Market trends in food industry

According to The Nibble’s 2008 food trends, the magazine about gourmet foods and specialty foods, green-produced food and organic food are become worldwide food trend. Healthy, nature and environmentally friendly products are become important factors of choosing fast moving consumer goods. (The Nibble 2008)

ThreeSixty was founded in 2006 at Hong Kong. It is Asia’s first and Hong Kong’s largest supermarket for nature and organic food. There are currently two shops located in Hong Kong, The Landmark in Central and Elements in Tsim Sha Tsui. ThreeSixty is one of the members of Dairy Farm Group, a leading pan-Asian retailer. (ThreeSixty 2010)

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The company had a simple philosophy – “To champion the well-being of people and planet”. Although ThreeSixty only has a short history, its products are environmentally friendly household and lifestyle products. This lies behind the ThreeSixty message ‘provide natural, environmentally friendly and healthy product.’ It needs to benefit for the customers while creating better world through understanding, knowledge and positive personal action. (ThreeSixty 2010a; ThreeSixty 2010b)

ThreeSixty do not have any expansion to other country. Therefore, this assignment will analysis ThreeSixty and its environment and evaluate the possible strategies and recommend the future plan for ThreeSixty to enter southern China and becomes a successful brand in Asia.

2. Situation Analysis

Since ThreeSixty is the market niche player in the food retail industry, it needs to develop in the market niches that are safe and profitable. It chooses to specialize in parts of the market which are limited in size and be potential. At the beginning the situation of ThreeSixty has to analysis clearly in order to plan to other place.

2.1 The industry and market trends

East Asia is today the most rapid developing retail market in the world. East Asia has the large population with strong population growth and rapidly modernizing industrial economies. It attracts the world’s leading retail businesses for the past 10 years. (Krafft, Mantrala 2006)

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Krafft (2006) pointed out that East Asia is the beginning of the race. Although there are some companies have already entered into the market, it has still market potential because of the new started market. There is a huge demand for distribution in East Asia and developed by overseas firms, since East Asia become one of the major markets. China and Japan is the most attractive countries for investment in East Asia, since they are the second and third largest retail market in the world respectively.

According to the report of Data Monitor (2010), small convenience stores provide main channel at the China food retail market. Moreover, Supermarkets, hypermarkets and specialist retailers as a player act in an active role in the competitive market. But there is a trend of large chain supermarkets or hypermarkets and some smaller specialty, luxury or organic food outlets will become a main channel in the future.

2.2 Internal Analysis

It is the analysis that connects with external analysis. The analysis is focused on company itself. It provides the clear picture that the company can expand to the other market or not.

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2.2.1 Company position – PLC model and BCG Box

On the PLC model (Figure 1) one can point out that ThreeSixty is in introduction stage because it is in the period of creating consumer awareness and stimulate trial. (Kerin et al. 2007) Since it started at 2006, the company is now needed to inform and educate customers to increase its sales in Hong Kong. (ThreeSixty 2010f)

Fig 1: Product-life-cycle model (Paper4You 2009)

Also, using the Boston Box (Figure 2) ThreeSixty is a ‘Question Mark’ for the Dairy Farm Group. These are business units with low market share in high-growth markets, since organic product becomes one of the trends in Hong Kong. It needs high cash requirements because of their weak position. As in Product-life-cycle, the company is in introduction stage, it needs to build through increase the market share to strengthen its position. It is a strategy for ‘question mark’ to become a ‘star’. (Kerin et al. 2007)

Fig 2: The Boston Consulting Group Box (QuickMBA 2010)

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2.2.2 Marketing Mix

‘4 Ps’ as be known as: Product, Price, Place and Promotion. For the detail of marketing mix, it has the clear view on the company setting its tools to the customers. It can create the response to target customers through 4 Ps tactically and different from its competitors. There is a marketing summary in Figure 3 and a further description in Appendix 1. (Kerin et al. 2007)

Fig 3: Marketing Mix Summary

Product

Price

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Place

Promotion

42 brands separate into 5 kinds of product and in 11 categories

Premium pricing

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Two shops in Hong Kong

Mostly using Newsletter

High Quality

Location:

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Landmark in Central

Elements in Tsim Sha Tsui

Using sales promotions for some special food on specific period

2.2.3 SWOT Analysis

Based on the marketing mix and the company position, SWOT analysis (Figure 4) can be finally concluded. SWOT analysis is the combination of internal controllable factors and external uncontrollable factors. It is the impact on the strategy development. (Johnson, Scholes, Whittington 2006) The detail described in Appendix 2.

