ChoCo’a: Growth strategy for an established SME Final Assignment 1 (40%) Course Tile: Innovation Strategies Course Code: ENTR 640 Section: 1 Academic Year: 2015-16 Semester: Spring Available from Saturday 29 April 2017 @ 8 am Due Date: Sunday 07 May @ 11:55 pm PLEASE READ AND CAREFULLY OBSERVE THE FOLLOWING INSTRUCTIONS: 1. This is an individual Assignment worth 40%. You should NOT seek or obtain any outside assistance. 2. Use your own words for answering the questions. Marks will be awarded for critical thinking and originality of thoughts linking theoretical concepts you learnt in the course to the actual context of the case, and for adequately justifying your arguments and recommendations. 3. Reference ALL your sources using Harvard system of Referencing (see VLE for details). Do NOT copy and paste from other sources, it will not earn you any credits. 4. You are required to use primarily materials provided in the case for your analysis, which you may supplement with some secondary research about chocolate market in UAE. 5. Maximum word length including cover page, references, annexes and other information is 1800 words. There will be a penalty of 1 mark for every 50 words above the word limit. Please do not email me to ask for exception, as the same rule should apply to all for fairness. Instead, learn to write concisely to convey your ideas and arguments. 6. This assignment will be available from from Saturday 29 April 2017 @ 8 am, and you will be required to upload your response on VLE before Sunday 07 May @ 11:55 pm. Late submissions (maximum one day delay) will be penalized by 2 marks per day. 7. You may raise any queries on the case study during our Virtual class of Monday 01 May 2017. 8. All learners are expected to be present in final physical class on Monday 08 May 2017 for a viva on their submission. I will ask each learner a few questions individually on his/her submission. So, come prepared! 9. Label your file name with your first name and ID; e.g. Maysoon-200002016. 10. Relax, Good luck and enjoy the learning experience. Best Wishes! ChoCo’a: Growth strategy for an established SME ChoCo’a: Growth strategy for an established SME Source- Adapted from: Parahoo, S. K., & Mahate, A. A. (2016). ChoCo’a: Growth Strategy for an Established SME. Entrepreneurship in the Arab World: Ten Case Studies, 39-55, El Khazindar Business Research and Case Center, American University of Cairo Press. ABSTRACT ChoCo’a is a UAE-based chocolate artisan boutique established in 2004 in Dubai by Assem and Dina Hamzeh. From the very beginning the company believed in “Distinction”, “Indulgence” and “Superiority” and this has been important in ChoCo’a’s own brand positioning. Assem and Dina developed ChoCo’a as a unique concept “one-stop shop” chocolate artisan that produces the finest products from chocolate bars to truffles and pastries - a concept that is still quite unique in the UAE. Their international chefs were encouraged to creatively mix the select base ingredients with premium innovative Oriental and Occidental flavors to create mouth-watering confectioneries that ChoCo’a is reputed for. Being well established within the UAE market, the company now needed to develop a new strategy to take it to the next level of growth. This involved increasing its market share in the competitive UAE and regional retail and corporate chocolate market as well as potentially entering the dine-in market. ChoCo’a: FROM CONCEPT TO MARKET LAUNCH Choco’a (http://www.chocoa.ae/) is a UAE-based limited liability company owned by Dina and Assem Hamzeh. Assem is the Managing Partner and manages the entire operations and development of ChoCo’a, while Dina is the Retail Director and is responsible for executing and maintaining strategy, process and development of the single ChoCo’a boutique in Dubai. Assem and Dina jointly developed the foundation of the concept behind their new venture. They mixed chocolate ingredients at their home and experimented with new ingredients and trialed variances in the manufacturing processes. Right from this early time, Assem was convinced that chocolate needed be “respected”, with its consumption being an “educational experience”. They selected an artistic depiction of a cocoa leaf as their logo, which was creatively combined with the slogan “spread the obsession.” As illustrated in figure 1, the brand name vividly illustrates the passion required to make quality chocolate. This philosophy is exemplified in the words of Dina: “We believe that it is not only the cocoa beans, but passion, which makes great chocolate.” Figure 1: Artistic depiction of Brand name, logo and tagline of