The purpose of this report is to outline a business plan for ChocoSol’s expansion to the USA market. The company is a social enterprise that focuses on making the food of the gods commonly known as cacao into stone ground, artisanal dark chocolate and in Toronto, Canada.
ChocoSol’s mission is to craft revolutionary chocolate and maize foods that are good for mind, body, and soil. Our Vision is to craft revolutionary chocolate and maize foods that are good for mind, body, and soil (ChocoSol Traders, 2018).
SECTION 1: PESTEL FRAMEWORK FOR THE MARKET
Under this section, we will explore the PESTEL analysis model to explain why we have selected USA as the best country for the expansion of our Canadian’s based business.
USA is considered as the second largest democracy in the world. The country shows to have a stable political climate even if there have been some challenges recently. It is also has an enormous influence over the political dynamics of many countries around the world and it classifies itself as the best destination for foreign direct investment (David, 2017).
Politically, there is a Canada – USA free trade agreement which was signed on 4th October 1987 and had placed both countries at the forefront of the trade liberalization (Global Affairs Canada, 2018). This historic agreement included items of agreement such as reduction of many non-tariff barriers, elimination of tariffs, and a dispute settlement mechanism for the fair and expeditious resolution of trade disputes. However, we need to note that there have been new tariffs imposed by the USA to Canada on steel and aluminium products.
Department of Finance Canada (2018) mentioned that “On May 31, 2018, the United States (U.S.) announced the imposition of tariffs on imports of certain steel and aluminium products from Canada (at the rates of 25% and 10%, respectively)”.
Fortunately, the introduction of the new tariffs will not affect our business expansion as it is solely for steel and aluminium products. ChocoSol is a Canadian based company dealing in confectionery products, so we are automatically qualified for the free trade agreement.
In terms of nominal GDP, USA is the largest economy worldwide. Most of all giants companies in world have headquarters (e.g. Apple, Coca cola, Google, etc.) and influence the shape and direct the socio-political discussion in the world. The economy system is well-established and advanced to be able to gather its strength from its. The country’s economy was adversely affected by the recession in 2009 and unemployment rates reached at an alarming point.
Focus Economics stated that “The U.S. government intervened by using USD 700 billion to purchase troubled mortgage-related assets and propping up large floundering corporations in order to stabilize the financial system” and inflation expectations for the year ahead edged down to 2.8% from 3 % and the 5-year outlook for inflation also fell to 2.4 % from 2.6%.
We can see some changes happened in the last few years as unemployment rate was high (5%) in 2015 than (4.1%) in 2018. Nevertheless, it is worth stating that labour is not cheap in the USA, particularly when compared to that in Japan, China, India, and Mexico. Availability of cheap labour has stimulated many US firms to subcontract many of their business activities around the world (Trading Economics, 2018).
Source: tradingeconomics.com/ united-states/unemployment-rate
The U.S. currency knows as dollar ($) is frequently referred to as the world’s currency as it is by far the most currency used in international trades. Almost two thirds of currency reserves held throughout the world are in U.S. dollars (Focus Economics, 2018).
Looking at the current inflation rate which seems to be stable. I presume the company is in a better position not to lose profit when doing financial transactions and we won’t be affected by the trade tariffs due to the free trade agreement between the U.S.A and Canada.
U.S.A is the third most populous country worldwide with a population of approximately 326 million and comprise 50 states. The country is ethnically diverse. The country’s education system is one of the best in the world. On the other hand, healthcare is not normally free and definitely not cheap for many people (David, 2017). Though, habit of fast food has increased obesity in the country even if people are health conscious. A majority of the population has a liberal mind set even though we have recently witnessed racial tensions.
Waugh (2011) mentioned in his article that “According to Grabb, Canada and the U.S. go through regular periods of divergence and convergence on issues, depending on the historical period and the issue being considered as Canadians and Americans are not identical, but they are much more alike than people think”. Based on this, we can at least say that American’s culture is much closer to Canadian than Japanese’s one.
