AS Business Studies
Unit 1: Developing New Business Ideas
The Smooth Start-Up
The start-up of Innocent Drinks is one of the best-known in the business world. In 1998, after
leaving Uni, Richard Reed, Adam Balon and Jon Wright decided to try their own business, selling
fresh fruit smoothies.
They tried out recipes on friends, then spent £500 on strawberries and bananas, turned the fruit
into smoothies, and sold them at a small music festival in London. At their stall they put up a big
sign saying ‘Should we give up our jobs to make these smoothies?’ One bin at the front of the stall
said ‘Yes’; another bin said ‘No’. By the end of the weekend the ‘Yes’ bin was full of smoothie
bottles.
At the start, everything went smoothly. The Innocent 3 found it surprisingly easy to break into
major outlets even though their retail prices were as high as £2 for a small, 200 ml bottle. By
2002/2003 sales had risen to £10 million a year and the future looked very bright. Then things
became a bit tougher. The smoothie market had been originated in Britain in 1994 by a company
called ‘PJ’. Stung by Innocent’s success, in 2003 PJ Smoothies were promoted more heavily,
stabilising their market leading position. Then the major supermarkets started offering own-label
smoothies. With a Tesco’s own-label bottle at £1.39, it would be much harder to charge £1.99.
Also in summer 2003 Innocent launched a new brand, ‘Juicy Water’. It struggled to achieve a good
distribution level, and then repeat purchase levels were disappointing.
Yet look at the bar chart below, to see how brilliantly Innocent recovered in 2004. Better still, the
market size has expanded steadily, from £20 million in 2001 to £60 million in 2003 and an
estimated £80 million in 2004.
Share of UK Smoothie Market
100%
80%
31.7 31.4
31.1 30.7
31.6 31.1
33
60%
42.2 42.6
41.4 42.2
42.3 42.4
25
20.6
39
44.5
34.6
29.6
36.5
28.7 29.6
26.9
31.7 27.9
27.1
Other
Own Label
PJs
40%
Innocent
20%
25
24.8
26.1 25.5
25
25.7
30.7 34.2
34.1 33.1
38.7 41.4
45.2
0%
Oct- Nov- Dec- Jan- Feb- Mar- Apr- May- Jun- Jul- Aug- Sep- Oct03
03
03
04
04
04
04
04
04
04
04
04
04
Source: AC Nielsen Scantrack, quoted in The Grocer magazine Nov 13th 2004
So how was Innocent Drinks able to restore its growth position? The complete answer is not yet
clear, as Innocent would not want PJ to know exactly how it has boosted market share so
dramatically. One aspect is perhaps that Innocent’s are the only truly fresh smoothies (PJs and
others are made from concentrates, not fresh juice).
Faculty of Business & Vocational Studies
AS Business Studies
Unit 1: Developing New Business Ideas
A more likely explanation, though, is Innocent’s Spring 2004 launch of the UK’s first take home
Smoothie cartons. Looking back, it is extraordinary that none of the supermarkets tried this
approach. Now, instead of just buying a small bottle of a Smoothie while on the way to work, people
can buy a one litre take-home carton from their local Tesco. That’s taking Innocent into the world
of competing with Tropicana (Pepsi-Cola).
Behind Innocent’s sales success are two key factors. First, the three founders remain wedded to a
vision for the business based upon passion to provide a great, not just a good, product. This rubs
off onto staff. After the company won the accolade of ‘National Employer of the Year 2004’, Lucy
Ede, one of Innocent’s product development team said: “It’s an incredibly motivated team to work
in”.
The second strength lies in marketing. This has two elements. The first is obvious: Innocent’s
above the line spending is five times greater than the rest of the market combined. This is allied
to its terrific public relations (PR), constant new product innovation, brilliantly distinctive
packaging and its annual promotion of a free summer music festival called Fruitstock (81,000
people came). The second element of its marketing is more subtle. Every bottle says exactly what
it contains (12 raspberries, 26 cranberries etc) in a way that endears the business to consumers
who want honesty and social responsibility. In 2004 it set up the Innocent Foundation, which is a
charity that receives a % of all the revenue generated by the drinks, and gives money to charities
working in the countries where the fruit comes from.
Innocent has seen off the market founder and market leader, PJ, and coped with the power of
Tesco and Asda. It looks set to grow far beyond its current sales turnover of £16 million, with its
sights set on becoming ‘Europe’s favourite little fruit drinks company’. It has to beware, though, of
Pepsi or Coke finding it hard to resist a rapidly growing niche market with very impressive profit
margins. It may be harder to be Innocent when under fire from America.
