The growth options In 2003, as Innocent's sales continued to grow sharply, investor Maurice Pinto gave the founders some advice. He felt it was time for the Innocent team to start thinking about opportunities for growth. As Reed recalls, he said, "You guys should think like a chef. You may spend most of your time working on the main dish, but you've always got something cooking, some kind of side dish, on the back burners." The founders agreed that the two best growth options were (1) taking the Innocent product line to Europe; or (2) extending the Innocent brand to other products in the U.K. Expanding to Europe The Innocent team believed that its prospects in Europe were strong. The motivation to pursue continental Europe was so strong internally that an informal mission statement had caught on among employees: Innocent would be "Europe's favorite little juice company." The case for expansion into Europe was simple: Find more customers for the same juice product, while keeping the supply chain intact. The founders believed that they could expand into a new country with only a small sales and marketing team on the ground. An early experiment in Ireland had gone well. By the end of 2004, 7% of Innocent's revenue came from Ireland with only a couple of employees working in the country. In fact, on a per capita basis, Ireland was more successful than Britain. 1 "Very Nice People" For the exclusive use of N. Ewens, 2022. This document is authorized for use only by Nolan Ewens in MGT 449 Strategy M71 Online Delivery taught by JAMES HOFFMAN, New Mexico State University from Aug 2022 to Dec 2022. Innocent Drinks 805-031 9 However, Europe was, of course, a collection of very different markets. In Germany and Italy, for instance, most of the juice sold was "ambient," meaning it was non-refrigerated with a long shelf life. Selling premium refrigerated smoothies into such a marketplace would be no small feat. In some European markets, Innocent would have to establish the smoothie category, as PJ did for Innocent in the UK. Will Hartley, international sales manager and a former employee of Odwalla in the U.S., said that Innocent's target markets within Europe would be locations with big urban populations, high disposable income levels, strong demand for eating and drinking outside the home, and strong demand for juice (though not necessarily smoothies specifically). According to Hartley, the countries that best fit these criteria were Sweden, Denmark, Norway, the Netherlands, and France. (See Exhibit 9 for the size of the juice market in selected countries.) With the exception of France, however, these markets were significantly smaller than the UK market. And the company's progress in achieving a presence in France had been disappointingly slow. In thinking about the opportunity in Europe, the founders analyzed the size of the chilled juice market in three promising countriesthe Netherlands, Belgium, and France. (The chilled juice market is a small subset of the overall juice market.) Then, they applied Innocent's market share growth from the U.K. to the new countries. They thought that the chilled juice market was a good proxy for the smoothie market, since not all countries tracked smoothies as a separate category. Using this approach, the founders estimated that the project to expand into Europe could yield over 10,000,000 in revenue by the third year. (See Exhibit 10 for the founders' analysis.) The costs were relatively low, with the bulk of the investment coming from the salaries of several employees on the ground in each country. One cost that was difficult to forecast was the price of advertising. If the Innocent brand could spread by word of mouth, as it did in the U.K., advertising cost might be quite low. On the other hand, if the brand did not translate well, or if the smoothie concept did not grow as quickly as in the U.K., then Innocent might have to make a substantial investment in each market. Another cost that was difficult to calculate was the distraction of management attention. (This cost also applied to the product line expansion.) New ideas, with prospects for new growth, naturally drew the attention of the top performers in the organization. Could Innocent, having just eclipsed the smoothie market leader, afford to lose focus? Expanding into the United States The United States was easily the world's largest market for smoothies. The smoothie category in the U.S. was well-established, having been pioneered by Odwalla about a decade earlier. The team's concern about the U.S. was not the market size, it was two other factors: (1) intense competition; and (2) the need to build an entirely new supply chain. The juice and smoothie market was crowded with competition, and unlike the UK, much of the competition had long been offering fresh juices. The founders knew it was feasible to build a supply chain in the U.S., but they were daunted by the amount of management attention it would consume. For a small company to build a distribution network in one of the world's largest countries, from 3000 miles away, it would be a challenge. In the summer of 2004, the three founders had traveled to Las Vegas for Richard Reed's bachelor party. They used the opportunity to meet with some key potential partners while in the U.S. They For the exclusive use of N. Ewens, 2022. This document is authorized for use only by Nolan Ewens in MGT 449 Strategy M71 Online Delivery taught by JAMES HOFFMAN, New Mexico State University from Aug 2022 to Dec 2022. 