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MOR 492 Global Strategy- Jamba Juice in China

Analysis of whether Jamba Juice should enter China

MOR 492
1. Ariel Furman
2. Tuomas Kuusela
3. Anna Lin
4. Jessie Rubio
5. Vincent Tsao
6. Jan Dong Vejdiksen

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MOR 492 Global Strategy- Jamba Juice in China

  1. 1. MOR 492 Team Six Professor Voigt Ariel Furman Jennifer Mo Anna Lin Jesse Rubio Tuomas Kuusela Jan Vejdiksen Vincent Tsao
  2. 2. Content •  A. Executive Brief 3 •  B. Juice and the Beverage Industry 4 –  What is Juice? –  Reasons to Enter China –  6 –  Country and Business Environment Analysis –  7 –  The Role of Juice in Chinese dietary •  –  5 –  10 C. Jamba Juice and The Competitive Advantage 11 –  Business Model –  Value Chain –  12 –  Case Study: The Keys to the Success of Starbucks and HaagenDazs in China •  –  11 –  13 D. Chinese Entry Strategy 14 –  16 –  Partnership: SPC Franchising –  20 –  Penetrate: Identify and Appeal to the New Mainstream Consumers in Tier 1 Cities –  21 –  Present: Create The Ultimate Jamba Juice Experience •  E. Implementation 23 –  Financial Projection –  Implementation Timeline •  –  23 –  24 F. Appendix 25 2  
  3. 3. Executive Brief It’s More than Juice, It’s The Experience Key Challenges Objective Generate $50 million revenue in China within the next 5 years Recommendations How to make Chinese consumer purchase specialty drinks and create a strong brand perception Partner with SPC Group to open café franchises in Shanghai and Beijing Penetrate through high brand presence and visibility Present The Jamba Juice experience to attract Chinese consumers Why •  The US market is saturated for Jamba Juice, and Jamba Juice needs to find the new resource of growth to satisfy investors and fulfill the growth imperatives •  12% CAGR increase in China of juice consumption and the increasing middle class suggests that there is a high potential demand •  Competitors such as Smoothie King have already entered China; Jamba Juice has to move fast or competitors could create barriers to entry Meet •  Chinese consumers associates foreign brands with higher quality, and they are becoming very open to westernized products and lifestyle •  Competitors have established locations in the food courts of popular urban centers with live freshly squeezed juice within an average of $3 price range •  Juice traditionally has been perceived as a commodity instead of a premium indulgence. The consumption is low compared to developed markets, thus Jamba Juice needs to create demand into the Chinese diet Bring Build •  Jamba Juice should focus on bringing The Ultimate Juice Experience, including the commitment to a healthy, fun, and energetic lifestyle. It is a place for people to recharge, meet, and relax with a healthy drink •  Jamba Juice should build a strong brand and create excitement of the products by attractive indoor decorations, quality products, and premium locations. It should transfer the most of western experience with slight local market adaptation How •  Jamba Juice should enter China through franchising placed in Tier 1 cities (Shanghai and Beijing)in the next five years •  Jamba Juice should partner up with SPC Group (Relationship already successfully established in Korea), which has had success in opening franchises in China to help expand Jamba Juice’s brand name and achieve high visibility •  Star employees from United States will train the new-hires in China. It is important to ensure the successful execution of the promise above, to bring premium quality products and services in China. •  Creative marketing strategies, such as partnership with gyms and flexible 4   promotions should be explored to speed up the penetration process.