Kotler ; Keller (p.252, 2016) mentioned that “Consumer behaviour may reflect cultural differences that can be pronounced across countries”. I will also use Hofstede’s cultural dimension to show some similarity between Canadians and Americans versus to Japanese.
Chart 1.2 Source: Hofstedeinsights.com | Compare-countries (2018)
In terms of Science technology, the USA is the global leader. The country has kept the lead for adapting and applying technologies in a wide range of fields. Many things have changed due to technologies.
In some instance, some jobs have been transferred to other countries from the USA and production facilities have changed location. Hence, saving cost of production from companies. The rate of technological innovation and change is extremely rapid in the USA. Yet, the country faces robust challengers like India, China and South Korea.
Based on the size and government structure, each state has its own structure and legal scheme. Likely businesses come under the regulatory environment of the state. The USA also offers a strong legal system to protect Intellectual Property Rights. However, the USA has its National Chocolate Day according to (2018) register corp. The country is part of the top 10 chocolate consuming countries in the world as shown below.
Chart 1.3 Source: Forbes.com | the world’s biggest chocolate consumers
Before shipping chocolate products to USA, it is imperative to know if your product must meet one of identity’s standards for chocolate set by food and Drug Administration (FDA) in USA. These standards instruction required and optional ingredients a product may contain to be promoted in the country under a particular label.
Although, there are three common types of chocolate consumed in USA which are milk chocolate, white chocolate and Dark chocolate. Promoting a product as milk, white, or dark chocolate without complying with FDA regulations can lead to sanctions.
Types of Chocolate Standards of Identity
Milk Chocolate Must contain at least 10% chocolate liquor, at least 3.39% milkfat and at least 12% milk solids.
White Chocolate Must contain at least 20% cocoa butter, at least 14% total milk solids, at least 3.5% milkfat. It cannot have more than 55% of nutritive carbohydrate sweetener.
Dark Chocolate Unfortunately, FDA does not have a standard of identity. However, it must meet FDA’s policy for non-standardized foods bearing the term chocolate
Source: Register Corp (2018)
We need to note that the country has an extremely diverse geography, wildlife and climate and this diversity has been a major factors in attracting millions of tourist from around the world.
However, the country is exposed to some of the dangerous weather conditions in the world. In October 2017, USA had experienced 15 weather and climate disasters with losses above $1 billion each across the country. These catastrophes also cause disruption to everyday life in the most technologically developed country in the world (David, 2017).
Trade Economics (2018) wrote that “according to the World bank, USA is positioned 6th among the 190 economies in the easy way of doing business”. It records an average of 5.50 index.
Figure 1.6. Easy of Doing Business
Source: Trading Economics (2018)
SECTION 2: DEVLOPING MARKETING STRATEGIES FOR CHOCOSOL
The company is a social enterprise that focuses on making the food of the gods commonly known as cacao into stone ground, artisanal dark chocolate and in Toronto, Canada (ChocSol Traders, 2018). ChocoSol is looking at expanding its business into the USA market.
There are no right decisions here, just decisions that are associated with different levels of risk and reward, according to Hill (p. 490, 2013).
The chocolate industry in USA consist of around 400 companies producing more than 90 percentage of chocolate and confectionary products with another 250 companies providing raw materials to all producers. Nevertheless, the concentration of this business is particularly found in New York, California, Ohio, Virginia, Illinois, New Jersey, Pennsylvania, Wisconsin and Texas. This industry is considered as a main consumer of important USA agricultural commodities (FranchiseHelp Holdings, 2018).
Hershey’s holds a major share in the confectionery market, which is followed by Mars Inc., and Mondelez International. Innovation for new product and low-calorie label claim are the main strategies adopted by the key player (Mordor Intelligence, 2016). Key players in the market are Hershey, Mondelez International, Ferrero ltd., Lindt & Sprüngli and Nestle.
