The Market Entry into Indian Breakfast Cereal Market - Case Study Example

Developing marketing practice The market entry into Indian breakfast cereal market Executive Summary The breakfast cereal company with plant located in UK is planning to enter the international marketing in the Far East. The company has no expertise in exporting and would like to have an assessment of breakfast traditions in the market to find out any implication in the proposed entry of the company. There are several methods of market entry for the company and a suggestion to the appropriate entry is given taking into account the limitations of the company. These limitations are lack of experience in exporting, financial capability and marketing strategy. This framework sets the market entry recommendation of indirect exporting using export houses because of advantages it will give to the company. Introduction This study explores possibility of exporting breakfast cereals to the Far East Market, particularly, the Indian market. This is the first time the company will venture into foreign trade. The study includes investigating social and cultural aspects of breakfast traditions that might have some implications in the export proposal of the cereal company. A recommendation on export strategy is presented. Overview of breakfast traditions in the Far East Breakfast traditions in the Far East have been studied to know if by chance, there is an opportunity to challenge these traditions with new eating patterns from the West. Far East is composed of Brunei, Cambodia, People’s republic of China, Republic of China, East Timor, Hongkong, Indonesia, Japan, Laos, Macau, North Korea, Philippines, Singapore, South Korea, Thailand and Vietnam. Breakfast in Asia is far more different from the West. Each country has traditional breakfasts, but in most countries, rice has been observed to be present in every breakfast menu. (Mr. Breakfast) *Breakfast traditions on reported countries are all sourced from Mr. Breakfast. Chinese are not fond of eggs and toasts, and begins the day with a breakfast of rice with small amounts of vegetables, fish or meats. They drink a lot of tea and less coffee and soft drinks during breakfast and mealtime. They like to have noodles, porridge, dim sum, equivalent of appetizers in the West. Often times, these are sold by street vendors in the morning.(source) Japanese eating habit of rice for breakfast has been slowly changed to western style of breakfast. Recent survey conducted to 5000 respondents in Japan showed 40% enjoy traditional Japanese and Western breakfast; 24% prefer Western breakfast and the rest stick to the traditional Japanese breakfast. According to the survey, the most popular Japanese breakfast choices are bread, rice, miso soup, eggs, yogurt, natto, jam, sausage/ham, pickles, seaweed, cheese and pancakes. and pancakes. Breakfast of Korea is a large meal like dinner which is served with many courses of food. Traditional breakfast consists of rice, “fermented cabbage dish called kimchi”, beef and/or fish, soup made of either beef ribs or pork intestines, and often a selection of breads and pastries. Singapore takes pride of its signature breakfast dish known as Kaya Toast. It is a concoction of jam made from coconut milk, eggs, sugar, vanilla and a hint of pandan leaves spread on a slice of toasted bread with a little butter. This popular breakfast dish is served locally by Mcdonalds. Other favorites are dim sums, rice cooked in coconut. They also served tong ho choy, a different kind of tea cooked from pork ribs, herbs and soy sauce, but westerners call this soup. Breakfast in Vietnam consist of sticky rice, French bread and phu. Phu is a soup made from flavored wheat based noodles. Taiwan has no rice but is fond of dim sum, eggs, omelets, and sandwiches that are often sold by street vendors for breakfast. Review of Literature The review of literature covers articles and reports that will lay the ground for the consequent entry of the company to the Indian market; it will answer the question of “is there a substantial growth for cereal market abroad?” Farmhouse Breakfast Week (2009) report indicated substantial growth of breakfast cereal worldwide. According to this report, demand is driven by health value, costs and simplicity of cooking the product. Consumption of breakfast cereals, provides health benefits, reduce likelihood of being overweight or obese. These are also the reasons for the boom of breakfast cereals in Bulgaria as there is a perception that the product is part of healthy diet. (Euromonitor, 2006) Costs and convenience are other reasons for demand and these were quickly responded to by General Mills by offering an affordable breakfast option that cost only $0.50. GM contends that cereal products are convenient because it is easy and quick to prepare that even kids can do it themselves. Much more, manufacturers claim it is a breakfast alternative because of lower fat contents and calories aside from the nutrients of Vitamin D and Calcium in its contents. (Flexnews, 2010) Global Industry Guide reported a 3.3% growth of this market in 2008, reaching a value of $24.5 billion. Its sales are predicted to grow by 17.1% global volume in 2013 with a value of $28.7 billion. In UK 414,000 tonnes of breakfast cereals were sold in 2000 with a retail value of £1.1bn. (Research and Markets, 2001) Exports of breakfast cereals also grow by 17.2% as reports showed exports in UK reached an all time high in 2009. This report said export destinations are the EU, and growing sales outside Europe – in Oceania region and North America.