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Fig 4: SWOT summary

Strengths

Weaknesses

Strong Resources

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Special skills

Specific Location

Little interest to large competitor

Product range limitation

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Limited marketing campaign

Opportunities

Threats

Healthy and organic trend

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Potential of China market

Less suppliers

Relative market share is small

2.3 External Analysis

After exploring the internal analysis of the company, it can have the external analysis to know the overall environment that ThreeSixty met. PEST Analysis is one of the tools to know more about the company environment in Hong Kong.

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2.3.1 The macro-environment in Hong Kong – PEST Analysis

The macro-environment influences on the industry which need to be considered within the analysis. The relevant aspects for the food retail industry are shown in Figure 5. This analysis is mainly focused in the Hong Kong environment. For the detail, please refer to Appendix 3.

Fig 5: PEST summary

Political / Legal

Economic

Change of government

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Modernization

Tax policies

Property rights

Member of WTO

GDP trends

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Regional economies

Socio-cultural

Technological

Festival celebration

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Gift giving

Face-saving and conspicuous consumption

Improving infrastructure

Developing logistics system

For the political side, Hong Kong is a Special Administrative Region of China which using ‘one country, two systems’ for making Hong Kong political and social stable. According to the Sino-British Declaration, Hong Kong is owned by China and using market economy for the future. Hong Kong Government can implement any business-friendly laws. This freedom can allow the companies like ThreeSixty operate in Hong Kong. ThreeSixty must be followed the rules and regulation imposed by government.

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In the economy environment, Hong Kong is international city that famous in commercial. But the government is now encouraging the development of leisure industry. Many visitors, especially mainlander, may come to Hong Kong and stimulate Hong Kong Economy. Also, there is the benefit for Hong Kong business entering to China Market, CEPA. It can have the privileges on the China Government restriction.

Hong Kong is a well developed city and the technology is maturity, especially the logistics systems. Hong Kong has good infrastructure, especially computer-based system. As a retailer, logistics industry is one of the important factors for retailer delivering products and services. The technology of logistics is well-developed in Hong Kong. Therefore, the tracking systems can provide well information to the retailers. The logistics system is same as European countries and had the high product delivering quality process.

Moreover, the Internet is very common, since many people in Hong Kong have the computers. The company can easy to use the internet resources and promote at the website.

3. New Market Analysis

After analysis the current situation of ThreeSixty, it needs to have the detail summarize on potential new markets, Southern China that the company should enter.

3.1 Industry’s competitive environment – Porters five force

ThreeSixty wants to locate in food retail industry in Southern China. The meaning of food retail market refers to the retail sales of all food products, both packaged and unpackaged, as well as beverages (including retail sales of all alcoholic and non-alcoholic beverages). (Data Monitor 2010, pp6) Porter (1980) pointed out that its model can influence the state of competition in an industry illustrated in Figure 6 and specify in Appendix 4.

Fig 6: Porter’s Five Force (QuickMBA 2010a)

The following table is the clear result of the analysis. It is drawing all the outcomes together and summarized in the table.

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Fig 7: Five Force Summary

FORCE

VALUE

PROFITABILITY

Barriers to entry

Medium

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Medium

Competitive Rivalry

Low

But trend to become medium

High

Threats of substitutes

High

Low

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Buyer Power

Weak buyers (Low)

High

Supplier Power

Strong suppliers (High)

Low

Environment: high attractive

Because the organic food market is new at the industry in China, the entry barriers become normal. As the competitive rivalry, the trend will become higher than now. Since the switching costs of organic food are low, the threats of substitutes are very high. For the organic food, customers know the different and most of the purchaser usually less price-sensitive. Since there is lack of organic suppliers of organic food, it gains the high bargaining power of suppliers.

3.2 Social and Cultural considerations

As Yuan (2008) said, traditional Chinese values influence most Chinese and affect the customer behavior and purchasing decision. The China cultural values include festival celebration, gift giving, face-saving and conspicuous consumption.