Globally, the USA has produced more revenue than any other country with an average per capita consumption is at 5.7kg. Revenue in the chocolate confectionery segment amounts to $26,497m in 2018 and the market is estimated to grow by 3.6% yearly from 2018 to 2021 (Statista, 2018).
Figure 2.1. USA Chocolate Market Revenue Projection
Figure 2.2. USA Chocolate Market Growth Projection.
Source: Statista.com, 2018
Market Entry Strategy
There are different types of market entry strategies such as Export; Turnkey contract; Licensing; Franchising; Join ventures; Acquisition. Based on how limitation in budget and considering entering a developed nation as USA where international giants of the industry are based. I suggest to go with Export as our entry strategy.
Exporting is considered to be the simples and quickest ways of entering a new market as it involves a low level of investment in terms of managerial; financial resources and risk (Bradley, p., 237, 2005). I strongly believe that it is better for us starting at small scale while building our baseline through key distributors/importers who will be assisted by one of our sales associate with good knowledge of the market. Most important is that being a Canadian based company, the company will be exempted from Trade barriers as USA and Canada signed a free trade agreement. Having a sales representative based there, it will greatly assist the company to be present at any event or activities which require his presence in order to create awareness and value of our products.
However, the business will need to increase its production. Hence, we can aim at 3 tons monthly instead of 1.4 tons as we had recently expanded our farmers’ baseline by adding some from Dominican Republic and Ecuador to supply us raw materials.
Marketing Mix Strategy
Our product categories range from chocolate both bars and drinking, Coffee, and Roasted Cacao beans and all these categories have variants.
The products are for the entire mass market and our unique selling preposition is premium quality as well as meet requirements set by the FDA in the USA.
The company is based on product standardization strategy as we will provide same products as we offering in Canada. Therefore, our sales representative in the USA will have to create a partnership with major distributor’s network. We may consider distributors like Cheney Brothers; Cooper-Booth Wholesale Co. and American Food Distributor.
The idea behind considering major distributor’s is that, they have already presence nationally and not only in some cities/states and for our product standardization strategy is that, the local distributors and consumers have to differentiate our products versus competitors. Therefore, we will use only one level of distribution which is from manufacture to importer/distributor to wholesaler to retailer to consumer. We can ideally use a Push-Pull mix strategies which will depend on activities to be carried on. Pull strategy should be applied during promotions’ time.
Our price strategy will be to use the average price per unit as a guidance which is around $14.30 in July 2018 according to Statista. Depending on the cost of production, the price can be or not adjusted in order to maximise our profit which I think it will be attained through sales’ quantity maximization of our products. Luckily, we are exempted from trade tariffs due to the free trade agreement. We will certainly set our prices relative to the potential competitors in the industry in order to meet the stiff competition and remain on the competitive edge.
“A company’s communication strategy is partly defined by its choice of channel” mentioned by Hill (p. 591, 2013). Due to the electronic media available and accessibility to mass market, our promotion will be based on pull-push mix strategies. Although they will mostly be used during selective events such as Christmas, Halloween, Easter and at the national chocolate day. Acknowledging that our company is a small organization with limited budget. Hence, our selection of communicating/promoting should be strategically done to meet our objectives.
SECTION 3: BELOW THE LINE (BTL) PROMOTIONAL MIX
BTL promotion requires promotional activities which aim to directly reach consumers, and the company has more control over and it is not expensive compared to above the line (ATL) promotion. Our target is a mass target as everyone eat chocolate and promotion’s activities considered are Sales promotion; Internet marketing and Trade fairs and Exhibitions.
Our approach should be to create awareness of our products to consumers with the aim of increasing demand. Then this will push distributors to stock our product. Below is the plan per activity with the aim to achieve our objective.