(Food and Drink Federation 2010) Business Insights (2007) reported breakfast cereal sales in China is projected to grow by 37% increase in size, or 25.7 million tons in 2011 as compared to its 19 million tons of sales in 2007. From data available, it could be concluded that a demand for breakfast cereals has been created, cultural change patterns has been observed that led for the significant sales volume of breakfast cereals in many parts of the Far East. Analysis The INDIAN MARKET India, as of 2010, has a total population of 1.18 billion, 31% belong to 0-14 age levels, 63.6% belong to 16-64 age levels, and 5.3% in 65 and above levels. This size could be considered a significant market in the Far East. (Indiastat.com) What do they eat for breakfast Indian breakfast vary from region to region. Popular breakfast foods are scrambled eggs with spices, potatoes and onion as well as fresh fruits and yoghourt. A Hindi breakfast also consist of krinchi, a mixture of rice, lentils and spices. Tea is drunk all over India more often than coffee. For coffee people make their own, buying raw coffee beans, roast and brew it. Food are often spicy, as even pancakes are filled with spiced up meat and vegetables. In some area, like Kashmir, north of India, day starts early, and breakfast starts with tea and toasted bread. (Cuisine Net Diner’s Digest) The Indian market for cereal products. Who will eat them? According to recent reports, the market for bakery and cereals in India had increased at a compound annual growth of 10% between 2003 and 2009. (“ Recently released…”). This market comes from the preferences of children who love them for breakfast and snacks according to a consumer review of Sannah. The market is also driven by busy persons like students and workers eat them during breakfast because it is easy to prepare. Health conscious people, particularly elderly, and sports persons, eat them because of its nutrients value and others who are cost conscious who buy it because it is cheap (Sannah) PepsiCo who just entered the Indian market with their Quaker Oats said that the market is growing in urban places in India because people are busy and may not have enough time for breakfast. PepsiCo said that some difficulty it faced in India is the people’s preference for cooked breakfast such as toast and omelets. (Just Foods, 2005) Perception Perceptions of people on cereals are varied. Some say it is boring food; there are some dislikes on tastes, while others consider it good for weight maintenance. There are those who look at cereals as something that would control level of cholesterol. Mieke Faber ; Aj Spinnler Benad study showed that most mothers have positive attitude towards use of infant cereals because of health benefits. It was also shown in this study that although the product is available in the area, being in lower socio-economic sector, the intakes were below recommended nutrients. Recommendations Market entry The company will be testing international marketing for the first time. There will be many ways in which it can enter the Far East Market and penetrate the Indian market. The company has several options: exporting which could be direct or indirect and by foreign production. At this point, our company is not yet sure how to approach the market, manage a complex distribution and marketing process from afar. If the company goes into direct exporting, this means going into direct venture into India itself, company will have to hire specialists to handle parts of the process, or doing it all by itself. On the other hand indirect exporting lessens the necessity for travelling to India very often, and gets rid of the complexities of direct exporting. Another entry point company may take is through foreign production which could be implemented by licensing, joint ventures, ownership and participation in export processing zones, contract manufacturing, (BNet) Under the framework that the company has no experience in international marketing, it is small and has limited financial capacity, market strategy recommended is indirect exporting through any of the following arrangements: Sale through a foreign owned buying house. Overseas businesses such as grocery or retail chains often have buying houses in the U.S., which make fairly large-scale purchases. As the exporter, however, you will still be responsible for the physical process of exporting the goods. Commission agents. They seek orders on behalf of your business in return for an agreed commission on each order. You brief the agent on appropriate prices and terms and usually give the agent sole rights to represent your product in a country or region. Agents legally bind the business they represent to any contracts they sign for product orders. They do not deal with shipping or payment, which must be arranged separately. An agent will accept no credit risk on stock unless they are a “del credere” agent, charging a higher commission to compensate for the risk involved. Distributors. They hold stocks of your products, from which they fulfill local orders. Unlike agents, they usually take legal title to the goods, buying from your business and selling on their own account at prices that they fix themselves. They usually also oversee the export process. It is normal to grant the distributor an agreed area of operation and to take orders only from that area through them. Franchising. Involves selling a business as a ready-made package to a local franchisee in exchange for fees and a portion of profits. Franchising is a means of expanding your business rapidly while limiting management responsibility. Your product or operation must be unique in some way to be a viable franchise. The franchisee contributes towards capital and resources, and you are expected to provide a range of support, including