Whole Foods Market Expansion - Essay Example

Whole Foods Market Expansion Introduction Whole Foods Market Inc. is a natural food chain store founded in 1980 in Austin, Texas. Four local businesspersons namely, Renee Lawson Hardy and John Mackey owners of Safer Way Natural Foods, and Mark Skiles and Craig Weller, who were owners of Clarksville Natural Grocery came together to start the chain store. They were brought together by the idea that a supermarket that specialized in natural foods was necessary if they were to exploit the market fully. As it turns out, the group’s idea was right as the store gained success immediately after its opening. This has seen the company grow leaps and bounds from a single store to a multi-shop franchise with shops all over the United States. The growth stemmed from the fact that the success from the start saw the company gain strength that enabled its partaking in a series of acquisitions and mergers that were carefully chosen. The growth was so immense that the company took its operations internationally just after the turn if the new millennium with expansion into Canada in 2002 and the United Kingdom in 2004 (Wholefoodsmarket.com 2014, n.p.). However, the exploitation of mainland Europe is yet to occur with the company planning to do this in its next phase of expansion. This paper seeks to identify potential European markets for the company and provide an evaluation of the markets while showing the company’s possible entry options into these markets. Nuances of Europe in reference to the US Market Social and Cultural Examination It is common knowledge that the values held by Americans and Europeans differ greatly. Even the English spoken on the two countries differs (Maciamo 2014, n.p.). As such, the approach used to explore the mainland Europe market needs to take into account the nuances arising from the social cultural differences outlined below. The first nuance has to do with language. The American English is filled with idioms and expressions as well as structures that are not common in the European scene (Zing 2014, n.p). Although English is the most widely used spoken language in the business world, it has a standard known as “international English”. This means that the market exploitation needs to adopt a language that will need rephrasing to avoid misunderstandings. Then there is the issue that not all European nations understand English. As such, depending on the nation that the company is seeking to expand into, it is necessary to have interpreters for the smooth running of operations (Roney 2001, n.p.). Some European countries also have a culture that has a lot of respect for titles. In the Netherlands and Germany, for example, one is seen as being disrespectful if he or she addresses people in a casual manner instead of their academic titles. This contrasts with the American culture where the population tends to address people casually. Application of this model in the European countries may create misunderstandings that hinder the business transactions and therefore threaten the exploration of these markets (Aarset et al. 2004, p. 3). The norm in America is to have strictly business and then social events separate. This is also practiced in some Scandinavian nations where negotiations happen in a business setting before socializing occurs at another place or time. However, conducting operations in this manner in some countries like France would bring out someone as being rude (Franchon and Sassoonn 2009, p. 20). This is because the cultural norms of the country accept negotiations and socializing as parts of the same ceremony. Finally, it would be necessary to adopt patience and flexibility to the exploitation strategies. This is because as opposed to the American business culture where time is money (Shulz 2007, n.p.). meaning that people must strictly adhere to the schedules, in some European countries especially Spain and Italy, the general view is that schedules are fluid. This may cause friction between the parties. Therefore, before exploiting the European market, the company needs to make sure that its professionals consider these nuances. Porters Diamond Consideration The differences between the European and American markets go further than the socio-cultural aspects of the societies. The market factors in the two regions also tend to differ which creates nuances. Porter’s Diamond model provides a good illustration of the differences (Porter 2014, n.p.). Starting with the factor conditions, an analysis of the vital industrial production factors shows that the US is slightly better positioned depending on the target market. Although most of Europe is highly developed, some areas are still behind. Demand conditions for natural foods are favourable for the expansion. There is an increasing demand for natural foods in the continent as more people start turning to healthy eating. The