ChoCo’a Assem and Dina developed ChoCo’a as a unique concept and a “one-stop shop” as it grouped the finest from a variety of products; a concept that is still quite unique in the UAE. They opted to import highest quality couverture chocolate from Belgium, and recruited international experienced chefs with strong expertise. The chefs were encouraged to creatively mix the base ingredients with premium innovative Oriental and Occidental flavors to create mouth-watering confectioneries. ChoCo’a: Growth strategy for an established SME ChoCo’a thus grew into a manufacturer and retailer of chocolate products with a passion to “provide exquisite chocolate”. The product range of ChoCo’a extends to an assortment of exclusive pastries, cakes as well as bespoke arrangements and specially designed cakes for all occasions and celebrations. ChoCo’a also specializes in custom-made corporate products for companies seeking their very own branded chocolate gifts. While the factory includes state-of-the art automated machines to respond to mass, Assem has developed parallel artisan production processes that retain a strong element of artistic craftsmanship. The craft production enables ChoCo’a to offer flexibility and creativity in its products and to customize orders to individual customer needs. The management of ChoCo’a selected Dubai in the UAE for its location, linking the positive image of the city relating to “Distinction”, “Indulgence” and “Superiority” with its own brand positioning. In 2004, Assem selected a location in Al Barsha as the retail outlet (see figure 2). The ChoCo’a boutique is an intricately designed display area of 200 meter square artistically designed with a large counter area for retail customers. Figure 2: A view of ChoCo’a boutique at Al Barsha in Dubai GLOBAL AND REGIONAL CHOCOLATE INDUSTRY In terms of net sales, the major global confectionery companies are based primarily in the USA, (Mars, Mondelēz International Inc, Hershey Foods Corp); Switzerland (Nestlé SA, Lindt ); and Japan (Meiji Holdings; and Ezaki Glico Co Ltd). Global revenues from the chocolate industry are on the rise with a predicted annualized growth of around 2%. In the UAE, the growth has proved to be even steeper with Chocolate confectionery displaying a current value growth of 7% in 2012, to reach AED 829 million (USD 226m). In the UAE market, Mars GCC remained the undisputed leader within chocolate confectionery with a value share of 42% in 2012, supported by brands such as Galaxy, Snickers, Twix, Mars and M&M’s. Nestlé Middle East FZE ranks second, with retail value share of 17% for 2012, supported largely by the strong position of the Kit Kat brand (Euromonitor, 2013). Chocolate is becoming increasingly a premium product with brands such as Godiva and Lindt becoming almost mass market as consumers develop a taste for everyday glamor (KPMG, 2012). In the UAE this phenomenon has been particularly noticeable with the emergence of artisan chocolatier brands that are positioned to serve this luxury-seeking customer segment. Latest figures from Eurominotor (2013) for the UAE indicate that the total sales of various types of chocolates for year 2012 amounted to AED 1739.1m, out of which no less that 47.7% represented the sales of confectionaries. Therefore, the segment of chocolate confectionaries targeted by the artisan chocolatiers may by no means be considered as small, although the local artisan brands do face stiff competition from global giants such as Mars and Nestlé. Like in all asymmetrical battles the underdogs have some attributes. These may be identified as being a small local company, likable owner stories, market proximity, and a better appreciation of customer needs that they may leverage in their favor. This case focuses on the establishment and growth of an entrepreneurial artisan ChoCo’a: Growth strategy for an established SME chocolatier called ChoCo’a that has a single boutique outlet in the UAE and is attempting to carve a niche for itself in the highly competitive and fragmented UAE chocolate market. There are about 18 chocolate factories in Dubai alone (ChoCo’a internal document). However, as with many food products in the UAE, several chocolatiers in the UAE import ready-made confectionery products from countries such as Belgium, France or Switzerland and place their own brand on the products. As mentioned by KPMG (2012), an interesting development over the past decade has been the emergence of a “luxury” category, which constitutes the prime target market of ChoCo’a. ChoCo’a: MARKETING MIX CONSIDERATIONS Product mix decisions for its target markets ChoCo’a has chosen to market