  4. 4. Jamba Juice is An Experience What is Juice? Small Market Size Juice = Health Small global market Coffee Tea Highly versatile, flexible beverage Juice Diversified Products Easy Entry All you need is fruit Easy entry and incorporation Lifestyle-based, and health focused This is Jamba Juice Product Portfolio: Smoothies, Freshly Squeezed Juice, baked goods, wraps, snacks Beverage/Food Retail “High quality, better-for-you”, Jamba continues to develop innovative products made from premium ingredients Jamba dedicates to raise the awareness of a healthy, active lifestyle by improving store designs, sponsoring athletic events, and ongoing health-focused marketing promotions Specialty Retail Healthy Drinks Cafe The Ultimate Jamba Experience Social   Experience   Customized   products   Convenience   Basic   need  for   a  drink   Brand  Equity   An energy drink • Jamba juice will satisfy customers’ basic need for a drink that relieves thirsty. However, the juice contains energy and liveliness, conveyed from product design, packaging, and the nutritional value. A health commit ment • Customers are consciously making a smart choice by purchasing Jamba Juice. It will offer health benefits, and encourage customers to stay active, eat healthy, and have a positive mindset. A trendy spot • Jamba Juice is a cool place to hangout. The colorful indoor design and the friendly staff will both offer a positive experience. A sense of status • Jamba Juice makes customers feel good about themselves. They are choosing Jamba Juice because they can afford a premium and enjoy all the benefits stated above. 5  
  5. 5. Jamba Juice’s Niche The New Mainstream Chinese Consumers 1   2   3   4   5   Domestically focused but upwardly mobile No  disposable  income     Global Consumers Locally focused with income Percentage of Urban households by annual income in US Dollar 2010 82 2020 26.6% CAGR 51% = 600 Million 10 7 Poor < $6,000 6 3 Mass $6,000 - $16,000 2 New Mainstream $16,000 - $34,000 6 Affluent > $34,000 The New Mainstream Chinese Consumers demands for Jamba Where they live % of consumers in tier 1&2 cities 74% What are they looking for Emotional benefits 23& How they spend their money Willingness to pay a premium 49% Shanghai Beijing The new mainstream customers (Global consumers and upwardly mobile sectors) in China is growing and will be willing to pay for the premium juice experience. Jamba juice differentiates itself by creating a experience (emotional benefits). Customers pay for a premium for the relaxing, fun environment while convincing themselves of a healthier lifestyle. 6  
  6. 6. Increasing demand and competitive pressure drives globalization in beverages Cost Drivers (Low) • Transportation of fruits, keeping them fresh may be extremely costly in some areas • Does not require additional technology investments, leading to low costs • Maintaining the quality of fruits or other ”raw materials” may be costly in some markets Market Drivers (High) • Lifestyles of developed and emerging markets are converging • Consumption of healthy drinks increases dramatically with the of disposable • Income leading to high potential within high GDP growth countries • Fruits are available in most markets excluding very dry or cold areas Competition Drivers (High) • Market saturation in Western markets drives companies such as Jamba Juice to go global • Emerging foreign markets are becoming key battlefields for Western branded products Government Drivers (Medium) • Healthy drinks have no national importance and therefore government barriers of entry should not be high • Varying health or food safety regulations may make glozalization difficult Growing Middle class in China is the next sweet stop. Growth Imperative Declining revenues in the United States between 2010 and 2012 signal intensifying competition and need to seek additional growth elsewhere • Increasing Chinese Juice consumption (CAGR 12.3 % from 2007 to 2011) tells about market potential • The success of Western cafés such as Starbucks tells that people in China are very receptive to Western drinks Knowledge Imperative Entering China or other similar countries may result in positive learning effects • For example product adaptation in China may result in products that help Jamba Juice to compete in the home market and other Asian markets • By entering new emerging markets Jamba Juice will be able to gain experience for further expansion Globalization of Competitors Jamba Juice’s competitors, such as Smoothie King, are expanding to China •  The specialty drink industry for coffee shops and cafés is in high growth due to increasing urbanization and disposable income. •  However, the market is very affluent and new taste preferences makes the market very unpredictable. •  An identified adoption of Western lifestyle towards more healthy consumption and small ‘going-outexperiences’ give rise to significant opportunities for Jamba Juice. •  This paired with low government barriers to open a café, makes China and Jamba Juice a perfect match. 7  
  7. 7. Jamba Juice faces strong competitive pressure Porter’s Five Force suggests that the beverage industry has very low barrier to enter and many players, that competitors can easily copy almost ANY competitive advantage. Political • Huge state-owned, enterprises and fierce competitions, Chinese own food regulation • New super ministry in 2013 to ensure the quality of food New Entrants - High • Very low entry barrier for juice industry • Low capital requirement • No consumer switching cost • No established brand in the industry Social • Increasing urban population and middle class, low juice consumption • Health-conscious Preference of freshly squeezed juice with live demonstration Suppliers - Low •  •  •  •  Fragmented source of supply Strong internal competition Low switching cost Sensitive to unpredictable factors, such as weather Incumbent Rivals - Medium to High Economic • Increase in CPI and Consumer Purchasing Power • High inflation and raw material cost Substitutes - High • All the large beverage producers are aiming to launch healthy juice • Large number of individual