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Feasibility and Strategies for Entering the UK Market - Book Report/Review Example

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The author of the paper "Feasibility and Strategies for Entering the UK Market" is of the view that the UK market is characterized by a more frugal post-recession consumer that is more price-sensitive, which is driving a value menu ideology with many potential UK foods competitors…
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Marketing report for Qizini Group B.V Feasibility and strategies for entering the UK market BY YOU YOUR SCHOOL INFO HERE HERE EXECUTIVE SUMMARY Qizini, a leader in the Netherlands, is seeking market expansion into the United Kingdom. Research has identified that consumer acceptance of quick service food products and ready-made foods (part of the Dutch business model) is substantial and provides considerable revenue opportunities for companies that develop these strategies. However, the UK market is characterised by a more frugal post-recession consumer that is more price-sensitive, which is driving a value menu ideology with many potential UK foods competitors. Whilst the exchange rate between the Euro and the British Pound are favourable, there will be inflation costs along the procurement supply chain to Qizini and a thrifty consumer that wants price-related value on their consumption decisions. Based on all research, the most significant issues for Qizini include inability to block new market entrants once established in the UK, logistical issues, threat of substitutes, lack of brand recognition and high costs associated with accomplishing this, unpredictable and disparate consumer characteristics, and many other competitors that position and differentiate based on quality. Whilst it was recommended that Qizini seek a different market, if the business defies this recommendation and still decides to pursue the UK, it is recommended to consider utilisation of vending machines, mobile food trucks, and limit the presence of stand-alone restaurants until the business has established a recognised brand identity in this market. TABLE OF CONTENTS 1.0 Introduction 1.1 Rationale 1.2 Aims and objectives 2.0 An analysis of the UK market 2.1 A broader consumer analysis – private label habits 3.0 Analysis of most critical issues to Qizini Logistics issues Effective targeting strategy development Brand recognition Differentiation New market entrants Threat of substitutes 4.0 Summary of findings and further recommendations References Marketing report for Qizini Group B.V. 1.0 Introduction Qizini is a leading producer of sandwiches, pizzas, ready-made meals and consumer take-home sauces in the Netherlands. In this country, Qizini is positioned amongst competition in terms of innovation and quality, emphasising the creative, incorporated ingredients used in making paninis, wraps, salads and sandwiches which differentiates the business from other competitive sandwich companies. This positioning is underpinned by a dedicated team of support professionals committed to providing top quality products and a leadership team that travels the world to identify new inspirations and innovations that can improve the taste and quality of its existing and future products (Qizini 2014). Founded in 1997, Qizini has managed to capture the interest and attention of Dutch consumers giving the business considerable market share in the sandwich industry. Qizini is considering market entry in the United Kingdom, a country in which Qizini maintains no brand recognition and where consumers may have differing needs and demands for their food purchases as compared to Dutch consumers. Qizini has distributed its products, in the Netherlands, at supermarkets, in railway stations, at petrol stations, and even on airplanes (Qizini 2014). This has given Qizini a positive reputation for quality with many different consumer demographics, representing more of a mass-market oriented targeting strategy. 1.1 Rationale Achieving growth in a domestic market that is saturated with competition is quite difficult without considering expansion opportunities for an established company. To improve the revenue position of the business and give Qizini more of an international brand reputation, seeking new market opportunities are critical to ensuring that the corporate life cycle of Qizini is extended. The Dutch food service market experienced a 3 percent decline in performance in 2012 (Euromonitor International 2014). The eating habits of the Dutch consumer are in a constant state of flux with new emphasis on healthier eating potentially driving this lack of growth in the restaurant industry in the country. Furthermore, there is a trend in the Netherlands in which consumers are preparing meals at home more frequently and 92 percent of surveyed Dutch consumers indicated that spending quality time with family with home-cooked meals are important (PeriScope 2013). Hence, this change in consumer behaviour justifies why entering a new market might better achieve growth for a company like Qizini who is faced with more at-home cooking trends and desire for healthier eating options. 