training and technical services. * Export houses Export consultancies are generally small firms specializing in particular markets. They can offer separate services and support or provide comprehensive export management. Export merchants buy products outright from the manufacturer and sell them abroad. They usually take delivery and make payment in the U.S., and often specialize in certain products. When dealing with a new product, they will require an agreement to protect their investment in building overseas sales, and they may also request product or packaging changes to meet their market requirements. Confirming houses place orders with manufacturers and suppliers on behalf of overseas organizations and attend to all transportation arrangements. They can also act as agents for U.S. manufacturers and seek orders from their overseas contacts. Source: BNet Editorial: Exporting your products and services. From the above alternatives of entry, recommended option is use of export houses as the company is relieved on marketing and selling problems. All marketing activities from purchasing to transport and selling abroad are done by the company. Payment is done in the country of origin, and company is assured in the transaction. This lessens risk of company in exporting. Other activities that will be done by export houses pertains to product cycle of the breakfast cereal. It will have to address the correct marketing mix to penetrate the target market, that includes product, pricing, place of distribution and promotion. (See annex 1 for illustsration).It will pass the introduction, growth, maturity and declining stages. (QuickMBA) First stage includes marketing mix of product branding, pricing, distribution and promotion. Product branding and quality level is established by the cereal company including trademarks and patents. There are times that export houses require their own branding that will be agreed upon by importer and exporter. Importer will have its own pricing different from the exporter for mark-up, but exporter may establish guidelines. Distribution and promotion will be the responsibility of importer as it has the grasp and knowledge of positioning in the market. On the growth stage, importer continues with maintenance of product quality and pricing, and addition of distribution chanels as demand increases. An additional promotion is also needed for a wider acceptance of customer. At the third stage which is maturity, competitors come in that will decline sales of the company. To combat competition, importer and exporter need o work together to enhance product featurers, lower the price, emphasize product differentiation and to intesify product distribution. At the declining stage, options available for the company is to discontinue the product in that area and sell it to another area; reduce the cost, maintain the product by adding new features and new ones. At this point, result of analysis concludes indirect exporting thru export houses is advantageous to the cereal company being new in international marketing, it will release the exporter from responsibilities of the marketing mix and product cycle and limitations in finance and capabilities. Annex 1 The Marketing Mix 4Ps Source: NetMBA List of references: BNet Editorial (n.d.) “Exporting your products and services”. In BNet Basics. viewed 18 May 2010 < http://www.bnet.com/2410-13240_23-64256.html> Breakfast Cereals: Global Industry Guide. 2009. In Datamonitor Premium Research Reports viewed 18 May 2010 http://www.alacrastore.com/storecontent/datamonitor-premium-profiles/OHEC5102 “Breakfast cereals boom in Bulgaria, 2006, in Euromonitor Archive. Retrieved 17 May 2010 from http://www.euromonitor.com/Breakfast_cereals_boom_in_Bulgaria Business Insights 2007. Instant noodles and cereals in China, a market analysis. Viewed 18 May 2010 http://www.globalbusinessinsights.com/content/rbaa0051m.pdf - - Cuisine Net Diner’s Digest. (n.d.) Breakfast in India. Viewed 18 May 2010 from http://www.cuisinenet.com/digest/breakfast/india.shtml Farmhouse Breakfast Week 25th-31st January 2009 viewed 18 May 2010 Faber Mieke and Benade, Aj S. Perceptions of infant cereals and dietary intakes of children aged 4-24 months in a rural South African community. Published in International Journal of Food Sciences and Nutrtion, Vol 52, Issue 4, pp.359-365. Viewed 18 May 2010 from   http://www.informaworld.com/smpp/content~db=all~content=a713671788 Flex News.(2010) General Mills sees more US breakfast cereal consumer. Viewed 17 May 2010 from http://www.flex-news-food.com/console/PageViewer.aspx?page=29207 Food and Drink Federation, 2010. Exports of breakfast cereal showed an all time high. News Article. Viewed 18 May 2010 < http://www.fdf.org.uk/news.aspx?article=4887 Indiastat.com Demographics. Viewed 18 May 2010 http://www.indiastat.com/demographics/7/stats.aspx Just-Foods. 2005. INDIA: PepsiCo expands into Indian breakfast cereal market – report just market report.com. Viewed18, 2010 from http://www.just-food.com/news/pepsico-expands-into-indian-breakfast-cereal-market-report_id86045.aspx Kellogs’s Press Office (n.d.) Kellogs imported cornflakes to India. Fast Facts, viewed 18 May 2010 < http://www.kelloggs.co.uk/whatson/pressoffice/Company/fast-facts.aspx> Mr. Breakfast. Breakfast in Asia. Mr Breakfast Special Feature. Viewed 18 May 2010 NetMBA. The Marketing Mix: the 4Ps of Marketing viewed 18 May 2010 QuickMBA.(n.d.) The Product Life Cycle. Viewed 19 May 2010 http://www.quickmba.com/marketing/product/lifecycle/ Research and Markets. 2001. Breakfast cereals market report. Viewed 19 May 2010 http://www.researchandmarkets.com/reports/3509 Sannah, (n.d.). Cellogs corn flakes. Viewed 18 May 2010 Read More