juice crafters established in food court and farmers market • Undifferentiated products and brand names • Large number of substitutes available, such as condensed juices, milk tea, soft drinks, ice-cream • Many small, local producers can also squeeze fresh, affordable juice Buyers - Low to medium Technology • Small order quantity • Individual consumers have low bargaining power once if consumer brand loyalty established • Very price sensitive • Internet and mobile development as a marketing channel • Labor intensive • Expensive freezing and storage facility PEST analysis supports the low entry barrier result with no significant political or technology barrier. The key challenge for Jamba Juice is to create a demand of juice in the traditional Chinese diet and convey the experience rather than the beverage itself to consumers. Key T akeaways •  The specialty drink industry for coffee shops and cafés is in high growth due to increasing urbanization and disposable income. •  However, the market is very affluent and new taste preferences makes the market very unpredictable. •  An identified adoption of Western lifestyle towards more healthy consumption and small ‘going-outexperiences’ give rise to significant opportunities for Jamba Juice. •  This paired with low government barriers to open a café, makes China and Jamba Juice a perfect match. 8  
  8. 8. The Greatest Challenge: Low Juice Consumption in China Culture •  Chinese youth consumers in the urban areas are becoming more Westernized in their consumption •  Higher income and more leisure time increase the need for more than basic product needs •  Chinese consumers do not drink juice, but have adopted coffee in a similar way as US consumers consume it Administrative Geographic •  China’s entry in WTO •  China is the world’s have lead to lowering of largest country in barriers to entry for terms of population foreign companies with over 1 billion •  The Chinese government •  Hard institutional has two layers, national void lacking in form state government and of underdeveloped regional government roads and railways •  China is ranked as •  Significant number 91 in ‘Ease to of difference among Doing Business in’ by areas and regions The World Bank within China, North •  The regional government and South, Coast is exercising protectionist and center, rural measure against foreign and urban businesses •  US consumer often •  purchase ‘on-the-go’ beverages •  Especially healthy specialty •  drinks such as frozen yoghurt, juice and •  smoothies are experiencing growth •  US consumers purchase Jamba Juice products due •  to busy work schedule and social leisure time experience •  Jamba Juice satisfy a need for self realization of a healthier lifestyle through its brand and products The US embraces competition and entrepreneurship Significantly lower corruption rate Minimum government intervention in business activities More transparent regarding taxes and legislation •  High developed infrastructure •  High quality of fruits, vegetables •  High developed communication and technology relations Economic •  Slowing, but still growing economy with approx. 7-9% GDP growth •  Huge rising middle class due to increase income level •  High Gini-coefficient, hence big different between rural and urban areas, center and coastal •  Affluent consumers •  Increased consumer spending and expectations to the future •  Still the largest economy of the world •  Significantly higher income and wage level than China •  Slowing economy with big problems •  Increased unemployment rate •  Lower expectations to consumer spending Distance The CAGE distance is relatively high between the US home market and China. The most significant 9   challenge is the cultural distance of making Chinese consumers want and drink juice.
  9. 9. Doing Business in China is Challenging, but Feasible Standard Institutional Voids Hard infrastructure Soft Infrastructure •  •  Logistics: The cold chains in Chinese logistics are extremely underdeveloped in comparison with their Western counterparts, making Jamba Juice unable to replicate their US distribution center and fruit sourcing structure. Legal system: The lack of food industry and agriculture regulation makes the Chinese business prone to problems related to low fruit quality. •  •  •  Roads and railroads: Underdeveloped road and railroad networks increase transport times and increase the importance of a well functioning cold chain. Intellectual property: The lack of intellectual property rights enforcement increases the importance of differentiating the franchise stores from imitators by cleanliness and feel. Political voids: Corruption and multilayered political structure creates the need for contracting or strategic alliance as an entry method. Country Factor Endowments •  •  •  Land: In case of contractual or alliance entry, agricultural or real estate regulation for foreigners do not affect Jamba Juice. Labor: Jamba Juice will encounter low-cost labor in China, but has to consider how to teach about the importance of freshness and cleanliness to its employees. Partner: In case of a contractual or alliance entry, finding a partner that can adapt to Jamba Juices values may be time consuming and costly. The greatest challenge for Jamba Juice is to build a strong brand that conveys health and fun, while balancing the brand premium and an affordable price due to the general lower income in China. As the infrastructure in China is still developing, Jamba Juice should penetrate Tier 1 cities first, as they have the most developed distribution system. 10  