1.2 Aims and objectives The aim of this report is to determine whether the UK represents a viable new market for entry for Qizini and determine the most effective marketing strategy that might make Qizini a profitable and competitive force in this market. The study maintains four objectives to fulfil this aim: Determine the market-related and competitive-related factors that could enhance or complicate a successful market entry strategy for Qizini. Determine the consumer behaviour characteristics of UK consumers that might promote interest in selecting Qizini over that of existing UK competition in this sector. Determine how Qizini might effectively differentiate itself from existing UK competition and establish a brand reputation giving the firm more clout in this new market. Investigate logistical issues of selling short-life products in the UK 2.0 An analysis of the UK market The UK has just recently emerged from the 2008-2010 recession which has created a new type of consumer. The post-recession consumer, once focused on purchase of premium products and extravagant consumer spending, is now attracted to thriftiness and frugality which is becoming a chic consumption ideology in the country (McDougall 2011; Flatters and Willmott 2009). Hence, there is much more emphasis with many consumer segments to pay close attention to pricing in order to satisfy UK consumers’ growing desire to satisfy prudence in consumer expenditures. Therefore, pricing issues of quick service food products could very well be an underpinning decision-making rationale for today’s consumers. QSR Web (2013) reports that UK consumers are more attracted to the value menu pricing structure in quick service restaurants, forcing many restaurants to adopt this value-pricing strategy. However, the UK fast food industry remains in a state of growth. A recent survey conducted by the Food and Drink Innovation Network found that a whopping 90 percent of the entire UK population had eaten food products at Subway and Burger King within the six month period when the survey was carried out (Dudovskiy 2012). This is justified by a turnover of £7.2 billion in this industry (Brown 2005), which justifies that there is potential for growth and gaining consumer interest in the United Kingdom. Qizini has found tremendous success by offering ready-made food products for distribution in the Netherlands in railway stations and petrol stations. In the UK, there is considerable growth in this product category which has prompted major supermarkets such as Tesco to create its Fresh and Easy concept that provides ready-made meals to busy UK consumers. Sainsbury’s has joined this concept of pre-packaged foods available at the firm’s supermarket locations (Sainsbury 2014). Whilst the specific economic statistics of this growing sector are not available, two major supermarkets investing the resources and capital into providing consumers with ready-made products illustrates a growing market with, at least, moderate consumer acceptance. With Qizini maintaining expertise and experience in providing top quality, ready-made products, the UK may represent a viable market for improving upon this strategy that has worked in the Dutch sales environments. From a logistics and procurement perspective, there are problems associated with market entry into the UK. Food inflation along the UK supply chain has increased by 5.6 percent between 2012 and 2013 (Hawkes 2013; Allen 2012). Qizini would need to procure fresh ingredients from within the UK in order to provide the most top quality and fresh products that are associated with the firm’s positioning strategy. However, with the Netherlands using the Euro as currency, the exchange rate between the Netherlands and the United Kingdom are substantially favourable for Qizini. Today, the Pound Sterling is worth only 79 percent of the Euro, thus giving Qizini considerable economic advantages when purchasing products using the Pound Sterling as the appropriate transaction currency. This favourable rate should ensure an offsetting of rising procurement prices on food products. To illustrate, a £40,000 procurement investment in the UK would only cost Qizini €31,600 if utilising domestic currency. 2.1 A broader consumer analysis – private label habits The thrift-oriented consumer profile in the UK has driven more interest in purchasing private label food brands (Key Note 2014; Business Wire 2011). With a frugal consumer profile emerging, consumers are less concerned about the name brand reputation of food products and are seeking those that provide the most perceived value. Qizini does not maintain any brand recognition in the country, however this disadvantage could be offset by consumers that are willing to buy products without an established name that can guarantee quality. Between the years 1982 and 2004, Tesco supermarket in the UK witnessed a 100 percent growth in private label sales (Coriolis Research 2004). Furthermore, it has been offered that consumers are most attracted to perceived quality when deciding to purchase private label products over name brand products (Hoch and Banerji 1993) in an environment where private label brands have shifted their positioning toward high-end quality (Steenkamp, et al. 