Comprehensive Market Diversification to Morocco - Research Paper Example

Lecturer: Executive Summary Marketing being a product promotion to increase sales has a great influence on the nature of the market whether domestic or foreign. If the chipotle service is to sell internationally in Morocco, many factors have to be put into consideration including tastes and preferences of Moroccan consumers. The government of Morocco makes a great supervisory role in regulating food and beverage products which is aided by the ever increasing power of the media. The market will effectively and efficiently proof the investment is worth undertaking if initial costs are predicted against what other entrants have made. The company will to borrow best practice of Mexican grills in US, Canada, France and England which have had longstanding performance and reputation. It is a demand for chipotle dishes that will be determined by the level of advertising and the quality of the service compared to its sale price. The government of Mexico, US and Morocco are in good working relationship hence no trade barriers will be expected to challenge the entry process. The brand should move to the coastal towns in northern morocco like Casablanca which have big clientele and bargaining power. This will raise the income streams and quickly move the breakeven sales to a shorter duration than was expected. The company should not overlook the role and impact of other competitors as they may be misjudged and consequently the firm closes shop due to myopic marketing intelligence. Table of Contents Executive Summary 1 1.1 Introduction 3 The concept of chipotle emanates from chilpoctli word which is a smoke-dried jalapeño referring to "smoked chili pepper". The chili is principally Mexican going alongside other Mexican-inspired cuisines like Tex-Mex and Mexican-American (Anderson 123). Jalapeño in Mexico is also referred as the gordo and cuaresmeño. Until lately, chipotles were mainly found in the central and southern Mexican markets. These Mexican foods became more admired abroad, particularly in North America, production and processing of jalapeño started to extend to northern Mexico to supply the southwestern United States, and ultimately processing took place in the United States (US) and other countries like Morocco and Morocco. The purpose of this study is to find out whether it is economically viable to establish a Chipotle franchise in Morocco. These involves finding out the situational or feasibility studies of the host country, strengths and weaknesses of the company and suitability of the culinary supplier to customers in Morocco. 3 The ordinary chipotle restaurant is known for large burritos, production in the form of assembly lines and a variety of natural ingredients. The company has a mission statement dubbed food with integrity and signifies the strengths of applying organic ingredients (Sherman 47). 3 1.2 Situational Analysis 5 1.2.1 Company analysis 5 1.2.2 Consumer analysis (Demand-Supply Analysis) 6 1.2.3 Competitor Analysis 7 1.2.4 Climate Analysis 9 1.3 Chipotle Marketing Mix 11 Comprehensive Market Diversification to Morocco: Chipotle Hotel Chain 1.1 Introduction The concept of chipotle emanates from chilpoctli word which is a smoke-dried jalapeño referring to "smoked chili pepper". The chili is principally Mexican going alongside other Mexican-inspired cuisines like Tex-Mex and Mexican-American (Anderson 123). Jalapeño in Mexico is also referred as the gordo and cuaresmeño. Until lately, chipotles were mainly found in the central and southern Mexican markets. These Mexican foods became more admired abroad, particularly in North America, production and processing of jalapeño started to extend to northern Mexico to supply the southwestern United States, and ultimately processing took place in the United States (US) and other countries like Morocco and Morocco. The purpose of this study is to find out whether it is economically viable to establish a Chipotle franchise in Morocco. These involves finding out the situational or feasibility studies of the host country, strengths and weaknesses of the company and suitability of the culinary supplier to customers in Morocco. The ordinary chipotle restaurant is known for large burritos, production in the form of assembly lines and a variety of natural ingredients. The company has a mission statement dubbed food with integrity and signifies the strengths of applying organic ingredients (Sherman 47). It will demand a huge amount of resources to elevate from a domestic market in United States to international market in Morocco, which will require a feasibility study to take into consideration the trading policies of Morocco, recruitment of strategic management to overlook the transition process more