markets in Germany and France specifically have dramatically grown. Supporting industries are also an important factor (De Burca, Brown and Fletcher 2004, p. 55). In terms of related and supporting industries, the two regions come off almost equal on scores of industries that could support Whole Foods Market Inc. The level of development and innovation in some regions of Europe is lacking which creates a nuance in the availability some vital inputs provided by supporting industries (Normille and Leetmaa 2004, p. 11). Both regions have a high population that creates a large market for food. This has seen the establishment of food industries and stores that serve will serve as rival firms. In the US WFM has already established itself as a leader in the industry with mergers and acquisitions, reducing the level of competition (Wholefoodsmarket.com 2014, n.p.). However, there is an uphill task of unseating the established brands in Europe. The government influence in Europe is also a major nuance. In the US, the influence of the government on business is minimised. The E.U. policies as well government policies in Europe serve to protect their markets, which pose a challenge to entry (Aarset et al. 2004, p. 5). Then there is the issue of the instability of some European nations and the threat of Russia that makes the region a difficult area to exploit as compared to the US where there is stability. Recommended markets In order to find out if a market is best to exlore, we need to analyse the market factors (Jobber 2012, p. 20). PESTEL analysis of Italy Political and legal analysis Politically, Italy is a stable European nation. The Mediterranean country that comprises of a mainland attached to the European continent as well as a number of islands is unified under a presidency, although the prime minister is charged with most official businesses. This has seen the country remain stable for decades, which portrays in good light in terms of investment. The country has a two-chamber parliament, which has democratically elected leaders charged with the creation and amendment of democratic laws (EU business 2014, n.p). This means that integration of legal business operations is not restricted by law which creates a free market. In the early 90’s, the country’s political landscape saw a major shift when “mani pulite” (clean hands) operations exposed corruption in high levels of the political and business world which brought down prominent individuals (BBC 2014, n.p.). The recent investigation of Silvio Berlusconi, the multi-millionaire businessman prime minister shows the reduced tolerance for corruption in the country which creates a level playing field for business. Economic factors The northern regions of the country are among the richest in Europe with the country relying on engineering, tourism, fashion, motor vehicles, chemicals and food to fuel its economy. According to the (EU business 2014, n.p), the economy’s key drivers are high quality consumer goods manufactured from medium and small sized entities. These are diversified with the industrial north being developed while the south that relies on agriculture being less developed. As such, the south has a higher unemployment level that provides a ready labour source for willing investors. Although the country has the third largest economy in the EU, impediments to growth have seen the economy and conditions of the labour market deteriorate (BBC 2014, n.p.). Social factors According to Sarathy and Terpstra (2000, p. 90), culture is an important determiner of consumer behaviour. Other than being the home of a lot of fine art and the origin of the Roman Empire, Italy is known for two things, its love for tasty cuisine and the culture of the Italians (EU business 2014, n.p). Italians are known to have a high regard for their rich culture wherever they are. Their love for people has seen them become one of the friendliest people on the planet. This has helped them interact freely with others making the nation a good place to conduct business. Other than the fine art by various artists, the other thing that Italy is loved and known for globally is its food. With speculations claiming that pizza and macaroni originated from the country, it’s no wonder that Italian food is so great. This means that the nation has a ready and ever growing market for food which is perfect for the expansion Whole Foods Market. Technological factors Italy has always stood out in terms of technology. Ever since the time of the Romans, Italy has been a technological hub that is able to come up with new technology as well as customize and adapt existing technologies to serve various purposes. Italian technology combines the imagination of skilled craftsmen and the high level of innovation in the country. This enables the technology to meet the logistic and technology needs of various customers. The availability of qualified