2010). With Qizini not a recognised name, and with experience in positioning strategies toward quality, the UK represents opportunities for distributing ready-made products under the lesser-known Qizini brand with propositions guaranteeing superior quality that could be a success dynamic for ready-made distribution in supermarkets, vending machines, kiosks and other channels exclusive of the in-store dining experience. It may not require Qizini to invest, therefore, in establishing a competitive brand, but sell the majority of its pre-packaged, ready-made foods under a private label name to attract thrift-conscious buyers of multiple demographics. From a different perspective, Fournier (1998) indicates that UK consumers are sophisticated, highly reflexive and are apt to make recurring future purchases if a brand is capable of contributing to their personal needs for achievement of well-being. In the Netherlands, Qizini has adopted a set of brand values associated with sustainability. Qizini emphasises making efforts to reduce food waste and using sustainable products (Qizini 2014). In the UK, there is a growing trend in a phenomenon known as ethical consumption, whereby many market demographics favour consuming products from companies with a moral and ethical stance and objectives toward corporate social responsibility (Matthias and Cloke 2014). In fact, a very recent study conducted by Oh and Yoon (2014) found that the large majority of consumers surveyed would likely illustrate more loyalty toward companies with an emphasis on CSR and philanthropy as opposed to companies without such a publicised focus. With Qizini having pre-existing experience and talent in promoting its emphasis on reducing waste, this could have significant brand-related impact on UK consumers of multiple demographics. For instance, the post-recession UK consumer is also very focused on reducing waste (Flatters and Willmott) as part of their consumption behaviours today. The ethically-minded consumer and propensity to patronise firms and buy brands with an ethical focus has many opportunities for Qizini in establishing a respected brand identity. Qizini’s business model already supports ethics and sustainability, and waste reduction, as primary goals of the company. Hence, shifting pre-existing ethical marketing practices directly from the Netherlands to the UK, representing less cost for new promotional developments, might assist in building solid brand recognition and even brand preference without substantial marketing expenditures. 3.0 Analysis of most critical issues to Qizini Logistics issues: In the UK, the company will not only be competing against frozen pre-made foods available in UK supermarkets, but also established sandwich and other pre-made food products available in such locations as Tesco, Sainsbury’s, petrol stations, and even such outlets as Costa Coffee and Starbucks. Further competition from other sandwich quick service restaurants (i.e. Subway and Quizno’s and other local panini, privately-owned restaurants) complicate being competitive in a highly saturated competitive market environment. Qizini will not only have to establish contract agreements with major supermarkets and petrol stations (and other relevant outlets), but will require significant labour and capital expenditures to ensure that food is delivered fresh and timely to meet consumer demand in these retail channels. The sheer size of the UK compared to the Netherlands creates a logistical issue in ensuring that Qizini products gain as much exposure as possible in conjunction with significant financial expenditures to establish a new distribution network. Furthermore, in the most desirable regions of the UK (such as London and other urban regions), real estate costs are substantial. To achieve a viable location where consumer segments will likely provide expected revenue growth, the company will face considerable competition from major sandwich shops and smaller pubs and privately-owned restaurants. Qizini will certainly want to have stand-alone restaurant presence in the UK in order to cater to the consumer that wants an in-store dining experience. Maher (2010) reports that the average rental cost for commercial property in London is £50 to £70 per square foot (or approximately £50 to £70 per every three metres). This would, to support a 300 sq. metre facility, cost Qizini approximately £20,000 per month simply for rental space (not including utilities, labour, taxations, and other overhead costs). Capital expenditures for assets to support in-store facilities in major developed regions are substantially high in the UK as compared to the Netherlands. In the UK, there is approximately one vending machine in the country for every 55 citizens (Report Buyer 2011). The UK vending market is worth a considerable £1.94 billion (Research and Markets 2010). Vending sales for UK consumers are representative of approximately two percent of all household expenditures. Why is this relevant for Qizini? It is the strategic objective of Qizini in this new market to guarantee more sales of its ready-made products outside of the in-store restaurant, which contributes to more significant revenue growth for the firm in the