Euromanagé Inc. was established in Lyons, France, in 1987 by the Picard brothers, Alain and Michel, as a manufacturer of high-quality baked products that were sold to gourmet shops throughout France, especially in the major cities. As the company grew in strength financially, it expanded its product line to include soft drinks (both bottled and powdered), snack foods, and breakfast cereals. By 2010 the company was a leading processed-food and soft drink manufacturer in France and had established its presence in Switzerland, Germany, Austria, and the Netherlands. Having gained considerable international experience in Europe, the company makes the decision to expand into Latin America, starting with Massilia, one of the largest countries in Latin America. Massilia has a per capita income of US$6,800 a year, nearly the highest among all countries of the region. Although under considerable Spanish and Portuguese influence because of its heritage, Massilia has a large middle-class population that is increasingly open to international products of different categories. Pre-marketing research shows that there is a substantial market for the high-quality, upper-end soft drinks and processed-cheese products of Euro-managé. Estimated sales for the first year are US$40 million.
Massilia has a mixed retail system for soft drinks and processed foods. Soft drinks are sold primarily through individually owned small stores that also sell other types of groceries. Large supermarkets in the major cities are also a major source of soft drink sales (about 15 percent). The balance is sold through a variety of outlets, including automatic vending machines (11 percent), restaurants (6 percent), and miscellaneous outlets (8 percent). The large international soft drink manufacturers dominate the market: they have established their own bottling plants in four key regions and set up a comprehensive distribution system operated through local distributors, who have signed agreements with the franchisees.
Euromanagé considers several strategies to break into the market and reaches the conclusion that it could achieve maximum penetration by attacking the high end of the market and carving a niche in the mineral water, fruit juice, and energy drink markets. Much of this market is concentrated in the urban areas, where the professional class is located. With a well-designed marketing plan, Euromanagé hopes to put forth an image of the aesthetic social superiority of its products that would appeal instantly to the upwardly mobile and ambitious sections of Massilia's middle class.
It is also evident that the initial marketing arrangement will be made with the large supermarkets, where most of the higher-income, middle-class customers in urban areas do their shopping. Although in some areas there are high-end, individually owned stores, the supermarkets control as much as 70 percent of the middle- to higher-income retail market in the cities. The supermarkets stock a wide variety of imported foods, so they could also carry Euromanagé processed-cheese products. Further, at some point in the future, the supermarkets could carry more items from the Euromanagé product line. Initial surveys show that customers at the major supermarkets welcome the availability of high-quality French soft drinks and cheeses.
Although this issue is settled fairly quickly, the international marketing strategy for Massilia becomes bogged down in indecision over a choice of a distribution system. Massilia is located on a different continent, where the company's experience in establishing distribution networks in Europe cannot be easily duplicated. Considerable effort, including on-the-spot studies of the distribution system in Massilia, enable the company to narrow down the options to two. The first is to establish a company distribution office in Mardoe, the major port city and capital of Massilia. Under this arrangement, an executive of Euromanagé would be placed in overall charge of the Massilia distribution operation and would be assisted by a small locally recruited staff. The office would maintain direct contact with all the supermarkets selling Euromanagé products and would coordinate imports and local transportation to various supermarket locations. Letters of credit for imports would be opened by the distribution office on receipt of the supermarket purchase orders. The local office would also be in charge of collections and assist the supermarkets in efficient inventory control of Euromanagé products.
The proposal seems to offer many advantages. Euromanagé is entering into a fairly competitive market with well entrenched competition. Pricing is a key factor and the existence of an in-house distribution arrangement would save considerably on the middleman's commission. The distribution office could keep in close touch with the supermarkets and offer the company excellent feedback on the market response to Euromanagé products. Further, the executive in charge of the distribution center could actively follow up the promotion of Euromanagé in the new markets.
The second distribution option is to appoint a local agent in Mardoe as the company's sole distributor of soft drinks and processed-cheese products. The distributor would import the products after receiving and consolidating orders from the supermarkets. All transportation, collection, and other arrangements would be made by the distributor, who would also provide periodic market feedback to Euromanagé. At the same time, Euromanagé would be free to talk directly to supermarkets on such issues as the market response to new products, needed changes in product quality and varieties, the nature of store-level promotions, and so on. The distributor would charge a commission on a graduated scale, depending on the level of sales achieved each year, over a given base. There would, however, be a minimum fixed amount of commission payable to the distributor to cover fixed costs.
There are considerable advantages in this proposal, too. The wholesaler would obviously have a better knowledge of the local market and arrive at arrangements with the local supermarkets more easily than would be possible for Euromanagé to accomplish directly. Further, with local experience, the wholesale distributor would be able to smooth out routine problems with the supermarkets more effectively. Because letters of credit would be opened for the account of the wholesaler, Euro-managé would be safe from the credit risk involved in collecting payments from the supermarket outlets. At the same time, the company would also be relieved of the difficult job of handling collections in a foreign country. The wholesaler would already have an office and the necessary facilities in Massilia and would not need additional investments. Moreover, the distributor would have considerable experience and business contacts within the local distribution system and would easily be able to route Euromanagé products to the supermarkets.
Pierre Goulet, vice president of international marketing for Euromanagé, is perplexed. Both options seem to have great advantages, but each also has several disadvantages, and what works in Europe might not work in Latin America. Goulet sends an email to his marketing manager of the Western Hemisphere, Guy Lassalles, asking him to evaluate the difficulties and risks in each alternative from the long-term perspectives of the company, before the executive committee has to make a decision the following week.
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