engineers combined with the high level of technology makes Italy a good country to expand into. PESTEL analysis of France Political and legal analysis France is a democratic nation that is headed by a president. It is governed by a constitution that enforces a complex legal system which is hard for foreigners to comprehend. As such, the recommended law to use while conducting transactions. The law provides for equal treatment of everyone, even foreigners, even in a business setting. This means that the integration of WFM in the country will not undergo discrimination. The constitution has various sections that are meant to govern the interaction of parties in the business setting in terms of patents, trademarks, deign and copyright. The state also has incentives aimed at encouraging investments (IFA 2012, p. 5). As such, the legal and political factors of the nation favour the integration of WFM in the market. Economic factors France has an economic freedom score 63.5 ranking the nation at number 70 in the 2014 freest economies globally. Its economy is the second largest in Europe and the fifth globally (Economique Ambassade 2013, n.p.). This is mainly fuelled by the high number of industries in the nation, especially automobile and the aircraft industries as well as the large number of tourists it receives annually. The French government that constituted a large part of the economy is implementing changes in its legislation that is attracting investors to counter the effect of the rising unemployment levels in the nation. Social factors The French society is divided according to social class, generation, political party and ethnicity. With a population of over 60 million and such a large economy, it is ironic that the nation has such a high unemployment rate (Everyculture.com 2014, n.p.). The majority of the French live in urban areas and are therefore not able to grow their own food. Seeing that food plays an important role in the French social life, there is an opportunity to exploit this economy (Usinier 2012, p. 18). This factor is even emphasized by the recent concern and rejection of engineered and genetically modified foods (Everyculture.com 2014, n.p.). The society of France also abandoned the protectionist strategies and now allows the intensification of trade making it a fit choice. Technological factor France is one of the global leaders of industrialization evidenced by its large automobile and aircraft production as well as the production of other machine intensive products. This is because of the level of technology in the country. Dating back to the time of scientific revolution, France has been a leader in scientific fields that has enabled it to be a large producer of machinery and energy all of which are point that support investing in the nation. Justification A research conducted by the Agricultural Market Information company (AMI) Research Institute of Organic Agriculture (RIBL) conducted in 2011 showed that the European natural food market increased by nine percent from 2010 to 2011 to 21.5 billion Euros (Shaack et al. 2013, p. 2). This shows that the market holds potential to grow that makes it important to exploit. Of the 21.5 billion Germany made up for 6.59 being the largest with France coming in second at 3.76 (Shaack et al. 2013, p. 2). The study also showed that the level of sales saw a reduction for the third year in a row with Italy, which has 1.72 billion increasing sales and showing signs of exceeding the UK (Shaack et al. 2013, p. 2). This shows that France and Italy have the biggest potential, which places them as the best markets for the Whole Food Markets to expand into. Whole Foods Market Entry Strategy The objective of the entry strategy is to enter the natural food market in France and Italy and grow into a market leader in terms of market share capitalisation within five years through the building and reinforcing of strong brand equity that will make WFM a top brand (Doole 2012, p. 6). This will be through the use of standardization and customization of the 7 ‘P’s namely; price, product, process, promotions, place, physical evidence and people so that they suit the various markets (Harris and Dennis 2004, 221). Before the start of operations, the company should know and understand the market (Blythe 2009, p. 31). This is through collecting quantitative and qualitative data on the patterns, needs, threat and potential products of the market for analysis so as to enable proper standardization and customization (Hollensen 2013, p. 22). Whole Foods Market should then open a flagship store in Milan (Italy) on 1st July 2015 and create a partnership with organic food suppliers in the country (Keegan 2013, p. 67). On December 1st 2015, a sister store should be opened in Rome (Italy). This store should utilise the partnerships established and test their links. At the same time a flagship store should be opened