Netherlands. The UK vending industry is very lucrative and accepted by UK consumers and this represents a method of potentially overcoming the logistical problems of distribution in the UK. It would only cost Qizini between £3,500 and £12,000 to procure their wholly-owned vending equipment that can literally be distributed anywhere where there are viable and high volume customer segments in a geographic region. Major companies such as Franchise Direct and Rondo Vending are instrumental resources in determining the most viable regions for vending machine establishment and gaining appropriate permits and approvals. Furthermore, there is a growing trend in consumers adopting quick service food options from mobile food trucks in the UK. Offers one food truck operator in the country, “sometimes you want a well-cooked, gourmet meal at your desk, but you can’t necessarily walk into a nice restaurant and tell them you want a take-away” (Yong 2013, p.1). Qizini can potentially avoid the high costs of facilities management and cater to a consumer that is more accepting of mobile food options in urban regions of the country. This would potentially allow for cost controls whilst also providing an environment to better engage interpersonally with disparate consumer segments in highly desirable urban regions. Through a few years of operating different mobile trucks with appropriate signage and logos illustrating the Qizini Difference, it can build the brand reputation and recognition needed to facilitate long-term communications with UK consumers. These trucks require only a one-time expenditure for operation and appropriate permits and would give the brand more mobility to expand brand visibility throughout the country. These can be operated using minimal labour support as well with very little overhead (excluding petrol and generators). This could very well be a viable strategy for initial market entry especially when creating direct marketing literature informing consumers of the growing strategic presence of Qizini as it transitions from a mobile business to an established in-store business for long-term competitive prowess. Effective targeting strategy development: The UK consumer is characterised as being highly individualistic with unique methods of self-expression and approaches to socialisation. Therefore, the company might have to incorporate different marketing strategies in order to gain the interest an attention of vey diverse and disparate demographics. Some consumers in the UK are motivated by social factors which influence their consumption decision-making whilst others are concerned about such factors as pricing, quality, convenience or benefit. To cater to multiple target segments can be a costly and intensive marketing endeavour and the benefits of catering to multiple niche markets might not offset these costs. Therefore, the firm will require a more mass market-oriented strategy that will have relevancy to the majority of consumers in the country. Qizini will likely have to conduct considerable market research (both qualitative and quantitative) prior to market entry in order to fully understand the dynamics of UK consumer behaviour. This is costly and will entail considerable effort on behalf of the management team at Qizini. However, to create a value proposition for Qizini that will be believable and acceptable to the UK consumer mass market, such research efforts are critical. There does not appear to be predictable attitudes, lifestyles and motivations for this individualistic culture as it pertains to consumption behaviours. Brand recognition: Without establishing brand recognition, it is impossible to develop further communications with desired target consumers (Keller 2012). It will be necessary to develop integrated marketing communications to effectively promote the brand, its values, and benefits for consumers using consistent communications strategies and messages. Billboards, print advertisements, even costly television advertisements will be necessary to make consumers aware of the brand name, its logo, and value proposition simply to raise awareness that a new quality-centric foods business has entered the UK market. It might even require guerrilla marketing strategies so that the product can be brought directly into the environments where UK consumers work and shop to build brand recognition. These are costly investments and would have to be offset by increasing sales volumes (as an outcome of successful promotional strategy), which could be complicated by success with such companies in the UK as McDonald’s, Subway, Wendy’s, Quizno’s, and other very recognised and respected competitive brands. Differentiation: Qizini would not be the only quality-centric foods brand in the UK that characterises competitive brand positioning. Whilst Subway, today, is mainly focused on differentiation through various pricing promotions, Quizno’s and Wendy’s strongly emphasise their firm’s quality focus and the utilisation of fine ingredients in many of their innovative paninis and non-traditional sandwich options. Qizini may have difficulty, in this very saturated environment, with developing a differentiation strategy that truly makes the firm stand