its broad range of delectable products using the unique company brand name (see figure 3). The company has in-house R & D personnel and designers who create chocolate gifts and special arrangements enabling a dynamic product range responding to the needs to consumer and business markets (see Table 1 for details): 1 Retails customers over the counter sales (Consumer markets, B2C) 2 Corporates (Business markets, B2B) Figure 3: A sample of ChoCo’a scrumptious chocolate confectioneries Table 1: Product/ target market mix for retail and corporate customers of ChoCo’a Market segment Products/Services Outlet and Channel 1 Customers: Retail counter Various product assortments: chocolates, cakes, tarts, French Patisserie, and pastries as well as pre-packed boxed chocolate gifts comprising of milk or dark chocolates in various varieties (Arabian delights, Oriental delights and mixed) in creative designs for events such as weddings, new born, festivals and birthdays. Support of in-house designers that will custom-design clients’ takeaways Counter sales in shop at Al Barsha 2 Corporates: Businesses and F & B sector In addition to its wide range of boxed gift products, the creative designers of ChoCo’a will create an exclusive range of chocolate gifts and special arrangements to corporate requirements. ChoCo’a targets, hospitality industries (F &B) for rooms and banquets services. It also serves corporate businesses including airlines, providing exclusive private Delivery to premises ChoCo’a: Growth strategy for an established SME As mentioned previously, Choco’a has identified 18 chocolate factories in Dubai alone. Most of these serve the retail market, providing local products or imported global brands. In a city renowned for its sweet tooth, it is not surprising that a quick online search identified a host of competitors in chocolate retail market including Godiva, Hershey’s, Forey & Galland, La maison du chocolat, Patchi, and Bateel (http://www.thedubaimall.com/en/shop/chocolates_confectionary_ice_cream/). Some of these brands such as Patchi and Bateel have also established themselves in the corporate market as strong competitors to Choco’a. The chocolate market in Dubai is therefore diversified and fragmented. While the major global brands capture the lion’s share of the confectionery market, there is scope for artisan retailers to differentiate themselves as they serve three market segments (retail dine-in, retail walk-in and corporate customers). This raises the question: Why would a retail customer buy the more expensive and less convenient artisan as compared to the global confectionery brands? Before responding to this question, it is useful to take a close look at the psychology of consumer behavior, which reveals three distinct types of buyers, each with different behaviors and demands (source: KPMG, 2012): 1. The convenience buyer: Although chocolate is often considered as an impulse purchase, it is becoming increasingly a planned purchase decision among consumers. Convenience is becoming more important to time-stressed shoppers, so that sale of tablet bars is becoming a lucrative market. 2. The value buyer: Value is an important consideration in many markets, particularly where the middle class is still being defined. For example, in the USA, 79% of consumers look for good value when purchasing chocolate, although 70% also want a name brand, implying that even value shoppers are expecting the reassurance of a quality brand. 3. The luxury buyer: With an increasing number of customers in both developing and developed economies adopting the premise that expensive chocolate is an affordable luxury, the luxury chocolate market is embracing the mainstream. In such a market environment: “Consumers like artisan companies because they are high quality and unique and that uniqueness and independence must remain.” (Mary Nanfelt, cited in KPMG, 2012). The changing consumer behavior trends may represent a competitive advantage for artisan chocolatiers. For this they must leverage their uniqueness, local roots, fresh produce, and responsiveness to customer needs and the latter’s specific local tastes and preferences to establish linkages with the customers. In so doing, artisan chocolatiers may leverage their potential to deliver product mix offerings that represent value to all three types of buyers described above. For example, convenience may be achieved by offering desired portion sizes with packaging adapted to the climate; value may be offered through the reassurance and affinity developed with a well-recognized local brand, while luxury may be realized through specific design creations