It is a vital tool in IMC (Integrated marketing communication). Mostly, they refer it to incentives that the entity will apply to entice consumers to buy its products as explain above. Therefore, we will have to use two different approaches: consumer and trade sales promotion.
Consumer sales promotion
For this approach, we will directly offer incentives to consumers with the aim entailing them to purchase our products more frequently by increasing trial of ChocoSol product with incentives when purchasing. Incentives can be ChocoSol T-shirts, vouchers as well as trial of our product at some Exhibitions or events in 2019.
Trade sales promotion
With this approach, we will be encouraging retailers to stock our products and our particular aims are such as increasing in-store promotion by having retailers to engage in our promotional activities, gain more shelf space for our products.
With 95.6% as internet penetration rate of the USA population with 74.3% accessing Facebook according to (2017) Miniwatts Marketing group.
Looking at the penetration rate of internet in the country, we cannot miss advertising through social media whereby we will have a pop up link. If internet users click on it which will direct you to our website www.chocosoltraders.com. The objective is to create awareness of ChocoSol’s product through internet.
Let note that this won’t be considered as ABL advertising as the pop up will redirect you to our website.
Figure 3.1 Below-the-line Budget 2019
2019 BTL Budget (£100,000)
Items Unit Unit Cost Total Cost
ChocoSol T-Shirts & Free Chocolate 700 $ 10 $ 7 000
Trial products at Exhibitions 400 $ 6 $ 2 400
20% Discount Voucher Worth 1000 $ – $ 9 200
Discount Voucher’s creation 1000 $ 3 $ 3 000
Pop up link Creation for a one Year 1 $ 900 $ 900
Portable Trade show Display (10×10 square foot space) 2 $ 20 000 $ 40 000
Expenses 4 $ 1 500 $ 6 000
Exhibition Events Charge 5 $ 6 300 $ 31 500
• To create awareness of our products at 4 different Exhibitions and offer a spinning game to our consumers to win either free T-Shirt, chocolate or Discount vouchers to be used at our selected distributors. Same scenario, will be offered at our selected distributors or Retailers.
• Discount voucher will have a validity time of one month. This promotional activities will be specifically undertaken during Easter Festivity, Christmas, Halloween, National Chocolate day and USA Independence Day.
• Due to the budget constraint, I believe this will push demand of our products and result in more stocks from distributors.
**Discount which is given to consumers, will be refunded to distributors/retailers by us.
SECTION 4: CHALLENGES TO BECOME A GLOBAL COMPANY
Organisational and Structural Challenges
In case ChocoSol is intending to be a holistic marketing company. The company will have to align with below two points:
• Fairtrade-certified: this is one of the vital elements that ChocoSol has to align and sign if they are intending to be global entity. Why this? Being a Fairtrade-certified, it offers accessibility on high quality product at a cheaper price from certified famers. This will also grow the company revenue as raw products is acquired at a reasonable price compared to when they are no Fairtrade-certified.
• Risk taking: the company need to take a risk of borrowing money from a well-established financial institution to fund its operations’ expansion outside its country based and able to pay third party as per Fairtrade agreement.
Hill (p.446, 2013) echo that “Organizational structure refers to the norms and value systems that are shared among the employees of an organization.”
ChocoSol seems to be a one man business with a traditional structure approach which I find normal and accurate as a local company. But going globally, this might be a challenge for a sustainable leadership and management. ChocoSol should think of a structure that will give them a competitive advantage.
I would advise the company to have a Global Matrix structural approach as this approach will provide opportunity to use both centralized and decentralized. It allows for the rapid creation of efficient large-scale, project structures that employ many members of the organization’s functional structure without disrupting or destroying the structure in the process with benefits like efficient information exchange, increase motivation, improve the ability to access all the resources, enhance coordination across the organization, offers faster decentralized decisions, improve access to diverse range of skills, increase communication and coordination across the business. As every structure, this also has its downside. It shows a higher level of internal complexity, and some additional people management challenges.