The 21st century is witnessing a culinary revolution throughout the world – the homogenization of taste profiles. Consumers from Tokyo to Turin to Toronto are eating and drinking the same foods. For example, while McDonald’s serves shrimp burgers in Japan and wine in France, consumers can still buy the same Big Mac in 119 countries. And not just any food, but rather gourmet, specialty food. Even with several leading countries in a economic slump, sales of gourmet beverages and confectionery are surging ahead. Gourmet coffee, upscale ready-to-drink beverages and bottled waters, gourmet chocolates, and superpremium ice creams are all growing at a faster pace than their mainstream counterparts. This uniformity of taste profiles and cultural acceptance of upscale, gourmet products is creating huge opportunities for U.S. suppliers of specialty food and beverages.
The Benefits of Conducting Business Internationally
- Have you ever considered exporting your products abroad? Have you received inquiries from companies overseas, but were so busy satisfying your U.S. customers that you neglected to fill the international order? Many U.S. suppliers have faced similar situations. However, there are significant benefits to exporting which should be considered when conducting long-term strategic planning for your company. Exporters enjoy:
- Higher sales growth
- Increased brand and product awareness
- Economies of scale and efficiencies due to a lower cost base (higher sales but constant fixed costs)
- Higher profit margins, since exports represent incremental volume out of an existing production operation.
- Increased customer satisfaction. For example, if you are supplying a large chain account in the U.S., you can also be ready to supply that chain account abroad if and when the account decides to open units overseas. Suppliers to Starbucks have benefited from this strategy, as the specialty coffee chain is now selling it’s java in 31 countries since venturing outside North America in 1996.
- Extended product life cycles. While a particular product may have reached maturity in the U.S. market, it can begin a new growth spurt if launched successfully in a foreign market.
Preparing to Sell Internationally
Prior to exporting, U.S. suppliers need to understand the different commercial environments in which they are selling. A thorough knowledge of the different cultural, economic, legal and political environments is necessary for success. You must first know who is the international buyer of your product, and how that buyer decides to buy your product. You need to thoroughly understand the packaging, labeling and ingredients requirements for you to sell your product in each country. Some additional questions you may ask prior to exporting include:
- Is my product being sold in this country already?
- If yes, what are the competitive price levels?
- What are the channels of distribution?
- Who is the competition?
- What is my profit potential?
While these questions may seem overwhelming to U.S. suppliers new to exporting, they are easily overcome. Government agencies, specialty food and beverage trade associations, and export agents or marketing consultants can offer valuable assistance.
International Market Entry Strategies
Once you decide to explore international sales opportunities, you must decide whether you will adopt a marketing approach unique to each country or region (e.g., Asia, Europe, etc.), or a global “one size fits all” marketing plan. Companies that are new to exporting may consider the latter approach, which involves creating a single strategy for your products across the entire global market. This will also ensure that your products look, taste, and maintain their quality equally in all countries.
Next, you must decide where you want to export. Some first-time U.S. exporters choose a “market similarity” strategy, whereby companies export first to similar markets such as Canada, U.K. and Australia, and then – when export competency is achieved – take on markets such as Japan or Germany. This strategy usually minimizes risks if a company chooses to export without specialized resources.
Finally, you must decide how you will export. The key to successful exporting is competent distribution. Critical activities involved in gaining superior distribution include:
- Developing a distribution strategy
- Establishing a criteria for distributor selection
- Identifying potential distribution partners
- Soliciting the interest of distributors
- Screening and selecting distribution partners
- Negotiating distribution agreements
How then do you decide on the best distribution partner(s) in a given market? You may use your experience in the U.S. or other markets to decide whether to use a local manufacturer similar to your own company, a wholesaler, chain account or independent retailer. Local trade associations and industry trade shows are a good way of receiving introductions to distributors. In the end, however, knowledgeable contacts in the local market are the best means to receive referrals and recommendations on prospective partners.
You may choose not to export at all, but you still want to reap the benefits of conducting business internationally. An alternative entry strategy to exporting is licensing. Licensing involves assigning the right to your company’s product or trademark to a foreign company in exchange for a fee or royalty. Through licensing a U.S. manufacturer can gain market presence without an investment, as the licensee pays all cost to set up operations, sales, marketing, and distribution. A special form of licensing is franchising, in which the franchisor provides a total franchising program available to the franchisee, including the brand name, logo, products, and modus operandi. Coca-Cola and PepsiCo have utilized this strategy successfully in many countries, as well as several multi-national QSR chains.
Licensing or franchising should only be pursued if the fees or royalties exceed the incremental revenues of exporting. If a company believes that by controlling its product and relying on competent resources it can capture more profit margin by exporting, then it would be silly to license a product. In addition, licensing creates a heavy dependence on the licensee, since a manufacturer will only be paid if the licensee performs an effective marketing job. If the wrong licensee is chosen, then revenues suffer.
Finally, and most importantly, you must decide how you will be compensated. Minimizing risks is crucial to developing a profitable international business strategy. Initially you can demand cash in advance from your local importer/distributor, or ask them to open confirmed, irrevocable Letters of Credit. You may begin by using export agents or other outside resources prior to signing a contract with a local partner. Avoid exclusive, long-term distribution agreements that are difficult and messy from which to extract your company, and that can tarnish your brand image in the local market. Once distribution is established, you can open a sales office, hire your own sales staff, and eventually begin local manufacturing once critical mass has been established.
Marketing Your Product in a Foreign Country
Bravo! You have overcome the ingredient and packaging restrictions, chosen a top-notch distribution partner, are receiving large sales orders, and are being paid promptly. What can you do to stimulate demand, enhance your brand image, and grow sales and profits? Firstly, consider introducing a volume purchase plan with your distribution partner, providing price allowances on full container load orders or if they reach a minimum monthly sales quota. Create localized POS and print media for your target channels, and exhibit at a local trade show. Event marketing can also be very powerful in foreign markets. For example, sponsorship of professional soccer or Formula 1 race car driving in Europe may have a huge impact on brand awareness for certain specialty food and beverage products. Your ultimate goal should be to tailor a marketing strategy for your products to the local consumer and customer.
Exporting and licensing are only two means of executing a global business strategy. The various market entry strategies have raised the level of complexity in doing business abroad. U.S. specialty food and beverage companies must be more bold, creative and flexible today than ever before. Successful companies today continually monitor the local economic and political environments in which they conduct business, and understand cost structures, competitors, new products, and foreign currency exchange rates. Did you know that the U.S. dollar has decreased in value by 50% vs. the Euro since its trough in July 2001? This means that U.S. products in Europe are 50% cheaper. Conversely, it is 50% more expensive for Americans to travel to Europe.
These days companies need to ensure that it’s assets are directed toward the markets with the best profit opportunities. While we live in a complex, fast-changing global environment, the opportunities to export U.S. specialty food and beverages have never been better!
–Peter M. Guyer
Peter M. Guyer is the Founder and President of ATHENA MARKETING INTERNATIONAL (athenaintl.com), an international marketing, consulting and business development firm serving food and beverage manufacturers. Tel. (206) 749-9255.