  10. 10. Jamba Juice’s Penetration as a healthy commitment, a convenient choice, and an incomparable experience The role of juice in four meals Breakfast Lunch Snack Dinner •  Popular choice at the start of the day •  Boost vitamin and nutritional needs •  Convenience “Grab n Go” •  An option rather than a necessity •  Convenience and store display boost sales due to the colorful presence •  Ritualized, particularly conductive to high customer loyalty •  A healthier alternative to crackers and chips •  Only high customer loyalty would choose juice over alcoholic drinks and tea Substitutes and competitors in the traditional Chinese diet Coffee, Milk, tea Coffee, tea, soft drinks Traditional drinks (boba), snacks, coffee Alcoholic drink, tea, soft drinks Jamba Splashes onto Chinese Taste buds •  Close to premium office •  and school location •  Fast Grab n Go service but •  sit-down option available •  Emphasis on the health benefits (vitamin and •  energy) •  Price advantage over coffee, promotion •  Fun and colorful package design High presence with set •  •  meal A juice after meal will help relieve the saltines and •  improve metabolism •  A healthier alternative than soft drinks Serve as a healthy snack •  Very Hard to A place for people to compete with hang out and retraditional drinks, energize but promotion could Place to study and work work Encourage to stay longer •  Partner with local food courts Although Juice doesn’t have a dominant presence in the traditional Chinese dietary like tea, Jamba Juice can create the demand by emphasizing the occasion, health components, and emotional benefits. The fact that Chinese don’t drink too much juice gives Jamba the freedom and opportunity to define the juice experience. 11  
  11. 11. Jamba Juice’s Key Strategic Advantages are Brand, Customer Service, and Product Innovation Higher  price   Brand   Service   Standardized   stores   Marketing   Own   stores   Franchis es   Strategic Advantage Strategic Target Consumptio n  frequency   Franchise   Training   Development   and  Monitoring   Reinvestment   Differentiation Cost Leadership Focus Loyal   customers   Profit   Centralized   distribution  and   supply   Increased  margins   Lower  operating   cost   •  Company goal: “Top of Mind Healthy Beverage & Food Brand” •  Target middle-high class with disposable income averaging 16-30 in age •  Consumers are loyal and purchase on a weekly routine •  Offer premium quality ingredients and flavorful, better-for-you food products •  No high fructose corn syrup, artificial preservatives, or artificial flavors •  Fresh-squeezed, on-the-spot •  High quality customer service, superior store experience •  JUICE plan provides extra cash and vacation bonuses for employees based on store profit and service score •  Comprehensive franchise support including: 6 week training program, volume discounts from established vendors, regional franchise managers Jamba Juice has developed a signature healthy brand based on its high quality product and outstanding customer service in an energetic store environment, attracting a group of targeted, loyal consumers who purchase repeatedly and are willing to pay a premium. These competitive advantages along with strong franchisee support can be translated to expansion into China. 13  
  12. 12. Jamba Juice should focus on its downstream activities when entering China 1 2 Vegetables, fruit and other ingredients •  Jamba Juice has two supplier and distribution alliances with SYGMA and System Services of America •  •  3 Franchise management and training R&D •  Jamba Juice’s R&D activity focus on developing new eco products and seasonal tastes 4 •  •  Jamba Juice provide inhouse 6 weeks intensive training The franchisees receive continues support in marketing, sale and training 5 Marketing and Branding •  Jamba Juice’s •  marketing and branding is controlled and developed from the management and implemented through all the stores Customer and store Service Jamba Juice ensure through training of the franchisees that customer experience and service a core value for Jamba Juice’s product Analyzing Jamba Juice internal situation suggest that Jamba Juice, does not have the capital required to enter China based on greenfield. At the same time the Jamba Juice’s value adding activities exists in the downstream activities, which suggest that Jamba should focus on what they are good at: 1.  Branding and monitoring 2.  Well-developed franchise concept 3.  That give consumer high service experience Taco Stand Question: “What is Jamba Juice’s good at?” Answer: Recipe of a customer experience 14  
  13. 13. Lessons of “Sell The Ultimate Experience” from Starbucks and Haagen-Dazs Starbucks: It’s not about Coffee, it’s the experience Three  Concepts   Starbuck’s  Strategy   Lessons  for  Jamba  Juice   Think Different IMAGE Introduce a Western Coffee experience rather than an alternative of tea; “where people could meet their friends” Introduce a Global Juice experience, where people can relax, drink healthy, and have fun for all occasions Position Smart LIFESTYLE Adaption: Green Tea and Red Bean flavor Physical presence instead of media promotion Extremely qualified labor force Adapt to local flavors Source with the highest quality ingredients; Hire friendly, professionals for the best customer experiences Brand Global STATUS Extensive customer tasting profile, Consistent Quality Opened the first store in the airport in Korea Actively engage in market research before opening new stores High-qualify food and services Carefully choose locations with sufficient brand recognition from foreign demand and emphasis the global presence Haagen-Dazs: It’s not an ice-cream cone, it’s the occasion Premium Position China’s Hunger for premium goods, increased buying power and willingness to display wealth “What Rolls-Royce is to cars and Cartier is to jewelry, Haagen-Dazs is to ice-cream” Jamba Juice will satisfy Chinese’s eagerness to commit to a healthy lifestyle and personality expression. Going to Jamba Juice indicates that you are making a smart choice for yourself and relaxing with your friends Exotic Products with appropriate local adaptions Haagen-Dazs maintains all the classic, premium favor while introducing moon cakes Jamba Juice should introduce most of the feature products to China with minimum adaption such as soy milk and tea drinks 15   Jamba Juice: It’s not the juice, it’s the experience AND the occasion