out among other quality-positioned, established brand competitors. Qizini may need to explore alternative differentiation strategies besides just quality in order to make the brand stand out amongst concentrated regional competition. New market entrants Qizini does not maintain any notable proprietary competencies that set-up barriers to new market entrants, which is recognised by Porter (1987) as being significant threats to a business. It does not require significant capital to start a new sandwich business offering comparable products to Qizini and franchise opportunities for such a new entrant are widely available in the UK with support from government and industry experts to facilitate such a venture. It is quite difficult to establish intellectual property protections on food products that often use standardised ingredients and the only real protection is the trademark on the name of a product. With an inability to pose barriers to new entrants, Qizini can face considerable competition from small and large organisations seeking to emulate a similar model to that of Qizini in a very developed nation. Threat of substitutes: UK consumers, exposed to a very developed infrastructure for distribution, procurement, and the presence of major hypermarkets in most developed regions of the country, have many options. Their switching costs for choosing a different quick service foods producer are very low and they hold considerable bargaining power in the market. The company will be facing substitute threats that are wide-ranging including small pubs that run short-term price promotions on similar creative sandwiches and appetizers, many different established and smaller-sized pizzerias (namely Pizza Hut), frozen ready-made foods available in frozen and fresh sections of supermarkets, and a plethora of fast food restaurants with well-known brand names. Though in the Netherlands Qizini may be considered a creative leader in innovative sandwich formulas, this is a common innovative strategy for restaurants throughout the UK. Hence, it will likely be necessary for Qizini to incentivise purchase intention with desired consumer target segments in order to make Qizini the brand of choice in a well-developed market with ample substitute products available. Online sweepstakes promotions, in-store instant win strategies, or other relevant incentives-based marketing strategies will likely be necessary to offset these risks. 4.0 Summary of findings and further recommendations Whilst the ready-made food sector and the quick service competitive environment appear to be viable for Qizini to seek market entry into the UK, the high volume of challenges presented to the firm create question as to whether Qizini can achieve competitive and revenue-based successes in this foreign country. The frugal consumer emerging as post-recession phenomenon is driving many businesses to adopt a value menu pricing structure in the quick service foods sector. Hence, Qizini may not be able to justify its quality positioning, if determined as a viable positioning strategy for this market, with a higher price tag. Hence, Qizini may have to rely on recurrent price promotions in order to sustain consumer interest in this nation. According to marketing theory, price promotions are often how consumers truly measure a brand’s quality. UK consumers have, today, grown accustomed to price promotions as a competitive strategy, evident with McDonald’s and Wendy’s value menu strategies. Qizini may have to select a penetration pricing strategy, setting a lower short-term price on its products, to gain interest and assure UK consumers that its products are quality. After establishing proof of quality and innovation, prices can be adjusted accordingly. It is further recommended that the company, in order to expand its ready-made product revenues, seriously consider the utilisation of vending machines in a highly profitable vending industry in this country. Qizini can cater to the convenience-oriented consumer in this fashion, reduce substantial logistical costs for product distribution using this methodology, and lessen the impact of facilities management costs necessary in a traditional quick service foods model. This would only require establishment of a quality distribution division to ensure that foods are properly refrigerated, are kept to freshness and expiration dates (and subsequently replaced accordingly), and provides very low-cost marketing opportunities pertaining to adding logos and other brand-related messages on wholly-owned vending machines. This would bring ready-made products out of the hypermarket and petrol stations and into the workplaces of busy professionals and other areas where consumers are on-the-go. This would lessen the cost burden in terms of logistics to seek distribution of these products in supermarkets where the supermarkets, themselves, are seeking this strategy and may view an external distributor a threat to their own profitability. After assessing the dynamics of UK consumer behaviour (and its lack of consistency amongst disparate demographics), the inability of Qizini to block new market entrants, the substantial capital and labour investment into building brand recognition, and