and gold kiwifruit has increased in a consistent and favorable manner, with gold being produced in much smaller, yet more demandable quantities, the gate return of gold has exponentially increased since 2001. Green kiwi being the basic staple of the fruit species has much more growing capacity, but much lower profit margins due to commonality with any other globally sourced green kiwi. New Zealand grower performance is showing a positive pattern, the amount of hectares of land devoted to both green and gold kiwi has increased steadily since 2001, as has the level of trays per hectare, with gold surging up in a healthy manner, with green increasing at a less progressive, but still acceptable manner.
Zespri’s industry performance is upward focused; they have been growing steadily, producing new innovations, from kiwi species to global grower expansion through licensing approved growers. With China been the largest grower; and consumer of its crops of kiwifruit, and Italy struggling to take full advantage of what it has to offer the worlds consumers, New Zealand should be able to use its expertise of cultivation and expand that to gain a foothold in Italy to start growing kiwi there as its own product, using the Zespri system, to serve a product to markets from a closer more cost effective base of operations.
Growth rate The growth rate of the kiwifruit, as a whole is increasing in most major countries, save for certain places like India, who have no interest of access to the product. With kiwi being a very healthy fruit, that’s densely packed with vitamins and nutrients, its popularity is only increasing across the world. Zespri is taking advantage of worldwide consumer interest, just not as quickly as they like. The average 5-year spread net market returns for Zespri from 1999-2004 to 2004-2009 have increased by 39.8%, shooting ahead of both Chile and Italy, both with returns of -10.4% and 18.1% respectively. China is not involved in the market returns supplied due to its yields being internally consumed by the populous. Here, it is evident that New Zealand is heading in the right direction, taking full advantage of the markets, while the competition simply doesn’t maximize its utility of its supply systems to maximize their returns. When it comes to grower returns the story is relatively the same. New Zealand has a not inconsiderable grower return of 17.4%, with Italy and Chile returning -18.2% and 22.2% respectively. Italy struggles to even survive in the industry with all the exporting supply outside of New Zealand, thus leaving Chile to get more acceptable returns for its growers. Zespri can gain majority market share by continuing to license out to growers and implement the Zespri system everywhere they grow. If Zespri can gain a foot hold in Italy and change its growing systems to become more attractive (better products and returns), they can boost profits by pushing more supply worldwide, but from a much more attractive cost, due to obviously lower transport costs. Also if they keep the gold kiwifruit production increasing steadily while retaining the quality of the product, they can continue to sell it at above market prices to markets who will pay for it regardless of cost, such as Japan. If Zespri can get a closer to market operation of mass and quality, such as Italy, then worldwide competition will start to fall behind, leaving the growth rate of Zespri to only increase for the foreseeable future. They are growing in New Zealand at a steady pace, but if outward expansion and use of the Zespri system can yield better future outcomes for the company as a whole, then they should take over smaller or troubled kiwifruit growth markets if they can manage it without losing control of their costs.
Zespri’s Options:
By conducting a thoughtful analysis of Zespri’s core competencies and the nature of the kiwi market, Zespri’s best strategic plan would be moving away from green kiwifruit, that is fairly low margin and commoditized, and investing more in its Gold and organic brands, where it has shown a strong competitive advantage. There are number of strong arguments to make for Zespri to move in this direction.
First off, the tastes of consumers in the fruit market are changing. Consumers across the world are garnering a preference for sweeter fruits with more diverse nutritional benefits. This means that the company is going to have to find ways to cultivar new products to satisfy these new tastes and demands. Zespri has made steps in the right direction with the launch of its Gold and Zespri Organic lines, but needs to broaden out even further. If it does not, it will lose a key potential differentiator among its competitors.
This idea brings us to the second point, which is that being seen, as a specialty product will enhance the brands image. Most fruit around the world has become commoditized, with growers looking to scale back costs in order to achieve higher profits, sacrificing quality in the process. Zespri should do just the opposite. It should focus on staging its product as premium brand in bland market, and one that consumers ought to look for when wanting the best fruit possible, even if it means slightly higher costs in the short term. This will not only garner a premium price, which due to logistic costs, is what Zespri needs to survive. It will also build customer loyalty by being a brand that is reliable when delivering quality.
This ties in with the most important point to consider when changing Zespri’s product mix. Because of the growing international competition New Zealand faces from countries abroad who are looking to gain traction in the kiwifruit market, the company must find ways to build competitive advantages which its consumer base around the world and broaden the market for kiwifruit. And one of the biggest advantages has Zespri is its R&D and investment capabilities. Because there are very few firms in the industry that have the scale to invest in new cultivars, most firms have to rely on green kiwifruit to survive and try to specialize in that category only. Zespri has the power to move away from that heavily saturated category, and move to more niche products to satisfy the tastes of new customers. It has already done this by developing the IP protected Zespri Gold, and further steps in creating products that can be protected from imitation will be important to monitor. It can also find ways to make kiwis more nutritious in order to grow the market even further, to consumers who never thought of kiwis as an important health food in their diet.
The decision then becomes how Zespri should go about sourcing its new products, with the alternatives being keeping growing in house, sourcing product from other countries, or a mix of the two. As the company gradually moves away from Zespri green and other generic brands of kiwifruit, it would be wise to continue to buy some inventory from foreign suppliers, insofar as it is just meant to meet current demand. But going farther into the future, Zespri should concentrate on developing its products in house. Although some of its premium products have a short shelf life (Gold for instance), further improvements in R&D can help alleviate some of those challenges.
Another creative alternative would be to allow growers from other countries to be a part of Zespri. This idea seems difficult at first because of the large role New Zealand’s government plays in the company, but global trade and marketing organizations are nothing new when it comes to the globalized nature of business today. And with this arrangement, Zespri could have a diversified location of growers that will hedge it against natural disasters or poor yields in one particular part of the world. This could be used to benefit growers who are the victims of such disasters, including in New Zealand.
The benefit, when it is all said and done, will be that Zespri keeps more of the gains, and more of their industries know how, to themselves and away from competitors. Overall, Zespri can look forward in confidence to becoming the number one producer of kiwifruit worldwide, if they implement proper strategy to gain dominance of the supply and demand chains. China should not be a main worry; due to internal consumption of there grows. That leaves Italy and Chile as competition, meaning only Chile, who is turning profits of the two is representing legitimate concern to capturing more market share. Zespri’s best strategic plan would be moving away from green kiwifruit which has fairly low margins and investing more in Gold and organic brands. Zespri must also continue to maintain its strong brand image with strong credentials and remain loyal to its customers. According to our analysis if Zespri is able to follow the recommendations provided and continue its steady growth, we believe that they can achieve its goal to increase export earnings to $3 Billion by 2025.