  14. 14. Jamba Juice’s Strategy to tackle China •  Global TransNational Global Efficiency •  •  International MultiDomestic •  Pushing a franchisee-oriented initiative with local partners to move away from companyowned locations and leverage regional expertise When Jamba travels across borders, it does not change its business model Need for fresh raw materials means that scaling efficiencies is not as important as establishing a strong distribution network Must use their expertise in product and customer service to gain market share and build a brand in China Benefits from national responsiveness Aggregation Adaptation Arbitrage Aggregation? Because of the short life-span of raw materials, aggregation is unlikely with a dispersed network of local suppliers Adaptation? Besides basic changes in regional flavors and tastes, the increasing demand for healthy drinks in China as proven by other competitors gives Jamba Juice confidence to replicate its business model. Arbitrage? Jamba Juice is able to leverage its brand and demand a premium price for its smoothies while taking advantage of low labor costs in China. In partnering with local distributors and franchisers, Jamba Juice should pursue an international strategy that focuses on replicating the Jamba business model in China with minor adjustments for taste and flavors. Economies of scale and global efficiency are difficult to obtain with the volume and nature of fresh fruit product. Jamba is looking to transfer the concept of Western healthy beverage and food to 16   China with little adaptation.
  15. 15. Jamba Juice should exploit location advantages mixed with cost efficiency •  Low labor costs in China •  Higher willingness to pay for branded goods relative to income level •  With the experience of entering South Korea with similar market condition and target group, Jamba can achieve lower cost from economies of replication •  By expanding to China Jamba Juice, can learn about the affluent consumer behavior and adapt •  Franchising allow Jamba Juice to create better relationship to the government and ease their penetration into the Chinese market •  Potential political risks nullified by partnership with SPC & RBT •  Expanded product line maximizes utilization of resources, lowers total costs, and shares R&D In order for Jamba Juice to create a global advantage in China, they have to emphasize location drivers like national differences, global learning, and global leverage while also taking advantage of economies of scope to spread costs and R&D over a continuously innovative product line. 17  
  16. 16. Jamba Juice Should Enter China through Franchising in Tier 1 Cities US is experiencing a stagnant growth in the beverage retail specialties market. Jamba Juice has already opened several stores in Philippines and South Korea. China has the fastest growing middle class with disposable income. Licensing/ Franchise Joint Venture China Acquisition Asia Japan Greenfield Europe Southeast Asia Global Jamba Juice Working with an established partner in China would mitigate the institutional voids and requires less capital. North America Local South America Entry Modes Weight Criteria Export Franchising Tier 1 Cities: Shanghai, Beijing, and Hong Kong JointVenture Acquisition Jamba Juice should target consumers in Tier 1 cities that are more inclined to foreign brands and have disposable income to purchase healthy smoothies. Greenfield Cost of Entry Control Local market knowledge Time of entry 19  
  17. 17. Find the Right Partner SPC is the Winner in China Competencies Both SPC and Rbt are established, professional franchisers with proven successes in China. Local Knowledge Rbt is run by local businessman, Albert Wu. While SPC is from Korea, Rbt has slightly better local knowledge. Penetration Speed Existing Relationship Rbt has proven success with HappyLemon, which aimed for 1,200 stores in the next five years. While Paris Baguette by SPC is much slower in comparison. SPC has been successful running Jamba Juice in Korea. Huge Plus. Cannibalization Risk Happy Lemon sells lemon flavored teas, an indirect competitor; While SPC mostly owns bakeries. Franchising is the fastest way to gain high growth and visibility, while keep low cost SWOT Analysis with SPC Strength Weakness •  •  Conservative penetration rate •  Face strong competitive pressure from local businesses •  •  Established relationship in South Korea Understanding of Jamba Juice’s culture and goal Over 10 years experience in China Opportunity Threat •  Achieve synergy in both South Korea and China, Cooperation with existing bakery franchises •  Subject to foreign business regulations •  Distracted by the growth of 20   other brands
  18. 18. Jamba Juice’s Success in South Korea 2. Positioning 3. Present •  Partnered with SPC Group, one of the most well-know food franchising companies in Korea with over 4,500 lcoations in operation •  Jumper Juice, also called Jambaism, or Jumper wit is an expression to live life full of fun and wit. Jumper wit is always positive and overflows. •  Product: Classic Smoothies: Strawberries Wild, Mango-a-go-go, and Caribbean passion. But also adjust to local Asian taste: Matcha Green Tea Blast, Jeju Tangerine Juice. Koreans consume twice as many Jeju tangerines as they consumer apples due to they were long used for herbal medicines. Location: Opened first store in Incheon International Airport to reach diverse consumers traveling to and from South Korea •  1. Partnership Tae-kwan Park, South Korea’s Olympic swimmer is the spokesperson for Jamba Juice South Korea to portray his healthy, energetic and outgoing lifestyle •  Jamba Juice has opened 5 stores in the past 5 months in Korea. Open 200 locations with SPC in the next two years. 4. Promote 5. Penetrate Three pillars to replicate the success in China Partnership Penetrate Present Store experiences + Location Beijing + Shanghai SPC and Rbt are both experienced franchisers in China. Jamba Juice can quickly establish brand visibility. Given the relationship in Korea, SPC will be a good partner. Through franchising, Jamba Juice will adopt a fast expansion plan of physical store locations in expat heavy locations of Beijing and Shanghai. Customers will have a fun, relaxing experience at Jamba Juice’s colorful physical store, while enjoying a premium 21   healthy juice with friends.