in Paris (France) with strong links being forged with suppliers. In the course of the year 2016, the Italian stores should franchise through the opening of several other stores to enable diffusion of the brand into the market (Blackwell, Miniard and Engel 2006, p. 544). The company should then open another store in Marseille in June 2016 before the two French stores start franchising at the end of the years. All this time data on the response should be collected for analysis to make recommendations in changes to strategy. Conclusion Whole Foods Market is a global franchise that started from humble beginnings. The company’s vision to explore different markets on different continents especially Europe is possible due to the expansion of the natural food markets globally. In the European continent, the sales increased by 9% in 2011. France had the second largest sales with Italy having the biggest rate of growth. This makes the two perfect candidates for expansion of the company. The factors of production within these two countries also favour their exploitation. If the strategy discussed is adopted the company will successfully introduce itself in the markets before growing into a market leader in 5 years. Bibliography Aarset, B., Beckmann, S., Bigne, E., Beveridge, M., Bjorndal, T., Bunting, J., McDonagh, P., Mariojouls, C., Muir, J., Prothero, A., Reisch, L., Smith, A., Tveteras, R. and Young, J. 2004, The European consumers’ understanding and perceptions of the “organic” food regime. BBC 2014, Italy country profile. [online] BBC News. Available from: http://www.bbc.com/news/world-europe-17433142 [13 Nov. 2014]. BLACKWELL, R. D., ENGEL, J. F., & MINIARD, P. W. 2006, Consumer behavior. Mason, Ohio [u.a.], Thomson, South-Western. Blythe, J. 2009, Principles and Practice of Marketing, London: Thomson De Burca, S, Brown, L and Fletcher, R 2004, International Marketing: An SME Perspective, London: Financial Times. Doole, I. and Lowe, R. 2012, International Marketing Strategy, London: Thomson Learning Economique Ambassade 2013, France : economic outlook and business environment. 1st ed. Available from: http://www.liaa.gov.lv/files/liaa/attachments/francija_20.11.2013_philippe_bravard.pdf [13 Nov. 2014]. EUbusiness 2014, Italy: country overview — EU - European Union and Eurozone business news | EUbusiness.com. Eubusiness.com. Available from: http://www.eubusiness.com/europe/italy [13 Nov. 2014]. Everyculture.com 2014, Culture of France - history, people, clothing, traditions, women, beliefs, food, customs, family. [online] Available from: http://www.everyculture.com/Cr-Ga/France.html [13 Nov. 2014]. Frachon, c., & Sassoon, V. 2009, Media and cultural diversity in Europe and North America. Paris, Institut Panos. Harris, L. and Dennis, C. 2004, Marketing the e-Business. London: Routledge. Hollensen, S. 2013, Global Marketing 6e, London: Pearson Education ltd. IFA 2012, Doing Business in France. Jobber, D. 2012, Principles and Practice of Marketing, Maidenhead: McGraw Hill Keegan, W T 2013, Global Marketing Management: International Version, London: Pearson Education ltd. Maciamo 2014, Cultural differences between Europe and America. [online] Eupedia. Available from: http://www.eupedia.com/europe/cultural_differences_europe_usa.shtml [13 Nov. 2014]. Normile, M. A. and Leetmaa, S. 2004, U.S.-EU Food Agriculture Comparisons. Agriculture and Trade Reports. United States Department of Agriculture. Porter, M. 2014, ProvenModels - diamond model - competitive advantage of nations - Michael E. Porter. Provenmodels.com. Available from: http://www.provenmodels.com/577/diamond-model---competitive-advantage-of-nations/michael-e.-porter [13 Nov. 2014]. Roney, J. 2001, Language, Culture and Global Business | Graziadio Business Review | Graziadio School of Business and Management | Pepperdine University. [online] Gbr.pepperdine.edu. Available from: http://gbr.pepperdine.edu/2010/08/language-culture-and-global-business/ [14 Nov. 2014]. Schaack, D., Lernoud, J., Padel, S. and Willer, H. 2013, The Organic Market in Europe 2011 – Nine Percent Increase Compared with 2010. 1st ed. Available from: http://orgprints.org/23194/1/schaack-etal-2013-fibl-ifoam-report-p224-229.pdf [13 Nov. 2014]. Schulz, E. 2007, Time is money – understanding US business culture. Tcworld.com. Available from: http://www.tcworld.info/e-magazine/business-culture/article/time-is-money-understanding-us-business-culture/ [13 Nov.2014] TERPSTRA, V., & SARATHY, R. 2000, International marketing. Fort Worth, Dryden Press. Usunier, J. and Lee, J. 2012, Marketing Across Cultures, London: Pearson Education ltd Wholefoodsmarket.com 2014, Values Matter | Whole Foods Market. [online] Available from: http://www.wholefoodsmarket.com/values-matter [13 Nov. 2014]. Zing, A. 2014, Language in International Business. [online] Harzing.com. Available from: http://www.harzing.com/program5.htm [14 Nov. 2014]. Read More