intensive competitive forces and substitute product availability, it is not necessarily recommended that Qizini seek entry into this market. It might be more viable to seek a developing nation without such competitive threats as a means of expanding the brand and achieving growth. The UK market, based on all research identified in this report, poses potentially more challenges and costs to the business than opportunities, at least in the short-term. If Qizini manages to create a differentiated brand identity that is incentivised (through pricing or other strategies) to build recognition, then it can pursue seeking more relationship development with these unique and sophisticated consumers in the United Kingdom. If Qizini does decide to enter the UK, it should be prepared for high commercial investment costs for asset procurement, difficulty differentiating the business from many experienced competitors with established brand names and personalities, and gaining contract negotiation outcomes with supermarkets and hypermarkets to distribute Qizini ready-made products. Many consumers are loyal to such brands as Pizza Hut and may not be willing to switch to Qizini despite high expenditure into promoting why the quality of its pizza products are superior and more innovative than established pizza quick service restaurants. Through the exploitation of mobile trucks, vending opportunities, and only a handful of in-store, quick service restaurant facilities in highly concentrated urban population regions, the company may be able to establish the necessary brand recognition needed to achieve market success. To enter the market without conducting focus groups and surveys with UK consumers would likely be a failure opportunity and it is recommended that Qizini begin formulating a strategy to achieve this important data before attempting to simply transfer the existing products and general business model from the Netherlands to the United Kingdom. References Allen, K. (2012). UK food inflation pushes higher, The Guardian. [online] Available at: http://www.theguardian.com/business/2012/apr/04/uk-food-inflation-higher-brc-neilsen (accessed 16 November 2014). Brown, S. (2005). Strategic operations management. Butterworth-Heinemann. Business Wire. (2011). 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Consumers and their brands: developing relationship theory in consumer research, Journal of Consumer Research, 24(March), pp.343-373. Hawkes, S. (2013). Britain has highest food and energy inflation in Europe, OECD says, The Telegraph. [online] Available at: http://www.telegraph.co.uk/finance/10098624/Britain-has-highest-food-and-energy-inflation-in-Europe-OECD-says.html (accessed 16 November 2014). Hoch, S.J. and Banerji, S., 1993 When do private labels succeed? Sloan Management Review, 34(4), pp.57-67. Keller, K.L. (2012). Strategic brand management: building, measuring and managing, 4th edn. Prentice Hall. KeyNote Ltd. (2014). Anyone for budget lobster and champagne? How luxury own brands are boosting private label sales. [online] Available at: http://www.keynote.co.uk/media-centre/in-the-news/display/anyone-for-budget-lobster-and-champagne%3F-how-luxury-own-brand-ranges-are-boosting-private-label-sales/?articleId=1371 (accessed 15 November 2014). Maher, P. (2010). 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[online] Available at: http://www.qizini.com/en/about-qizini/qizini-is (accessed 17 November 2014). Qizini. (2014). Qizini friendly for people and the environment. [online] Available at: http://qizini.co.uk/sustainability (accessed 17 November 2014). QSR Web. (2013). Report: Restaurant deals no longer driving traffic. [online] Available at: http://www.qsrweb.com/article/210305/Report-Restaurant-deals-no-longer-driving-traffic?rc_id=312 (accessed 19 November 2014). Report Buyer. (2011). Automatic vending: UK market report. [online] Available at: http://www.reportbuyer.com/consumer_goods_retail/shopping/vending/automatic_vending.html (accessed 18 November 2014). Research and Markets. (2010). Automatic vending marketing report. [online] Available at: http://www.researchandmarkets.com/reports/1202775/automatic_vending_market_report_plus_2010.pdf (accessed 17 November 2014). Sainsbury. (2014). Sainsbury’s extends Taste the Difference ready meals range. [online] Available at: http://www.j-sainsbury.co.uk/media/latest-stories/2013/20130517-sainsburys-extends-taste-the-difference-ready-meals-range/ (accessed 17 November 2014). Steenkamp, J., van Heerde, H. and Geyskens, I., 2010 What makes consumers willing to pay a price premium for national brands over private labels? Journal of Marketing Research, 47(6), pp.1011-1024. Varul, M. and Cloke, P. (2014). Ethical consumption in the UK and Europe: new developments and new challenges for policy, practice and research, ESRC Impact Report RES-451-26-0489. Yong, D. (2013). Gourmet meals on wheels – recent entrants are giving the mobile food service concept an upscale boost, The Business Times Lifestyle. [online] Available at: http://www.businesstimes.com.sg/archive/monday/lifestyle/wine-dine/gourmet-meals-wheels-20130302 (accessed 15 November 2014). Read More
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