so, procurement, distribution, promotion and advertising. These should be competent personnel who believe in doing right first time (Doyle 23). The business should be able to flow back the profits earned to reinforce the parent company in United States. Marketing being a product promotion to increase sales has a great influence on the nature of the market whether domestic or foreign. If the Chipotle product is to sell internationally in Morocco, many factors have to be put into consideration including tastes and preferences of Moroccan consumers. The government of Morocco makes a great supervisory role in regulating fast food products which is aided by the ever increasing power of the media (Doyle 54). In Morocco, an economic and political system is undoubtedly influencing the dining policy which ultimately will determine the rise and fall of the fast food industry. Rabat government imposes travel restriction orders which demonstrate government robust influence on the market. The government also orders companies to own up to the responsibility of using recycled water car wash (Doyle 47). Morocco puts higher restrictions on foreign companies investing in hospitality, telecommunications, energy and petrochemicals which demands that the company moving in should consult with the Moroccan foreign investment catalogue (Kandampully and Duddy 79). Morocco has a body of ministries and regulatory organizations are vested with the responsibility of implementing and maintaining the laid laws and regulations. Regulations are getting tougher in imposing their orders. The case of 2008 melamine poisoned milk scandal has led to stringent measures being undertaken. All the foreign companies will have to undertake a lengthy evaluation and environmental assessment before being allowed to operate. Regulatory bodies in Morocco visibly operate which makes it easy to expect regulatory changes to take place. In addition, their regulations have clear wordings and objective interpretation which settle any foreign company known to clear regulatory environment. 1.2 Situational Analysis 1.2.1 Company analysis Chipotle is a public company headquartered in Denver, Colorado and trades in New York Stock Exchange (NYSE). It specializes in restaurants constituting 1430 branches mainly in the US, Canada, France and England. In 2012, the company made more than $2.731 billion in revenue. Their operating income was $455 million while the net income was $278 million. The company employs more 37000 workers. In 1998, it sold some of its shares to McDonalds allowing the company to make rapid expansion from 16 to over 500 restaurants in 7 years. The company owns all its restaurants in the mentioned countries. Each new restaurant including the one to be opened in Morocco follows chipotles service format (Sherman 33). The management team constitutes a corporate office and members who sit in compensation, audit, corporate governance and nominating committee. The field team work closely but not particular to some restaurants. The team includes directors, managers and regional directors. The team hires a new general manager each time the launch a new location. The team is trained at the current location before the branch starts operations. The new location is identified by the corporate office. Historically, Morocco has been in cordial relations with the US with many trade agreements in place which range in mining, tourism, engineering, construction among others. Morocco is an Arabic country believing in the rule of Sharia law and respect for personal property. The Moroccans are predominantly Arabic-Berbers with a more conservative and traditional culture of worship, dress, greeting, culinary and accommodation. However, Morocco respects international patents and copyright laws which makes it easy to originate and earn from ones innovations. There are many tariffs and nontariff barriers as well (Kandampully and Duddy 68). Moroccan economy has the potential to double when compared to some few years ago. It has one of the fastest growing in population, rising levels of income and consumer consumption. They have opened up the business environment to allow foreign businesses to take a space in the country. Declining sales in the US market will force chipotle to walk the talk into Morocco (Kandampully and Duddy 71). To get into Morocco and perform is not easy especially with a business novice. Morocco can fit to be a collection of semi-markets which are largely defined by economic, cultural and demographic differences. Foreign companies tend to accumulate in the coastal towns like Rabat, Marrakesh and Casablanca since they have higher incomes. The government of Morocco encourages the establishment of cluster industries in certain cities or some regions. In such situations, the whole supply chain is confined to fewer cities thus helping foreign companies to locate its target customers. Identifying a geographical location of the target market will ensure proper market entry strategy is used (Mohamad 43). 