  19. 19. Franchise Risk Mitigation built into growth business model Vendors Jamba sources and contracts globally to ensure the right ingredients are delivered at the right prices. Potential fruit vendors with reliable history and prices includes as well as other local vendors, to ensure the best quality. Risk Franchiser strays from Jamba Juice’s company culture/ appearance Disagreement with Franchiser and HQ. Government intervention Increased competition from global competitors Price sensitivity is greater than brand and premium pricing strategy may not be successful. Training Jamba trains on how to manage a Jamba Juice unit Trains the team so that to ensure a successful opening Probability and Severity Low Low Low High Medium High Operations The Region Franchise Manager will visit regularly to ensure that Jamba is meeting needs on an ongoing basis. Risk Mitigation Have the region manager very clearly communicate the importance of consistency. Relay the importance of strong branding and everything that Jamba stands behind. Communicate a clear termination agreement if parties stray from mission, vision, and brand. High Address all cultural conflicts before entering the agreement and write a contract listing out rewards and punishments for each partner High Make sure to choose partner with good government relations and contacts. Create clear standards and protocol to ensure all business being done lawfully. Medium High Use competitive advantages of standardization and customer service to stay ahead and grow faster. Consistent branding and integrated customer marketing will ensure that Jamba stays ahead. Either adjust pricing or invest in more marketing and development of premium brand. 22  
  20. 20. By fulfilling Chinese consumers’ two needs… Tier 1 Consumers Action Locate franchise stores in busy areas close to other cafés and food courts with added local Chinese drinks e.g. green tea and standard product range Targeted customers ‘New Mainstream’ – income: $16,000 – $34,000, 14 – 35 years, youth, global consumers, health oriented lifestyle On-the-run Social experience Consumers on the way to school or job wanting something refreshing and healthy, that reflect their lifestyle and personality of being modern and healthy Consumers who want to socialize and spend time with their friends or family. Looking for a good experience and nice atmosphere Special Needs …Jamba can enter a blue ocean in the specialty drink market in China 6 5 4 Starbucks Rank from High to 3 Low Other specialty drink providers Haagen-Dazs 2 Jamba Juice 1 Juice makers Average of Industry Peers 0 Location Affordability Healthy Service and Experience Parameters This detailed ranking of the market landscape parameters, that companies in the specialty drinks industry are competing on shows that Jamba Juice should avoid a Red Ocean on price and location. Instead price 23   and location should be mandatory competing factors and service and experience as blue ocean measures to satisfy special needs for the target group.