Questions (30 marks; 30 minutes)
Based on the case study complete the following questions…
1. Outline three factors that may have led to Innocent’s growth in market share during 2004.
(8 marks)
2. What was the retail value of Innocent’s sales in 2003, given that its market share for 2003
was the same as it achieved in December of that year? (4 marks)
3. As retailers were taking an average of 35% of the sales value of Innocent’s smoothies, what
was the company’s real sales revenue in 2003? (3 marks)
4. To what extent do you believe Innocent could continue to succeed if Coca-Cola decided to
launch fruit Smoothies in Britain? (15 marks)
Faculty of Business & Vocational Studies
AS Business Studies
Unit 1: Developing New Business Ideas
Smooth Mark Scheme
1a) Outline three factors that may have led to Innocent’s growth in market share during
2004.
(8)
4
CONTENT
4–3
Two or three factors
identified and outlined,
showing understanding
4
APPLICATION
4–3
Point/s made are applied
to key features of this
case (‘Innocent’s growth
in market share’)
2–1
2–1
One
relevant
factor Answer
shows
some
outlined or two+ relevant application to the case
content points identified
Possible answers may include:
 The passion of staff towards innovation and therefore new product ideas
 The launch of the take-home carton
 Innocent might have increased its advertising budget, with no corresponding reaction from
PJs
1b) What was the retail value of Innocent’s sales in 2003, given that its market share for
2003 was the same as it achieved in December of that year?
(4)
Market size in 2003 was £60m
(1)
Innocent’s share was 26.1%
(1)
So sales value was £60m x 0.261 = £15.66m
(1 for workings; 1 for right answer)
Total for £15.66m = 4 marks (allow £15.6 or £15.7 or £16)
1c) As retailers were taking an average of 35% of the sales value of Innocent’s smoothies,
what was the company’s real sales revenue in 2003?
(3)
£15.66m * 0.65 = £10.18 million (1 for workings, 1 for numerical answer, 1 for £m)
Allow between £10 and £10.4m to allow for rounding within the calculation.
Faculty of Business & Vocational Studies
AS Business Studies
Unit 1: Developing New Business Ideas
2. Discuss the key strengths and weaknesses of Innocent Drinks’ marketing mix.
MARKING GRID (Out of 10)
2
2
CONTENT
APPLICATION
2
2
Good
Relevant issues
understanding
applied in detail
shown of the to the case
marketing mix
1
1
Shows
some Relevant issues
understanding
applied to the
of
the case
marketing mix
(10)
3
ANALYSIS
3
Analysis
of
question set, using
relevant theory
3
EVALUATION
3
Judgement shown in
weighing
up
the
qualities in Innocent’s
marketing mix
2-1
2-1
One or two points Some judgement shown
applied in a limited in text or conclusions
way to analyse the
Q.
Possible themes might include:
 It’s coherent, in that it’s all focused on a particular type of customer – well-off, foodconscious young adults – so pricing is high, the product is extra special, the distribution is
highly effective (including Tesco) and it’s backed by strong promotion
 It seems based on a long term vision, to build the consumer image in line with the founders’
wish for people to be passionate about Innocent (in effect, to feel good about themselves
when they’re parting with their money)
 But the mix is highly elitist, assuming that fresh fruit Smoothies are only for a particular
type of person (whereas Tropican orange juice is classy stuff, but aimed at everyone)
3. To what extent do you believe Innocent could continue to succeed if Coca-Cola decided to
launch fruit Smoothies in Britain?
(15)
MARKING GRID (Out of 15)
3
3
CONTENT
APPLICATION
3
3
Good
Relevant issues
understanding
applied in detail
shown
of to the case
competition
and/or response
to it
2–1
2–1
Shows
some Relevant issues
understanding
applied to the
of competition
case
4
ANALYSIS
4-3
Analysis
of
question set, using
relevant theory
5
EVALUATION
5-3
Judgement shown in
weighing up the key
elements in this David v
Goliath struggle
2-1
2–1
One or two points Some judgement shown
applied in a limited in text or conclusions
way to analyse the
Q.
Faculty of Business & Vocational Studies
AS Business Studies
Unit 1: Developing New Business Ideas
Possible themes might include:
 Coca-Cola’s resources would allow for a huge TV-based marketing push, to establish a more
mass market Smoothie; this might take sales away from the less-committed current
customers of Innocent (only research could give a figure, but every brand will have some
customers who are not wholly committed)
 More serious for Innocent might be Coke’s distribution muscle; this comes partly from its
virtually 100% distribution in the retail trade, but more importantly from its grip on vending
machines; if you could get your lunchtime Smoothie from a vending machine close by, you
wouldn’t walk half a mile to the shop for an Innocent Smoothie.
 BUT Innocent has had several years of building a hugely distinctive brand loved by wealthy
townies and foodies; would they defect for a Coca-Cola smoothie? Of course, Coke would
hide behind a natural-sounding brand name, but the foodies would know the parent
 If Innocent can maintain its squeaky clean image as a provider of healthy, quirky products,
it is unlikely to suffer a knock-out blow from the arrival of Coke; Coke will expand the
market for Smoothies, but Innocent will still be able to maintain a profitable niche; the
future for PJ might be a lot less comfortable; (so perhaps Coke would launch by buying PJ?
Might be a clever move)
Faculty of Business & Vocational Studies