1.2.2 Consumer analysis (Demand-Supply Analysis) Morocco has a population of over 32 million people, and a landmass that equals that of Venezuela. Morocco is not a uniform market not measured and determined by economic, social or geo-political space. Growth rates differ in almost all parts of Morocco with big variations in the provinces. For Chipotle, Morocco is the place to go. It is one of the world’s largest and fastest growing food markets with greater potential for good profits. Morocco will help the company to compensate for falling profits at home (Mohamad 64). Owing to these market sustainability and stability, McDonalds and Crust Gourmet pizza are also banking their hopes on Morocco. McDonalds for example sells more fast food in Morocco than it does in the UK (Drucker 53). Morocco attracts many foreign investors to build its fast food market but with conditions that the company should not own more than 50% of the Moroccan shares and must also partner with Moroccan companies to enter their market. Over 2 million Moroccan families which are approximately 8% of the population can afford to eat in fast food hotels implying that their choices may provide leverage for sale of chipotle dishes fast food in Morocco. Food and water may not be affordable in Morocco, but the Moroccans are big savers coupled with ease of credit access (Drucker, 2008). Their fast food business in growing more than their GDP with expanding highway infrastructure more in the urban areas as compared to the rural areas. There is a possibility that Morocco will be overcrowded with foreign investors which will result to standards compliant fast food marketing and after sale service systems. The leading fast food operators, McDonalds, are partnering with Chipotle and Zambrero Fresh Mex Grill which makes these companies perform well in Morocco (Mohamad 42). Their level of business has been increasing by about 10% each year since 2003 owing to a bright strategy of introducing and quickly revising the products into Morocco. Zambrero Fresh Mex Grill rates have been increasing by 33% since 2002 while McDonalds which has a market share of less than 10% comes second as the biggest fast food chain with 38% growth rate (Drucker 39). 1.2.3 Competitor Analysis Although McDonalds, Burger King, Zambrero Fresh Mex Grill are key competitors, their production capacity has not kept up with the growing demand for fast food in Morocco. American companies are therefore making their fast food and export them to Morocco in order to complement those that are already being made, in partnership with Moroccan food companies, in Morocco. To succeed in Morocco, one must look at the market share and pricing more than profitability, to reduce the impact of your competitor. At present time 1 Dollar equals about 6 - 8.5 Dirhams. On average, many competitors categorize and price some of their meals as shown in the table below. Food item Competitor Pricing Chipotle pricing Tagine /Tajin Dh 20-50 Dh 30-55 Sandwich Dh 5-20 Dh7-20 Fish plate Dh 17 – 50 Dh 15-55 Spaghetti Bolognese Dh 30-100 Dh 20-50 Pizza Dh 30-100 Dh 25-110 Three-course Menu Dh 25-65 Dh 20-50 Breakfast Dh 15-40 Dh 20-55 Chipotle burrito bowls Dh 45-85 Dh 35-90 Jalapeno poppers None Dh 50-80 Chipotle will use pricing by service to differentiate its food classes and win customers who prefer quality rather than price. These will include reliability, expediency, consistency, cleanliness and courtesy. The pricing of the competitors ranges Chipotle has millennial sweet spot which has solidified its freshness reputation, and presents a healthier fare compared to its competitors. The brand also maximizes its reputation by moving away from traditional media, since younger audiences regard it as down-to-earth, more authentic, and easy to associate. Even Chipotles initial national TV adverts were not traditional. It was focused by Willie Nelson citing a two-minute animated piece of a farmer whose business rapidly grows, before his conscience beseeches him to opt to more sustainable and humane operations. Speculators foresee the booming Moroccan fast food business to be at the verge of bursting hence bringing more problems to consumers to the disappointment of the restaurant investors. It is believed that currently the production capacity is quite high which will be aggravated by increased output in the next three to five years (Drucker 52). This will likely outpace demand as concerns rise over Moroccan fast food making headway in overseas markets consequently leading to reduced numbers of people with the ability to sustain five year production levels. Planning production of chipotle gives a great chance to boost sales of more food products. 