to match the local mood, festivities and events. In this endeavor, the local chocolatier artisans benefit from likable personal owner stories. The challenge for local artisan chocolatiers is to achieve differentiation of their own brands in a highly competitive market while vying against global rivals with superior advertising muscles and global brand identity. For a boutique chocolatier such as ChoCo’a, this implies careful positioning to its target markets. This is a particularly tricky issue, for the different segments have different needs and aspirations. For example, the retail luxury customers are looking for that special product that is different from those of global commercial brands targeted to mass markets. Yet these retail customers, many from a growing middle-class are also looking for value (KPMG, 2012). ChoCo’a must therefore strive to deliver value label brands on exclusive boxed confectioneries to enhance corporate identity. ChoCo’a: Growth strategy for an established SME to this segment to lure them away from generic mass outlets such as supermarkets that offer the global chocolate brands. This has led ChoCo’a to position its products as “affordable luxury”. The objective is to enable ChoCo’a to increase the percentage retail sales value of specialist chocolate confectioners beyond the current value of 13.5%. On the other hand, corporate customers are looking for an exclusive brand with a luxury and a high-end brand image that will enhance their own corporate brand, when they associate with it and offer it as corporate gift. Finally, in the case of Choco’a, there is an untapped segment of retail dine-in customers which is looking for indulgence in an exclusive ambience to unwind and socialize with friends. In the next section, the needs of this segment and how it may best be served is discussed. Distribution channel considerations In addition to its offers to retail customers and corporates, ChoCo’a thus envisages developing a ChoCo’a dine-in boutique, which will be distinct from their Barsha outlet. It will involve a chocolate bar with a comfortable seating area to act as a perfect sanctuary for those who wish to unwind while treating themselves to the finest selection of chocolate delights and delicious pastries, while being pampered by a high-level personalized service. Dina Hamzeh, the retail Director explains their philosophy: "Our objective is to encourage clients to think of ChoCo’a as a well-deserved treat for themselves and their loved ones and not only for gifts on personal or corporate occasions ". Since the dine-in customers are looking for indulgence in an exclusive atmosphere with a pampering service, ChoCo’a has decided to open its retail outlet in a separate location/entity, and, the retail dine-in concept and mode of market entry (outlets fully owned by ChoCo’a, franchising, or developing strategic alliances with external partners) will require careful elaboration (see table 2). Table 2: The proposed product/market mix for ChoCo’a dine-in customers (source: internal Choco’a company document) Promotion mix Like many entrepreneurial ventures, ChoCo’a has focused on promotional activities that provide efficient returns on investments. ChoCo’a has thus been actively involved in promotional activities in synergy with strategic partners. Such activities have helped ChoCo’a interact with its customers, educate them about its brand identity, its chocolate products, and get their feedback and taste preferences. This interaction is further enhanced by continuous communication through its dynamic Facebook account (https://www.facebook.com/chocoachocolate), where ChoCo’a reached the landmark of 6000 likes in February 2014, a milestone fittingly celebrated with promotional activities. While still developing the share for its products and services in the competitive local market, the company has decided to internationalize, by partnering with gourmet stores in countries such as Russia, Japan, Australia, Morocco, Bahrain, Saudi Arabia, Kuwait, and Lebanon to expand the international distribution of its products. ChoCo’a professes a future strategy to expand to other international markets. To support their export strategy and promote their brand, the company has participated in global prestigious exhibitions and fairs. Pricing decisions The pricing of ChoCo’a reflects the quality of its ingredients, and the exclusivity of hand-made designer products. Nonetheless, ChoCo’a has developed a diverse product mix with prices of its product lines ranging from market penetration prices for its basic mass products to market skimming Market segment Products/Services