Greggs plc Essay

1.0 Executive SummaryGreggs plc stand for to stretch out their trading trading trading trading operations into inter bailiwick food securities industry slurs in order to satisfy their on the whole oerriding objective to be atomic number 63s No. 1 Bakery.Germany has been selected as the entertain sur subject area and justification for this decision has been discussed.Moreover, Greggs allow for enter the German Bakery commercialiseplace through the involution of a contradictory Direct enthronization manner, more specifically a Sales and Production Subsidiary.This report dodges the blend of marketing liquify components used to position the offer the implementation method choose to ensure effective harvesting and return delivery and the get wind mechanisms utilised to organize sure that objectives be accomplishd.2.0 IntroductionGreggs is the catamenialy the leading UK retailer in the bakehouse market having experienced risque levels of ontogenesis in 2 002. The company achieved revenues of 422.6 m unfortunateion, an increase of 11.9% on the previous fiscal. Its operating profit also witnessed an increase of 11.8% to 35.3 million in 2002. Their popularity has rapidly increased as consumers atomic number 18 seeking quick, convenient and indulgent foods to complement their fast-paced lifestyles .Greggs is actively expanding their operations and puddle over 1,200 retail outlets under the Greggs and Bakers Oven brands . They entered into the international arena in 2003 with the opening of two outlets in Belgium. This strategy was prosecute in order to fulfil the companys long-term objective of becoming a drawing card in the atomic number 63an market place.Further international expansion will so satisfy their current objectives and enhance their presence in the European bakery market.2.1 Report ObjectivesTo justify market choiceTo compact internal and environmental analysis for the home and host countryTo lay the most appropriate inappropriate entre strategyTo tailor a services marketing mix to requirements of the host marketTo designate methods of implementation to allow successful market penetrationTo monitor the progress of this venture through the employment of control mechanisms3.0 Mission statementWe intend to be Europes finest bakery-related retailer, achieving our ambitious growth targets by attaining world-class standards in everything we do. Our purpose is the growth and ascendment of a thriving argument for the welfare and enjoyment of employees, nodes and roleholders alike.3.1 ValuesGreggs is a customer- reduceed business, seeking to provide excellent products and services that deliver enjoyment and value-for-money. We are committed to people development, within a considerate culture that combines autonomy and accountability and books a strong focus on profitability. In all our activities, we aim to achieve excellence through continuous improvement.4.0 merchandise ChoiceCannon and Wi llis propose a method of simple elimination to identify a possible host market. This method of market choice ensures that the remaining country satisfies all main criteria highlighted by theorganisation. The draw below shows a systematic approach to finding a suitable market for Greggs expansion. Industrial, sparing and cultural factors will be integrated into the selection process as these are central to Greggs operations in addition to their main aim To be the no.1 bakery retailer in Europe.Parallel to their objectives, all non-EU countries will be blockd from the selection process. Greggs second priority is to enter markets which display fast growth in bakery markets. The countries with the highest levels of category growth are shown belowFigure ACountry Cakes and Pastries Market % stratum Growth 1995 1999Portugal 4.60%Germany 3.70%France 3.60%Spain 1.80%Denmark 1.80%Using this table, Greggs may eliminate Denmark and Spain from their market choice selection process.Psycho logical distance surrounded by the home and host country tail also determine the success of international activities and thus have been incorporated into the process.The French have a wide selection of elaborate, exquisite and gourmet dishes. This contradicts the typical product bid offered by Greggs. Although Greggs could consider a focused differentiation strategy targeting nichemarkets, the abundance of specializer bakery retailers would suggestively make the French bakery market difficult to penetrate effectively and therefore exclude it from further scrutiny.Portuguese market trends highlight an increasing demand for wholesome, family products .In contrast to the latter, Greggs offer an on the move food proposition which is typically consumed individually rather than in a family environment. Suggestively the Portuguese are reluctant to embrace freshly food offerings as research illustrates a strong preference for tralatitious cuisine served in traditional restaurant sett ings . Moreover the market is dominated by both high street retailers such as Podaria Popular and industrial manufacturers thus implying high barriers to penetration are high.Having adopted this process of elimination, Germany appears to be the prevailing market choice.Despite the high labour be, long vacation measure and slow economic growth , Germanys overall economic performance is the 3rd largest in Europe and consequently presents itself as an attractive market choice for Greggs.Products with a convenience character are continue to prove popular in the German bakery market, ranging from ready to eat and impulse products to in breed bakery products . Furthermore, crosswise the bakery market, international bakery specialties such as croissants, ciabattas and baguettes are rising in popularity, a reflection of higher consumer demand for more non-traditional or novel products . This market therefore presents itself as an ideal location for Greggs to expand their international operations. Greggs will pursue a concentration technique with call for to country and customer target group. A company may concentrate its efforts by entering countries that are extremely similar in terms of market characteristics and infrastructure to the domestic market . This will alter Greggs to minimise bourgeon a chance and benefit from cultural fit. Moreover, as in the UK they will concentrate efforts on a focused target audience.5.0 interior and Environmental outline5.1 Internal epitome5.1.1 StrengthsInternal strengths need to be assessed to identify assets, capabilities and core competencies that are transferable to the host country.Greggs is a well recognised bakery retail brand in the UK which aims to create a single and cohesive Greggs brand nationwide . This is being kill using a coherent and consistent promotion of the companys proposition and brand across the country.Greggs have sustained a strong cash flow which allows them to invest money in maintaining i n their retail outlets, bakeries and brand. Key investments include significant funds spent on production facilities to support the growth of retail operations.Greggs actively seek to position their stores in prominent locations relative to distri barelyion channels and customer access. Greggs stores are typically located in busy and heavily populated towns where their fast and convenient proposition is ideal. In response to the 6.4% increase in demand for takeaway foods , Greggs is adapting their servicescape to cater for these increment needs.5.1.2 Corporate nuanceGreggs operates in a insecurity taking corporate culture which allows them to be innovative and responsive to market changes. They believe in providing high customer service aiming to retain customers by inducing loyalty and trust. They place great emphasis on motivating and empowering employees as they believe that continued growth of the business is a reflection of the workforce . These competencies are transferable and of equal value to theGerman marketplace.Greggs are actively expanding their operations internationally in order to spread risk, increase international brand awareness of their product portfolio and sweat fast growing new markets.5.1.3 Value ChainGreggs UK have let ond a Value Chain compendium which is an analytical tool that describes all activities that make up the economic performance and capabilities of the firm . This can be used by Greggs to exhibit core competences that can be exploited in the host market .5.2 Environmental AnalysisThe environmental analysis aims to identify the current situation of the German bakery market using relevant tools of analysis and international research methods. A PEST analysis has been used to identify influential factors for Greggs in Germany as discussed.5.2.1 International Marketing ResearchMarketing research refers to gathering, analysing and presenting information .It is the neglect of knowledge on hostile markets that is one of t he major barriers an international marketing manager must drown . It is therefore imperative that Greggs formulate an effective market research strategy as the first bar in overcoming this barrier. In this case, international marketing research was carried out for the purpose of reducing capability risk and providing us with a final systematic and objective approach for our proposition.Primary research has non been undertaken referable to the limitations of this report. However, if Greggs were to implement this internationalisationproposal, primary research would be an imperative tool when considering market choice. These could include soft methods such as interviews and observation. Secondary forms of research carried out have included Government reports, Internet sources and textbook literature, and further strengthened by journal articles. This variety of data collection methods helps to provide a well-off analysis from numerous sources as a foundation for decision-making .From this research the following factors have been taken into favor when considering Germany.5.2.2 Social & Economic EnvironmentSocial factors, as outlined in the PEST analysis outline the increasing trend towards on the go consumption. This reflects the busy lifestyle of the working population in Berlin consequently the choice of location. The economic factor of high disposable income also provides an attractive reason for Germany as consumer disbursement is high.5.2.3 Prospective Country CultureGreggs may use the Hofstede model to identify persuasive fundamental differences of national cultures and thereby assess their cultural fit. harmonise to Hofstede, the way people in different countries perceive and give their world varies along four dimensions power distance, uncertainty avoidance, individualism and masculinity .The German culture is a low context and explicit, perhaps ever more so than the British. Moreover, the German national mentality is of a comparatively high l evel of uncertainty avoidance. The Germans do not like a sense of insecurity which makes them feel uneasy in business. (Germans work with) hard facts, and sound arguments . There are therefore lithesome cultural differences that the UK management team will have to consider upon entering the German