Analysis of Smoothies

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Assignment: EC180 Assignment
Analysis of Smoothies




This review is based on an economic analysis of the ‘Smoothie’ product market. Smoothies are chilled beverages made of pureed fresh fruit or vegetables often mixed with ice cream, yoghurt or milk. There is no main recipe for a Smoothie and the different manufacturers produce differentiated products with respect to the ingredients and texture of the drink. They may also add sugar and vitamins to the mix. Alternatives to this drink, and therefore also potential competitors, include milkshakes, carbonated soft drinks, fruit juices, energy drinks and water. The growth of smoothies in the chilled juice market has created an opportunity to help more consumers achieve their 5-a-day fruit and vegetable target. Sale value within the UK Smoothies market has increased by 513% since October 2006, to reach an anticipated £282 million in 2008. Growth has primarily been driven by increased household penetration. This has increased from 31% in 2006 to 57% in 2008. In addition, it is thought that existing smoothie converts are also drinking more (Mintel, 2008).

Factors that Affect their Demand
Demand is the quantity of a good or service that consumers are willing and able to buy at a given price in a given time period. Each consumer has an individual demand for particular goods and services and the level of demand at each market price reflects the value that consumers place on a product and their expected satisfaction gained from purchase and consumption. Demand in economics must be effective which means that only when a consumer’s desire to buy a product is backed up by an ability to pay for it does demand actually have an effect on the market (Begg, 2004).

A major factor in the demand for Smoothies is the growing interest consumers have in healthy living. Many health experts suggest the population should consume at least five different portions of fruit a day. Smoothies go some way towards this goal and are regarded as healthy, natural and easy to consume.

The demand for this product has also been affected by its availability. From being a niche product only obtained in specialist outlets, smoothies are now regarded as a mainstream health product available in all supermarkets.

Price is another factor that affects the demand for a product. Compared with other soft drinks, and because of their price, Smoothies represent an everyday luxury item for many consumers. Manufacturers justify the high price because of their high fruit content and lack of additives. It appears that consumers have accepted this rationale and understand that the high cost of Smoothies is related to the quality of the product. However, there are many alternatives in the drink market which are cheaper do not have to be kept chilled and more readily available in the high street (e.g., fizzy drinks and juices) which may have a negative impact on the demand for Smoothies.

Elasticity of the Demand for Smoothies
In economics, elasticity is assessed as the ratio of the percent change in one variable to the percent change in another variable. Price elasticity of demand is defined as the responsiveness of the quantity demanded of a certain item to a change in its price. In other words it is a measure of the sensitivity of quantity demanded to changes in price. Demand for a product is inelastic if consumers will pay almost any price for the product, while demand for a product is elastic if consumers will only pay a certain price, or a narrow range of prices, for the product. Goods and services for which no substitutes exist are generally inelastic (Gillespie, 2007).

Elasticity of a product is influenced by several factors including substitutes, necessity, market definition, income and time. For example, the more substitutes, the higher the elasticity, as people can easily switch from one product to another if a price change is made. In the...
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