The most important festival in mainland is Chinese New Year and Mid Autumn Festival. During these festival celebrations, the purchasing rate is relatively higher than the normal days. It is similar as the Western festival – Christmas, there is a lot of buying for celebration purpose and for gift giving. Gift giving in Chinese mind is not only for their family and relatives. Chinese usually want to develop friendship and partnership for business interactions and it is one of the traditional factors that created in every Chinese mind which is called ‘Guanxi’, it means relationship in English. (Yuan Wang et al. 2008)

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For the face-saving and conspicuous consumption, Chinese usually want to show off themselves by ‘Mian-Tsu’, which means face. Through this consumption pattern, Chinese can demonstrate their status and success. Chinese organization operates like an extension of the family system. The relationships between superior and subordinates are viewed as father and son or master and servant. Based on this relationship orientation system, Chinese people always work in a group. This buying action can stand out from the crowd and admired by others and gain acceptance from the society and groups. (Oliver 1994)

Another part of socio-cultural is the social factors that affect Chinese consumption. There are three social factors dominated Chinese mind. The referent group can be identified into three types. It is similar as the western which is membership groups, aspiration groups and dissociative group. The next major social influence is family. There are three roles for the family members. For the husband, they usually buy life insurance, hifi and cars. Wife dominated in purchase washing machines, carpets and kitchenware. Some living room furniture and entertainment are made decision by those members. (Kerin et al. 2007)

Based on those reference groups and family, the China reference group was born. Compare to the other western countries, China reference groups could consist of more members. Since China is focused on its family system, relatives become the most important factor. It is necessary to listen to the relatives when making any decision. “People from same village or town” is an important social group in China which is not important in other countries and cultures. Chinese think that it is warm when meeting somebody that come from the same village and town, the feeling just like meet with their family. The other social groups are similar as western countries which are friends, neighbors, business contacts and work colleagues. (Oliver 1994)

4. Strategic Options

After finishing the analysis on internal and external, it can set the strategies to enter the new market. For the new market, it is necessary using Porter’s generic strategies to set a competitive advantage and Ansoff Growth matrix to seek for opportunities.

4.1 Positioning – Porter’s generic strategies

The positioning of ThreeSixty is using Focus strategy (differentiation). The strategy can act as a competitive advantage in the industry. The positioning can help the company to strengthen its position and gains more profit. For the detail please refer to Appendix 5. (See Figure 8)

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Fig 8: Porter’s generic competitive strategies model (QuickMBA 2010b)

4.2 Ansoff Growth matrix

Ansoff Growth matrix (Figure 9) is a tool that helps and identifies the businesses to decide their product and market growth strategy. It is a useful framework to seek the possible and new intensive growth opportunities. (Doole and Lowe 2008)

Fig 9: The Ansoff Matrix (QuickMBA 2010c)

ThreeSixty might sell existing product in a new market to become an Asian brand in the future. It needs to start from Market Development which enters into the new geographical markets to improve existing business. ThreeSixty may able to choose Diversification for the long-term development. It helps ThreeSixty to seize on the new opportunity of attracting industry. But it is the risky strategy that involves outside the core competences of ThreeSixty. (Doole and Lowe 2008)

5. Strategic Recommendations

After knowing its position and using Ansoff Growth matrix, it is possible to make the further strategies for ThreeSixty to have the future growth and make the recommendations on how the company becomes one of the successful brands in Asia.

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5.1 Short-term: Hong Kong and Southern China

In the short-term view ThreeSixty should concentrate on the further expansion in China. Since Southern China has the similar consumer culture and lifestyle as Hong Kong, it is easy to distribute the retail network. The other step is to put more effort on promotion in healthy, natural and organic food. It needs to build up the strong awareness in customers mind. McGoldrick (2002) pointed out that advertising has become a major area of marketing expenditure and a key element of the marketing mix for most large-scale retailers. It is easy to win customers and sales, increase expenditure by existing customers, increase store traffic and develop store image at the short-term strategy.

There is still had potential in Hong Kong market. It is necessary to continue develop on this market to strength its position. Since there are only two shops in Hong Kong, it can make the distribution network wider and gain more sales in introduction at Product-life-cycle.