  21. 21. Jamba Juice should sponsor events and engage social media to attract customers Pulling the Brand through Chinese appreciated channels. Jamba A “food” twitter with half a million followers Sponsorships Jamba Juice can use celebrities for TV commercials to gain the attention of the Chinese. Also, due to the popularity of Korean culture, Jamba Juice can arbitrage the culture. Social Media: Through Weibo, and Wechat, Jamba Juice have the opportunity to reach 597 million potential consumers. Sunflour Bakery •  15% off baked goods after 6pm with a drama show ticket •  Top Bakery in Shanghai Jamba Juice in China Partnership Jamba Juice can partner with local businesses, such as movie theaters and gyms to offer discount with purchase. The Success of Banana Milk •  1/3 of the entire Korea beverage imports in five months = 17 Million Sales •  Popularity gained from k-pop– after launching a Korean TV commercial in China Sporting Events Through the rise in Chinese interest for sporting events, Jamba Juice can partner with popular teams to push their brand. Sales Promotions Jamba Juice can offer “happy hour” discount and sales booth to incentivize the Chinese consumer to try the products. The market pulling for the needs to embrace not only healthy drinks but a new culture. Marketing the Brand Identity: The idea of focusing on a single advertising campaign message and leveraging the cost throughout the different channels used, helps build a solid brand identity. Also, marketing in this fashion mitigates the risk for franchisees to diverge in brand identity, therefore maintaining a consistent image throughout China. 24  
  22. 22. Getting the Chinese to Welcome Jamba Juice With Jamba Juice’s marketing slowly convincing the Chinese consumers to adopt the western style drink, Jamba will enter China with an alternative menu to familiarize and attract potential Chinese consumers. Example of Jamba Juice adaptation in China Western Style Chinese Style Aloha Pineapple Smoothie Ancient Logan Splash Pomegranate Paradise Chinese T aste Kabosu Kumquat Blend Mega Mango Western T aste Lychee Blast Smoothie Strawberry Whirl Conversion Green Tea and Fig Chill The Ultimate Juice Experience in China Existing Juiceries Jamba Juice Appeal to Chinese Consumers Fixed Menu Item Design Your Own Juice DIY, Trust, Engagement Food Court Location Individual Stores and Food Court with ample seats and space Added emotional benefits with friends and families Value of money -> Stay Longer Limited Promotion Available (Groupon) Multi-channels of Promotion (K-Pop arbitrage, In-store demonstration, Partnership, Sponsorship, and Social Media) Words of mouth Trust (Social Media), Immediate incentive to redeem the coupon (Time limitation of partnership), Authority (Celebrities effect) It’s the Juice It’s the Brand and the Experience Status and Lifestyle, Proof of Economic Affluence Domestic Established Foreign Brand Globalization and International Compared to the traditional Juiceries present in food court, Jamba Juice not only premium quality, freshly squeezed juice, but also the café experience with ample seating, friendly services, ongoing promotion, celebrity support, the DIY experience, and the sense of status. The goal is to appeal to the mainstream Chinese consumers, establish a strong brand, and eventually transfer the brand to a direct experience. 25  
  23. 23. Footprint to $50 Million in China in 5 Years 25 Projected 5 YR Revenue and Profit in China $50  million  in   revenues   20 15 Million USD 10 Revenue Operating Profit 5 Break  –even   point   0 2014 2015 2016 2017 2018 -5 -10 Year We see that Jamba can expect to break even during the third full year of franchising in China, with profits scaling exponentially as volume increases and fix costs are dispersed over high volume production. The demand is present and growing rapidly there in the Chinese market, with the healthy beverage market growing with the rise of the upper middle class. Jamba Juice can enter the market with smaller initial capital investment via partnering with a local company. 27  
  24. 24. Timeline for Implementation 2013 2014 2015 2016 2017 Partner with SPC •  •  •  Contact and enhance relationship with SPC Group Negotiate franchise agreement Exchange US and China employees to learn Penetrate the new mainstream •  Analyze the spending habits of the new main stream consumers •  Open stores in Beijing and Shanghai Present and Promote the Jamba Juice Experience •  Promote Jamba Juice through social media, sponsorship, TV advertising, and in store experience •  Build the reputation and brand presence 28  
  25. 25. Appendix Jamba Juice Avoiding Risk Through Franchising Entry Strategy Risk Con Pro Franchise Low The Business Model can be altered to the extent that Jamba Juice loses its competitive advantage. Jamba Juice would be able to adapt quicker and help establish its brand name. Joint Venture Medium A joint venture may lead to a misunderstanding of company identity, and lead to a violation of intellectual rights. Jamba Juice would be able to learn how other companies function; however, there is no other company that holds a high enough market share for Jamba to learn from in China. Green Field High Operating cost will hinder Jamba Juice from ever making a profit since they do not harvest their ingredients. Franchise is the best strategy “Jamba Juice is good at create an experience” Jamba would be able to be in more control of the decisions it makes in China, but would still adhere to the Chinese government . Franchising  In  China   1) With franchising, Jamba Juice exploits a entry strategy that allows it to be locally responsive by its management, and as Chinese Franchisees open more Jamba Juices, the brand identity becomes strong. Volume   2 Reasons Jamba Juice Needs to Franchise in China L   2) Through franchising, Jamba Juice can replicate its Business model, therefore gain economies of scale with aggregation. Low   High   Local  Responsiveness   30  