Outlet and Channel 1 Dine-in customers, primarily female 25-50 years: locals, and Arab expatriates, GCC and MENA residents, with Western and Asian expats representing a growth market. Chocolate drinks; Chocolate confectioneries, cakes, tarts and pastries New concept: under development: chocolate bar to act as a sanctuary to unwind with a high-level personalized service. ChoCo’a: Growth strategy for an established SME for its exclusive designer creations. While retaining its luxury image, its objective is to represent “affordable luxury” to a growing market of retail customers. As an illustration, for their Ramadan collection, the prices proposed by Choco’a for off the shelf creations varied from AE 300-400 for the more exclusive arrangements, to AED 40-120 for smaller less elaborate chocolate boxes. The various competitors in the chocolate retail industry in Dubai emphasize differentiation in their individual creations rather than attempting to compete on price. As a result, it is not possible to make like comparisons based on price. Nonetheless, an online comparison of the prices of competing creations for festivals per unit mass between Choco’a and global competitors such as Patchi and Godiva showed that the price ranges were generally comparable. This rules out price as a differentiator in customer purchase decision. REFERENCES AESSEAL (2003). Guide to Sealing the Chocolate Confectionery Industry, [Online], [Accessed on 15 December 2013, http://www.arthomson.com/Literature/brochures/MechSeals/AESSEAL/IndustrySealingGuides/L_U K_CHOC.pdf.] Candy industry (2014). 2014 Global Top 100: Candy Industry's exclusive list of the Top 100 confectionery companies in the world!, Carla Zanetos Scully, January 31, [Online], [Accessed on 25 January 2014, http://www.candyindustry.com/articles/86039-global-top-100-candy-industrysexclusive-list-of-the-top-100-confectionery-companies-in-the-world?page=5] The Chocolate review (2014), The history of Chocolate, [Online], [Accessed on 24 January 2014, Available at http://thechocolatereview.com/history-of-chocolate/the-history-of-chocolate.html.] Euromonitor International (2013). Passport: Chocolate confectionery in the United Arab Emirates, January 2013, 52 pages. Available for purchase at Eurominotor.com. KPMG (2012). The chocolate of tomorrow: What today’s market can tell us about the future? June 2012, 12 pages, Available for purchase at kpmg.com. Lovelock, C. (2011).Services Marketing, 7/e. Pearson Education India. Martin, D. M. (2009). The entrepreneurial marketing mix. Qualitative Market Research: An International Journal, 12(4), 391-403. Personal interview with Mr. Assem Hamzeh, ChoCo’a factory, 11 February 2014. Terry G. Powis, W. Jeffrey Hurst, María del Carmen Rodríguez, Ponciano Ortíz C., Michael Blake, David Cheetham, Michael D. Coe & John G. Hodgson (2007). "Oldest chocolate in the New World". Antiquity 81 (314). ISSN0003-598X. Zarantonello, L., & Luomala, H. T. (2011). “Dear Mr Chocolate: constructing a typology of contextualized chocolate consumption experiences through qualitative diary research.” Qualitative Market Research: An International Journal, 14(1), 55-82. ChoCo’a: Growth strategy for an established SME QUESTIONS [2*20=40 Marks] The management of ChoCo’a has approached you to prepare a consulting report on growth and expansion strategies for ChoCo’a to respond to the opportunities and threats facing the company. The proposal brief provided to you mentions that you should focus on two issues: You are required to prepare a report of 1800 words maximum (including cover page, annexes and references, etc.) to respond to the call from ChoCo’a. In your report, you will recognize that as a SME, ChoCo’a has a limited budget for marketing communications, so your recommendations must be both effective and cost-efficient. Your work will be assessed for critical analysis, thinking, and justification of the logic of your recommendations. 1 How to consolidate the brand image and positioning of Choco’a as a local/regional artisan chocolatier by developing an Integrated Communications strategy to a. Grow its share in the local retail chocolate market particularly vis-à-vis global confectionery brands b. Grow the presence of Choco’a in the corporate chocolate market. [25 marks] 2 Undertake appropriate analysis of the dine-in chocolate market using secondary sources and make recommendations as to whether ChoCo’a should consider a market entry in Dubai dine-in chocolate market, and the mode of entry, to: a. Grow the turnover of the company b. Consolidate the brand image and positioning of Choco’a as a local/regional chocolate artisan. [15 marks]