5.2 Middle-term: China

The strategy medium term is to continue develop in China, since ThreeSixty has the maturity business in southern China. It requires company to enlarge the resources though open many shops to convince customers. There are so many geographical and cultural differences within China. ThreeSixty is not able to use one single approach to marketing. It needs to have the better understanding in consumer behaviors that arise from China’s geographical diversity. Knowing different cities’ value, for example second-tier cities, can help to develop the distribution network easily. (Pierre 2008)

5.3 Long-term: Japan, Thailand, Vietnam and Singapore

This step would require a more long and specific preparations. Different Asian countries have different culture and preference. Entering to those countries, it needs to have a good knowledge about the country and have deeply research on its customer behavior. It is the most risky strategy at the future. Therefore, it is not the time to make any statement on ThreeSixty about the future.

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6. Conclusion

For the growth strategy, it is necessary to enter into the new market. It is a difficult task for the management of the company and as well as the resources allocation that needs to plan well and in order to become a successful firm.

ThreeSixty enters into China market as the first step on internationalization. It is not able to expand in China rashly although China culture is similar as Hong Kong. It needs to consist with its resources and customers’ demand and distribute in step-by-step. It is recommendable to do some researches to find out the market data and reduce the risk in the new market.

The last, brand image of the firm is also important. To create a clear image can be differentiated from the major competitors and itself and build up a strong awareness in customers’ minds.

Appendix

1. Marketing Mix

Product

To maintain its high level of product quality, there are only five kinds of product, organic food, natural food, ethical food, functional food, environmentally friendly products, conventional products and artisan products, can found in ThreeSixty. The company has the high quality control on selecting brands to put into their shelves. There are only 42 brands are now in shelves. It can build up the confidence of choosing product brands through the food safety and quality. (ThreeSixty 2010e)

The company’s philosophy supports the mission ‘ThreeSixty is about our life, our world and our future’. ThreeSixty is concentrated on the product selection for selling. The products are totally organic, natural and healthy under ThreeSixty standard which match the company mission using healthy product in our life. (ThreeSixty 2010c)

For different customers ‘taste’, ThreeSixty has separated different products into different types. There are ‘Gluten-Free’, ‘No Trans Fat’, ‘High Fiber’, ‘Sugar-Conscious’, ‘Low Sodium’, ‘Low Cholesterol’, ‘Dairy-Free’, ‘Vegetarian’, ‘Nut-Free’, ‘Wheat-Free’ and ‘Yeast-Free’ products. It is easy for customer to choose their favor rather than spend time on checking the nutrition. It can create the trusty, honest and integrity. (ThreeSixty 2010d)

Price

The pricing reflect to the product differentiation. Doole I. and Lowe R. (2008) pointed out that it is to emphasize the different between products targeted at several market segments. As ThreeSixty case is necessary to use premium pricing for its product to create an exceptional reputation and represent exceptional product quality. Since its products are organic, healthy and natural, it targets on the narrow customers and encourages favorable perceptions among them. (Sean Brierley 2002)

Place

For controlling the company quality and its image, ThreeSixty sells its product only through two shops in Hong Kong. It is necessary that provide a strong image through the shop design and the distribution channel. It can easy to control over the selling process and build the customers relationship by the retails outlets.

Promotion

ThreeSixty needs to very careful by choosing the advertising campaign. The company commonly uses newsletters. These help to exposure its brand to the public and establish the brand loyalty for repeat purchase. In those newsletters, it usually puts some education parts for readers to have the detail on healthy, natural and organic items. It can refer to the company message to educate the people for using those environmentally friendly products. The company wants to create a better world through understanding, knowledge and positive personal action. (ThreeSixty 2010f)

Furthermore, there are some sales promotions for some special food on specific period. It can attract more people to try the new products. It can easy to consist with its company philosophy and attract more people to try those healthy products. (ThreeSixty 2010f)

2. SWOT Analysis

Strengths

Under the Dairy Farm Group, ThreeSixty has the strong resources to distribute its stores and operate in easy way. It can reduce the risk when the company is attacked by other competitors. Kotler (1988) pointed out that market niche player can have the skills to serve the niche effectively. ThreeSixty is used its unique selling point, selling healthy, organic and natural product, to defend itself at the competitive market. (ThreeSixty 2010b)

For the special segment, the attraction at the industry is become lower. The large competitor in Hong Kong, such as Wellcome and Park’N Shop, are not willing to increase their market share through attack the market niche player. It is relatively stable and safe in the market.