market.5.2.4 Market ambitionCompetition in the German market is a key variable of Greggs success.Figure B- Competitor AnalysisGermany cakes and pastries market share (% value) by companyManufacturer 2000 2001Bahlsen 11.2 9.1Lady Cake-Feine Kuchen 8.0 6.9Dahli Kuchen 7.4 7.2Grossbckerei Wendeln 7.0 7.0Dan Cake 3.2 3.4Kuchenmeister 7.8 11.3ABK 9.0 8.6Private Label 15.1 16.5 otherwise 31.3 30.0Total 100 100It is therefore important to identify, analyse and monitor competitive movement. Figure B illustrates the potential competition in the German bakery market in accordance to market share5.2.5 Geographical ClimateGreggs sales are affected sole(prenominal) by climatic extremes very anxio us weather can depress demand for bakery products, and prolonged rain or snow can make people reluctant to go out and make their usual daily purchases . This pattern is reverberate in Germany and therefore fluctuations in sales must be accounted for.5.2.6 The German MarketThe use of the Porters 5 Forces model has recognized the attractiveness of the German bakery market through the identification of barriers to unveiling and potential substitutes .6.0 International Marketing ObjectivesIn light of the organisations resources and competencies, the following objectives have been established6.1 Short Term Objectiveslend oneself promotional mechanisms to encourage trial and to inspire customer loyalty to the brandBy fulfilling this objective, Greggs will be working toward securing a loyal customer base thereby defending themselves, to a large extent, from competitors. lot quarterly pricing reviews to ensure that prices remain competitive with rivalsBy ensuring competitive prices, Greg gs reinforce their commitment to offering value for money as highlighted in their mission statement.To ensure all employees receive high standards of tuition that is reflected in high quality service to the consumerGreggs corporate strategy highlights the importance of a fun and accessory working environment. They promote themselves as being a great place to work and encourage individual(prenominal) development. This in turn reflects on their high quality service offered to the end consumer.6.2 Long Term ObjectivesTo continually monitor, anticipate and challenge competitor movements in the bakery market.This will allow Greggs to remain innovative and develop new and adapted recipes in response to market changes and consumer needs.To strengthen and build upon our place market to achieve 4% position by 2010.This will be achieved through core growth and introduction of new outlets . It will modify Greggs to be a proficient player in the German Bakery market (see Figure B)To broade n the Greggs product portfolio by 5% year on year.This will permit Greggs to expand their operations, in line with their growth ideals, and additionally offer a larger product range to ever-evolving consumer needs.To fix a further 6 stores in Germany by 2010 thus expanding scope and influence.This will facilitate Greggs seek towards achieving their main aim To be Europes finest bakery-related retailer.Increase awareness of the Greggs brand in the German bakery marketBy attaining brand awareness, Greggs will able to insulate themselves, to anextent, from the wrath of competition. The German bakery market is largely fragmented thus making it an attractive market for potential new entrants.7.0 Foreign Market Entry StrategyFirms deciding to enter a foreign market face a critical decision in choosing the best market entry mode to service the market. This decision is important because it can have an ongoing impact on a firms international business performance .Root (1994) suggests thre e different rules Nave rules, Pragmatic rules and Strategy rules. However as a result of the increasingly heterogeneous nature of the international market, it is important that Greggs do not generalise their approach, but adapt each entry mode according to the host market. The mode selected in Belgium therefore, may not be entirely applicable to Germany. Based on this rationale, Greggs will be employing Strategy rules which is when all entry modes are compared and evaluated before a choice is do .Moreover, according to Hollensen (2001) some firms have discovered that an ill judged market entry selection in the initial stages in the firms internationalisation can threaten the firms forthcoming market entry and expansion activities , hence illustrating its importance to Greggs plc.Greggs will need to consider the main groups of entry mode influencers prior to choice in order to identify the most appropriate and profitable mode.1) Internal FactorsAccording to the Companys Act (1985), firms with over 5.75 million in turnover and over 250 employee are classified as large. Greggs more than qualifies this with a turnover of 422.6 million and employment of 17600 people in 2003. This provides them with an suitable resource capability to open up a sales and production subsidiary in Germany.Moreover, in developing their theory of internationalization, Johanson and Vahlne 1977 assert that uncertainty in international markets is reduced through actual operations in foreign markets (experiential knowledge) rather than through the acquisition of objective knowledge . Greggs have already ventured into Antwerp and Leuven in Belgium hence increasing their experiential knowledge and expertise.Greggs produce is fresh and baked goods. In order to maintain this stance, the only feasible option would be to produce, as well as deceive in the host country. Additionally, because Greggs will promote themselves as a