Ekaterina Bogdanov 210 374 718 September 18, 2012

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INNOCENT DRINKS: SUMMARY OF EVALUATION OF STRATEGIC OPTIONS

The Method
The purpose of this report is to evaluate the strategic options currently available to
Innocent Drinks (Innocent). The analysis begins with determining what made Innocent initially
successful in order to determine a vision for the brand. It then considers the merits of growth
versus harvest options, concluding that growth is the wiser choice. Finally, growth options are
evaluated based on their potential as blue ocean strategies, with the conclusion that Innocent
should extend its brand to lines of ice cream and frozen yogurt.

The Secret to Success
In the past six years,
Innocent has grown very
successfully because its
product was introduced into a
blue ocean of uncontested
market space by highly able
and personable founders who
consistently made effective
decisions and were able to
induce others to take a risk on
the venture.
As evident in Figure 1,
the Innocent smoothie turned
the competition on its head. It
raised the smoothies taste
and healthiness above even the premium PJ smoothie by improving the freshness and quality of
our ingredients, all while maintaining the same price as PJ by reducing the volume of product.
Innocent has also created value for consumers by building its brand on fun and community
involvement. Amusing labels, displays and delivery vans, together with sponsorship of Fruitstock
and the Hats for Bottles initiative (which donated to charity) serve to create a memorable brand
and position the smoothie as a fun, healthy, natural product from a grassroots, non-corporate
company that cares about its community. The vision of Innocent as the natural brand for healthy
lifestyles thus flows logically from Innocents positioning.
Furthermore, the personas and networks of the founders proved instrumental to success.
Mr. Pinto, discovered through Mr. Wrights network, provided capital because he deemed the
founders capable, the first supplier took a chance on a start-up because he liked the trio, and
others, such as Dan Germain, were attracted by prior friendships. These resources were combined
with the diverse and complementary skills of the founders and their effective decision-making
model to boost the company. The corporate culture the founders built from then on fostered
innovation, independence and creativity, eliciting employee dedication and generating success.

To Grow or Not to Grow?
After six years, Innocent is at a crossroads: it can pursue growth or harvest. My
recommendation is pursuit of growth options, for several reasons. Firstly, though successful,
Innocent is not invincible. The larger it grows, the more resources it will have, or be in position to
procure, to survive unexpected events. Secondly, growth will keep employees motivated and thus
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Figure 1. Competitive Dimensions; Pre-Packaged Smoothies Market
Ekaterina Bogdanov 210 374 718 September 18, 2012
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innovative and dedicated: as Mr. Wright pointed out, if [Innocent] lost [the growth momentum]
the culture would lose some of its value, which means the loss of a part of what makes the
company so successful initially. Finally, while the founders are young and still hesitant to sell,
pursuit of some manner of growth will not only generate additional profits for them, but will indicate
to potential buyers that the company is valuable beyond its existing assets. Innocent would
command a higher price when the founders are ready to cash out. As such, I suggest that Innocent
reject harvest options for the moment, and focus on evaluating opportunities for growth.

To Extend or to Expand?
Expansion into USA should be rejected, because it involves entry into a red ocean
(intensely competitive marketplace) with severely limited resources. The market in the USA is well-
established, complete with strong brands like Odwalla. The factors that made Innocents branding
so successful at home are unlikely to be sufficiently new to the market to qualify entry into the USA
as a blue ocean strategy. Further, Innocent has neither a distribution/supplier network nor the
benefit of a recognizable brand name in the country, and these will require tremendous effort to
establish given the geographic and cultural distances between the UK and America. It will, indeed,
divert significant management attention from the core business that still needs leadership.
European Expansion can be a blue ocean strategy to the extent that the French, Belgian,
and Dutch smoothie markets are poorly (or not at all) established. In these countries, Innocent
may do what PJ once did in the UK, and establish its own market for smoothies a blue ocean
strategy by definition. Relative to chilled juices, Innocent could raise the price and reduce the
serving volume, improve the taste, wholesomeness, and freshness of on-the-go beverages, while
leveraging the existing brand to create the very experience of smoothie-drinking as a fun, healthy
activity. Alternatively, where a smoothie market exists, Innocent can pursue the same blue ocean
strategy that made it initially successful in the United Kingdom (please refer to Figure 1). An
important reservation with European expansion, however, is the disappointing pace of entry into
the French market, which may indicate that Innocents initial blue ocean strategy and brand may
not translate well to other countries.
Brand Extension is decidedly a blue ocean strategy, as well. The competitive dimensions
of the ice cream and frozen yogurt industries are similar to those of the smoothie industry (please
refer to Figure 1). Like with smoothies, Innocent can raise the price of the product while reduce the
packages volume, and leverage its existing brand to add the dimensions of healthiness, fun, and
community involvement to its ice cream and frozen yogurt.
Though both European expansion and brand extension have potential as blue ocean
strategies, I suggest brand extension as the next step for Innocent, because it:
Is more consistent with the accurate vision of the company as the natural brand for
healthy lifestyles
Will allow Innocent to leverage its existing assets: the brand, customer base, and
distribution network, while a European expansion will not be as well supported by
existing resources
Does not require more in implementation costs than the European expansion
Is estimated to, between 2005 and 2007, generate revenues of 14,845,000, which is
comparable to 14,895,000 to be generated by the expansion (based on estimates of
growth opportunities, Exhibit 10). The three-year sales level is important as an
acquisition may become a relevant option in three years time, and higher sales may
yield higher valuations.