The special location is one of the strengths in the market. ThreeSixty only has two shores in Hong Kong and both shops are located in high-ended shopping mall. It is hard to find other active competitors in that shopping mall. It can avoid the head-on attack. (ThreeSixty 2010)

Weaknesses

First of all, the product choices in ThreeSixty are very limited that cannot satisfy customers’ needs. There are only 42 brands in the shops. It is difficult to reach all the customers. The market size may be smaller than the estimation. (ThreeSixty 2010e)

Because of its positioning, there are only little marketing programs. ThreeSixty only use newsletters and sales promotion, for some special period, to attract the customers. The reputation and customers buying behavior are relatively lower. (ThreeSixty 2010f)

Opportunities

Healthy and organic products are become popular represent an opportunities for ThreeSixty because the product sold in the shops are organic and healthy. (TABS 2010) Krafft (2006) pointed out that entering China market is the global trend because of their consumption power. China has the rapidly growth in the emerging market. It is the chance to enter China to expand the business.

Threats

Since there are only few suppliers that meet ThreeSixty quality in the world, it only has less choice for the customers choose. Suppliers bargaining power is quite high when there is limitation of suppliers. The cost of the product may very high. It affects the price will mark higher for customers.

Moreover, since ThreeSixty is the market niche player, the market size is very small. It comes up the threats when the segments are decline. Because of its special target, it is hard to change the direction of the company. It can only keep on finding potential customers.

4. Industry’s competitive environment – Porters five force

The threat of new entrants

The strength of the threat from new entrants is depending on two factors are the strength of the barriers to entry and the likely response of existing competitors such as Wal-Mart, Carrefour, CR Retail and Lianhua Supermarket to the new entrant. (Data Monitor 2010)

The major sources of entry barriers in the food retail industry are Wal-Mart and other major players have competitive advantages of market coverage experience and know-how in food retail service sector. According to the Data Monitor (2010), Wal-Mart achieves economies of scale by leveraging its global resources. This allows Wal-Mart to set the competitive pricing strategy or provide customers with attractive promotional offers.

The rivalry of existing competitors

As the result of Data Monitor (2010), the food retail industry is very competitive in China due to the four leading retail companies in China. They are Wal-Mart Stores, Lianhua Supermarket, CR Retail and Carrefour. The retail food market is dominated by their retail chains and each of them has a very close market share.

Moreover, the high fixed or storage costs as well as operation costs and the food retail service is lack of differentiation or switching costs are low.

The threat from substitutes

Based on Data Monitor (2010) data, the substitute of the industry is the food service (takeaways, vendors and restaurants). These can provide similar product or service as ThreeSixty currently providing in the industry.

The impact of such substitute can be summarized as the industry’s overall elasticity of demand. When ThreeSixty and other food retail chains are faced with threats from substitute products, they are likely to find that demand for their products is relatively price-elastic.

The bargaining power of buyers

Although there are some substitutes and the switching costs are low, the bargaining power of buyers is not high because the buyers are well informed and know the different between the existing sources. The buyers are less price-sensitive and they usually focus on the product quality rather than the purchase quantity

The bargaining power of suppliers

The bargaining power of food retail suppliers in China is high due to there are only few healthy, organic and natural suppliers to the industry in China. Healthy, organic and natural food retailers only have few production sources and the switching costs for buyers are high.

5. Positioning – Porter’s generic strategies

For the market niche player in the competitive environment, it gains the narrow market segment. ThreeSixty provides organic, natural and healthy food in the shop. It targets on the limit size of segment. For the product selections, it provides unique product for customers to choose. (ThreeSixty 2010c) The company relatively position is in the differentiation focus strategy which the segment is big enough to be profitable and has growth potential. Porter (1985) said that the advantage of this position is to understand more on the segments, erect barriers of entry, gain reputation for the specialist product and have more effort on the market.

The products provided by ThreeSixty are organic, healthy and natural. It is the new trend for the customer to choose the product based on ‘wellness healthy’. The high quality product that is healthy and organic can only found in ThreeSixty. Customers can usually find many different kinds of product that delivered from different countries. It is the best choice for customer to satisfy their favor in the unique product provided. ThreeSixty differ from other supermarkets and hypermarkets, which is only provided special food for customers. (ThreeSixty 2010c; ThreeSixty 2010e)

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