1.2.4 Climate Analysis Morocco is undoubtedly one of the fastest growing world markets for foreign companies. Studies have shown that smaller firms entering Morocco are bound to be successful than larger companies (Grönroos 77). With earlier entry, success is greater with increased control of entry mode and shorter economic and cultural distances between Morocco and United States. With annual growth rates of over 9%, the Moroccan economy is the seventy five globally in purchasing power parity. Morocco will act as a host country to United States chipotle and will largely influence its performance in the market (Grönroos 21). Firm (United States) will consider firm strategy and firm resources which includes entry mode and entry timing to be measured in firm size. Country (Morocco) differentiation assesses host country characteristics like openness and risk. Mode of entry influences the firm’s marketing, deployment of new skills and production strategy. Chipotle will have its foreign presence through a high control mode by having a wholly owned subsidiary in Casablanca central business district. Chipotle can choose one or a combination of them to enter Morocco (Grönroos 73). The degree of which Morocco gives Chipotle control over its crucial marketing resources will determine the entry mode to be chosen. Export of goods and services has the lowest degree while licenses, forms of joint ventures and franchises provide a degree of control to the firm (Grönroos 54). Wholly based subsidiaries have the highest controls. Entry timing can either hurt or favor success. Early entry presents more advantages since one can lock up access to suppliers and distribution channels. They can also set up consumer preference patterns, benefit from government concessions and incentives as well as exploit a growing market which is able to be observed and learned for a longer period of time. However, a first entrant may fail miserably by falling into pitfalls not earlier known, and returns on investment may be small or unsteady as earlier predicted. Late entrants have the advantage of learning from the earlier entrants and their consequent failures (Grönroos 68). Larger firms are likely to succeed than smaller firms due to their resource strengths. They also have product specific and wealth specific knowledge when compared to smaller firms. Chipotle can buy a medium sized fast food restaurant in Morocco. Big organizational history of international expansion and capacity to cushion from negative performance are the merits of wealthy firms. Though size does not guarantee success, bureaucratic organizational structures, kills innovativeness and creativity (Sherman 52). Shared values and behavior of members of society influences their consumption behavior, marketing strategies and implementation of marketing (Neef 129). Difference in culture affects consumer behavior, product attribute levels, derived meaning from the product or brands and the marketing mix. Linguistic determinant is greater than economic factors in determining cultural consideration into moving to an emerging market. Country risk poses environmental uncertainties which are attributable to financial, political and economic. Political risks weigh negatively on foreign firms with regard to laws and regulations. Imposition of tariffs and unrest to political regimes causes asset confiscation without compensation (Neef 102). Economic and financial risks can be in the form of market downturns, crises in currency and galloping inflation. Country risk may significantly cause firms to lose revenue, devaluation, and delayed investment or underinvestment. Country openness has the effect of decreasing or increasing entry success by stimulating demand through increasing product variety in the market (Neef 67). Gradual growth of the economy increases efficiency reduces pricing and increases demand. Growth acceleration in Morocco is tied with opening up of markets in major Moroccan towns like Rabat, Marrakesh, and Casablanca among others with strong commercial activities for foreign companies. It is important to undertake due diligence when hiring staff especially when setting up base for the first time. This helps to verify partners and employees trustworthiness thus unraveling ‘hidden time bombs’ this will require business intelligence, risk analysis consultancy and individual background checks (Neef 54). 