  26. 26. Appendix: Jamba has proven the popularity in middle class in United States and South Korea United  States   1   2   3   4   In  the  US,  tiers  1,2,  and  3  are  able  to  consume  Jamba  Juice   because  income  is  still  disposable.  However,  only  tiers  1   and  2,  embody  Jamba  Juice’s  routine  and  loyal  consumers.       5   South  Korea   1   2   3   4   If  Jamba  entered  China   1   2   3   4   5   In  South  Korea,  Jamba  Juice  consumers  are  in  tiers  1  and  2.These   consumers  are  high  income  earners  and  young  professionals;  they   are  part  of  the  new  generation  of  global  consumers.   In  China,  there  is  a  booming  urban  population  and  rapidly   growing  middle  class.    Growing  amount  of  people  with  disposable   incomes.  Jamba  Juice  should  target  Tier  1  &  2  for  early  entry  and   then  if  successful,  to  expand  market  share,  grow  to  Tier  3.       Analyzing  the  different  segments  of  the  market  pyramid,  a  key  variable  in  Jamba  Juice’s  entrance   to  China  is  to  locate  stores  in  strategic  cities  and  areas  that  Chinese  people  with  disposable   income.   Domestically  focused  but  upwardly   mobile   No  disposable   income     1   2   3   4   5   Global  Consumers   Locally  focused  with  income     1)  Jamba  Juice  can  enter  an  approximate  18  Tier  1  cities  in  China  with  an  estimated  population  of   over  200  million  potential  consumers  who  have  high  disposable  income  to  become  routine     Jamba  Juice  consumers.     2)  Jamba  Juice  can  also  enter  25  Tier  2  cities  that  accounts  for  54%  of  China’  economic    growth   and  the  backbone  for  the  “Rise  of  China.”    These  25  tier  2  cities  encompass  a  104,000,000   population  for  Jamba  Juice  to  serve.   3)  There  are  also  24  Tier  3  cities  that  are  locally  focus,  but  with  disposable  income.  This   emerging  tier  provides  major  opportunities  for  Jamba  to  expand  its  targeted  consumers.   •  Jamba  Juice  should  target  Tier  1  in  the  short  run  and  expand  its  stores  to  Tier  2  and  3  cities  after   having  established  a  strong  brand  and  foothold  in  the  opinion  leaders  consumption  behavior  in  Tier   1  cities.   •  This  will  create  a  domino  effect  and  release  the  most  powerful  measure  to  create  trust  in  Jamba   Juice  brand  for  Chinese  consumers  –  ‘word-­‐of-­‐mouth’.  This  affect  will  allow  Jamba  Juice  to  focus  on   their  core  competences  by  giving  high  quality  experience,  while  the  satisfied  consumers  will   31   automatically  take  their  friends  and  relatives  with  them  into  the  stores  
  27. 27. Footprints to $50 Million in China in 5 Years Break Even Analysis ($) 2014 2015 2016 2017 2018 Fixed Cost ($ million) $2 $3.5 $5 $7.5 $9 Capital Investment ($ million) $5 $4 $3 $2 $1 Variable cost ($/lb) $2.00 $1.95 $1.90 $1.85 $1.80 Sell Price ($/lb) $4.00 $4.10 $4.20 $4.30 $4.40 Contribution Margin ($/lb) $2.00 $2.15 $2.30 $2.45 $2.60 Projected Volume (units) 1 3 5 7 9 Revenue ($ million) $2 $6.45 $10.6 $17.15 $23.4 Operating Profit ($ million) ($5) ($1.05) $2.6 $7.65 $13.4 Assumptions: •  Projected volumes are based on obtaining 4% market share of healthy beverage market by 2018, a reachable goal with major competitors holding 4-7% market share •  Increasing volume is also based on a 10% CAGR for specialty beverage market in China •  Sell price was formulated based on industry average for specialized beverages (~$3/drink) with a $1 premium for Jamba’s differentiated offering •  Increase in sell price accounts for projected higher demand in the future market •  Variable cost is roughly 50% of the price based on (CGS+Labor)/Revenue in US 2013 •  Economies of replication result in decreased variable cost •  Highest initial capital investment comes in Year 1, then a decreasing amount of infrastructure investments over the course of 5 years •  Fixed cost based on US operations and increasing incrementally with greater scale, matching fixed cost to sales ratio of the US by 2018 32  
  28. 28. Sources and Websites •  Websites • • • • • • • •  Reports •  McKinsey –  –  •  Meet the 2020 Chinese Consumer Annual Report of Chinese Consumers 2012 ISI Emerging Markets –  –  •  Street Stalls and Kiosks in China Tea in China Passport –  –  •  Fruit/Vegetable Juice in China Beverages in Consumer FoodService: The Best Portfolio Wins PWC –  Doing Business in China 33  

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Analysis of whether Jamba Juice should enter China MOR 492 1. Ariel Furman 2. Tuomas Kuusela 3. Anna Lin 4. Jessie Rubio 5. Vincent Tsao 6. Jan Dong Vejdiksen


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