British company, they will be communicating a finish up differentia l and competitive advantage.2) External FactorsBoth the UK and Germany are members of the European community thereby reducing their Socio-Cultural distance. This law of proximity between countries will therefore favour ranked modes of entry.Due to the proximity between countries perceived risk is reduced. Companies are therefore less reluctant to pursue more involving modes of entry.It has been stated that the size of the host country is an important attraction to foreign direct investment as large and growing markets will make management more likely to commit resources to the development of a wholly owned subsidiary . With a population in excess of 825 Million people in 2002 Germany is evidently a large and growing market making it an ideally suited to a FDI mode of entry. Moreover, the German bakery market is highly fragmented which reduces barriers to entry in the form of dominant competitors.All other variables being equal, the higher the strong suit of competition, the more likely a firm is to select an export mode of entry. The German cakes and pastries market is made up of several small players each of which occupy small proportions of the marketplace . This presents itself as an idealproposition to Greggs who will be able to establish themselves without dominant opposition.3) Desired Mode CharacteristicsThe choice of mode of entry will also depend on the attitudes of the decision maker. Although it is difficult to determine how pro-risk or risk opposed Greggs Managing Director Sir Mike Darrington is, one may assume from their hierarchical entrance into Belgium that a high risk, expansionist strategy has been adopted and will be pursued.The degree of control that management desire over operations will help establish which mode of entry to employ. Hierarchical modes allow high levels of control over operations ensuring that the latter are carried out to Greggs specification.All else being equal, the greater the resource investment, the lower the tr actableness of the business. Consequently, if Greggs pursue a hierarchical mode of entry, they will have to consider their potential limited flexibility.The supra suggests that Greggs would benefit from a hierarchical mode of entry as it satisfies all criteria for the latter. This is where the firm completely owns and controls the foreign entry mode.However, regardless of the apparent control over operations specified by this mode, the degree of control that head office can exert over the subsidiary depends on how many and which value orbit functions can be transferred to the market.Having reviewed all alternatives, its was decided that a Sales and Production subsidiary will be introduced in Germany leaving the Research and Development and Marketing activities to be conducted at home in the UK.According to Hollensen (2001) , having selected this mode of entry, Greggswill benefit from having full control over the whole operation. Moreover, Greggs has long term market potential in Ge rmany and therefore the ownership of a sales and production subsidiary will enable Greggs to build a strong international presence over a long period of time. This method also eliminates the possibility that a national partner gets a free ride and allows Greggs to gain market knowledge directly.A sales and production subsidiary will facilitate rapid entry to the German market allowing quick access to its distribution channels. Plus, no transportation costs will be incurred as raw materials will be purchased in the host country.In addition to those proposed by Hollensen, Greggs may benefit from being able to adapt the ingredients used to German tastes. They can additionally tailor the servicescape to German preferences. Greggs produce is non-durable and therefore it would be inappropriate to needs to be produced and sold quickly as it is predominantly sell fresh food.Retaining R&D and Marketing operations at home will reduce costs and risk. Having established themselves in the German market, Greggs may consider transferring these operations over in the future. Moreover, employing a hierarchical mode will enable Greggs to exploit new market opportunities as soon as they beat with minimal delay. In line with the latter, Abell (1978) concept of a strategic window states that there are only limited periods during which the fit between the requirements of the market and capabilities of the firm are at an optimum . Investment should therefore be timed accordingly.Although, this method will require a great deal of investment in terms of time, money and commitment, research has shown that the profit returns generated by foreign direct investment modes are normally greater than those generated by exporting .According to the Uppsala Internationalisation Model, companies begin their internationalisation process a) by abject into relatively close marketsfirst then more distant ones and b) companies entered new markets through exporting. Although at face value it appears that Greggs strategy contradicts the assumptions of model, it does however highlight the following exception Firms that have larger resources can take larger steps with fewer consequences. Arguably Greggs fall under this category.This model also suggests that firms start by entering markets which are nearer in terms of psychic distance hence reducing uncertainty. Germany is considered relatively near and despite language barriers, the German culture is similar to that of the UK as highlighted in the Environmental Analysis section of this report.