1.3 Chipotle Marketing Mix Launching of Chipotle product line in Morocco requires a tailor made marketing mix to suit business transactions in Morocco. The budget will account for all types of marketing costs like salaries for marketing managers, marketing communications (website, advertising, public relations e.t.c.) and office space (Drucker 44). Some of the items below have been generalized, but it may include sub costs like printing, coffee, fees e.t.c ID Marketing Mix Description 1 Product The chipotle chili is principally Mexican going alongside other Mexican-inspired cuisines like Tex- Mex and Mexican-American. It will be served with main meals at the branches in Chipotle Casablanca. Jalapeño in Mexico is also referred as the gordo and cuaresmeño. The features will include fresh jalapeno peppers, cream cheese, shredded cheddar cheese and packaged bacon. The Moroccan dishes will be spiced more in morocco to be admired abroad, than in North America. The dish will be stuffed into halves instead of whole peppers to satisfy the Moroccan taste. 2 Promotion Involves lower travel costs, optimal marketing communications, excellent design and packaging of chipotle fast food products and safety of consumers. The Moroccan consumers prefer TV and social media advertising since many are users of the sites. The product is served in clean environments, fortified and preserved using natural means. The product will be approved by the Moroccan health authorities. 3 Distribution Involves promotion, shipping of food products and transportation of ingredients. Economic distance of disparities between Morocco and United States should be close which helps a great deal. Close economic distances share similar market segments for average consumption. Other similar physical similarities are in roadways, railroads, seaports and airports which will enjoy same efficiency scales and costs. They will also share common knowledge based resources and competencies to their advantage. The chain will open a major hotel in Casablanca as they carry out feasibility studies for opening another in Rabat. 4 Pricing These include discounts and incentives, tariffs, import duties and exchange rate fluctuations. More middle class Moroccan consumers tend to buy high margin, affordable food like burgers, pizza, rolls and French fries which accounted for 19% of the fast food in Morocco. Moroccan market has not fully evolved to provide reliable residual values to show comparison of Moroccan dishes with those of the United States (Drucker 65). Though local dishes (varies between Dh40-105 i.e. $6-16) are getting better, service will differentiate with food prices in the US. Chipotle in the US varies between $10-18 which is higher as compared to those in Morocco. Hence there are better chances of entry into Morocco which prefers hospitable, fresh and quality food. Appendix Works Cited Anderson, Mark. Roseville Chipotle tests new vegan option. Sacramento Business Journal. . SUNY Press, 2010. Print. Doyle, Potters. Marketing in the new millennium. European Journal of Marketing. 29(12), 23–41. 1995. New York: Wiley, 2002. Print. Drucker Ferns, Management Challenges for the Twenty-first Century, Woburn, MA: Butterworth Heinemann. New York University: Springer, 2009. Print. Grönroos, Crick. From marketing mix to relationship marketing: towards a paradigm shift in Marketing, Management Decision, 32(2), 4–20. . Edward Elgar Publishing, 2010. Print. Hesser, Amanda. The Way We Eat. The New York Times Magazine. 2005. Print. Kandampully, Jay, and Duddy Robert. Competitive advantage through anticipation, innovation and relationships, Management Decision, 37(1), 51–6. 2005 Oxford University Press, 2002. Print. Keegan, Wesley. Marketing Management: Policies and Decisions, Boston, MA: Houghton. Edward Elgar Publishing 2004. Print. Mohamad, Maines. Globalization: Challenges and Impact on Asia, in Richter, F.-J. and Mar, P. C. M. (eds.), Recreating Asia: Visions for a New Century, Singapore: John Wiley & Sons (Asia), pp. 5–11. 2007. Print. Neef, Daniel. Making the case for knowledge management: the bigger picture’, Management Decision, 37(1), 72–8. . New York: Price Waterhouse, 2009 Sherman, Chris. Mexican food, fast and from scratch. St. Petersburg Times. 2005. Summary The market will effectively and efficiently proof the investment is worth undertaking if initial costs are predicted against what other entrants have made. The company will to borrow best practice form McDonalds, Burger king and Zambrero fresh Mex Grill which have had longstanding performance and reputation in the US. It is a demand for Chipotle that will be determined by the level of advertising and the quality of the product compared to its sale price. The government of United States and Morocco is in good working relationship hence no trade barriers will be expected to challenge the entry process. Images Chipotle restaurant near University of Denver, Colorado Source: Wikipedia Array of Moroccan pastries Source: Wikipedia Chicken Burrito bowl Source: Wikipedia Chipotles, Morita variety Source: Wikipedia Read More