805-031 Innocent Drinks 10 were taken aback by the positive response. Buyers from some of the U.S.'s most prestigious national retail chains expressed strong interest in carrying Innocent smoothies. The founders were torn: The U.S. market was a tough one to enter, but could they walk away from interest by such marquee companies? Other product lines "Europe's best little juice company" was one vision for the future. Another vision was a UK "natural brand for healthy lifestyles." In this vision, Innocent would extend its brand into other categories, such as ice cream or soup, much as Odwalla (U.S.) eventually added nutrition bars and bottled water. The ice cream business was their first target. Lucy Ede, Innocent's Head of Recipes, had been leading the effort to develop an ice cream product. Her team had made substantial progress in the past year, but because they needed to devote most of their time to new smoothie flavors and seasonal changes, they had not yet completed the ice cream development. The lure of other product lines was clear: Customers loved the Innocent brand. It was the company's biggest asset. Reed wondered, "When we talk about expanding into Europe, we are emphasizing our product over our brand. No one in Europe has heard of Innocent. And I think our brand is an enormous asset." Jon Wright was the least excited of the three founders about this vision. He said, "Yes, we get to keep our customers. But we'll need a whole new supply chain, and we may have different buyers at the retail level. For me, I want to keep things simple, keep things the same, and just scale them up. We do certain things well, let's do more of that. But I know the argument isn't quite that easy. I think what we do well is distribute chilled drinks. But the other guys argue convincingly that what we do well is give customers a feeling of healthiness." The founders worked on a rough analysis of the market opportunity in their first two target categories: ice cream and frozen yogurt. If they were able to launch the products in early 2005, they believed they could grow the business to 8 million by the third year. (See Exhibit 10 for their analysis.) The founders agreed that the ice cream and yogurt products were, in a lot of ways, riskier than the European expansion. They simply could not guarantee that demand for their product would be there. However, they considered the move into ice cream a first test of the "healthy lifestyles" vision. It had value as an indicator for the overall strategy. It would also be powerful evidence to a potential acquirer that the Innocent brand was a valuable asset with room to grow. Financial issues related to growth Adam had spoken extensively with James Davenport, the financial controller. From a finance perspective, the two options were remarkably similar. Adam gave the overview to Richard and Jon: From a 'cash needs' perspective, the options aren't too different. Looks like it will cost us roughly 500,000 up front to pursue either optionthat's made up mostly of salaries and a bit of marketing. Cap ex is not a big issue: in Europe we'd use our existing infrastructure, and with the ice cream and yoghurt products, we'd outsource the manufacturing. As for working capital, we'll need to invest a bit in either scenario for extra inventory in the system, but that is built into my 500,000 figure. For the exclusive use of N. Ewens, 2022. This document is authorized for use only by Nolan Ewens in MGT 449 Strategy M71 Online Delivery taught by JAMES HOFFMAN, New Mexico State University from Aug 2022 to Dec 2022. Innocent Drinks 805-031 11 Margins are tougher to forecast. In Europe, we know what our cost structure will be, but we don't know what price we'll be able to achieveparticularly without the benefit of having PJs there ahead of us to set the expectations. With ice cream, we know our costs will be higher than Ben & Jerry's and the others, and we'll have to give the retailers a bit more cash margin. So, again, it will come down to pricecan we set a price that is above the "super-premium" category leaders like Ben & Jerry's? Net net, there aren't any glaring differences from a cash needs or margins perspective. In my opinion, it boils down to pricing, market sizes, likelihood of successand figuring out what kind of business we want to run.

1. Should Innocent look into selling the company?
2. What should the owners of Innocent do?