Taco Bell opens a store in São Paulo during one of Brazil’s worst recessions in history- will they survive?

Taco Bell is growing internationally. They have announced plans to add 1,300 new locations by 2023 globally. Taco Bell states that it will generate about $2 billion in sales. They plan to focus on markets in Europe, Asia, and South America. Taco Bell has been performing well in its’ domestic market due to its savvy digital marketing campaigns. However, can Taco Bell be successful in Brazil? In one of the world’s largest city, São Paulo?

 According to research, 35 million of Brazilians have rose to middle class and their purchasing power is continuing to increase. (Donatelli) However, the average Brazilian consumer has become more financially conscious due to its economic downturn. According to CNN, Brazil’s economy shrank 3.6% in 2016 and is still struggling in one of the country’s longest recessions. Unemployment peaked at 12% in January 2017 and almost 13 million Brazilians are still out of work. A recent survey reveals of 1,000 Brazilian consumers said that they are very concerned about their finances and plan to cut spending.

The Mckinsey Global Consumer Survey Sentiment Survey found 5 attributes of current Brazilian consumer Behavior (Donatelli) :

  1. They found that 3 out of 4 respondents agreed they are looking for ways to cut spending. They also found that more Brazilians are eating at home and are delaying purchases.

2. 35% of Brazilians in the survey claimed they would stay loyal to their brand. However, 14% are waiting until they are on sale.

3. 22% percent of Brazilians claimed they would substitute products to less-expensive brands ad 60% claimed they would not go back to the expensive brand again.

4. Although Brazilians are becoming more financially conscious, they still splurge in select categories, such personal-care products and alcohol.

5. Lastly, Brazilians consumers are increasingly shopping at discount chains.

Although the Brazilian economy is struggling and the average consumer is financially restraint, American chain-restaurants still continue to invest in the Brazilian market. 33% of bars and restaurants, which opened in 2017, reported their operation was a loss. (Galib, Veja São Paulo) Taco Bell recently opened its’ first restaurant in São Paulo on the famous Avenida Paulista and plans to open 6 in total in the city. Mexican-chain restaurant, Mexcla, also invested in the shopping malls in the neighborhood of Morumbi, São Paulo.

Companies can still find opportunities in the world’s 3rd largest city. Before the recession, Brazilian consumers in São Paulo enjoyed spending money and continue to spend their time at the many shopping malls in São Paulo. If Taco Bell successfully localizes their products at the right price point, they have a potential to be successful in Sao Paulo although the economy is performing poorly.

Paulistas (Residents of São Paulo) still enjoy eating out with their friends. Since they are becoming more “financially concerned,” they could substitute an expensive restaurant for a fast-food chain, such as Taco Bell. It is common to eat at shopping mall food courts during lunch breaks and on the weekends. According to a Taco Bell Press Release, the São Paulo location plans to differentiate themselves with a relaxed lounge atmosphere, with complementary wifi and charging stations. They also offer Brazilians beers as well. It is also recommended for Taco Bell to stay in large cities in the south of Brazil. Brazilians in the south have more purchasing power and travel abroad. Therefore most of Brazilians in the south have been exposed to some form of “Mexican food.” Taco Bell should not enter a region within Brazil, which is unfamiliar with the brand and food.

(Popular foodcourt in São Paulo, Shopping Iguatemi)

Taco Bell will have to fight aggressively against rivals already established at the malls in São Paulo. Consumers in the south of Brazil also do not typically enjoy spicy food. Taco Bell will have to localize and differentiate their food offerings at the right price in order to be profitable

Please Enjoy the video below!

https://www.youtube.com/watch?v=TWSOiZrs3oA


Sources:

“Taco Bell Fuels International Expansion with First Restaurant in Brazil.” Business Wire. Taco Bell Press Release, 29 Sept. 2016. Web. 25 Apr. 2017. <http://www.businesswire.com/news/home/20160929005325/en/Taco-Bell-Fuels-International-Expansion-Restaurant-Brazil>.

 Latin America’s Largest Country Is Still Crawling through Its Worst Recession in Its History. “Brazil Is Still in Its Worst Recession in History.” CNNMoney. Cable News Network, n.d. Web. 25 Apr. 2017. <http://money.cnn.com/2017/03/07/news/economy/brazil-gdp-2016/>.

Galib, Fabio. “Fast-foods Mexicanos Ganham Mercado Brasileiro | Fábio Galib.” VEJA SÃO PAULO. VEJA SÃO PAULO, 20 Apr. 2017. Web. 25 Apr. 2017.< http://vejasp.abril.com.br/cidades/fast-foods-mercado-renovado/>

Cruz, Billy. “Taco Bell’s Snapchat Game Is Strong Among Teens, But Does It Sell Tacos?”NPR. NPR, 10 May 2016. Web. 25 Apr. 2017. <http://www.npr.org/sections/thesalt/2016/05/10/477336641/taco-bell-s-snapchat-game-is-strong-among-teens-but-does-it-sell-tacos>.

Donatelli, Fernanda Hoefel, Suzana Resstom, and Fábio Stul, Mariana. “Meet the New Brazilian Consumer.” McKinsey & Company. N.p., n.d. Web. 25 Apr. 2017. <http://www.mckinsey.com/industries/consumer-packaged-goods/our-insights/meet-the-new-brazilian-consumer>.

 

 

 

 

 

 

 

Will Italian consumers accept Starbucks in Milan?

Italian consumers value their café culture. A recent report states that Italians drink approximately 600 cups of coffee a year and their consumption will continue to increase. Italy appears to be the perfect market for Starbucks to enter. They are the largest coffee market in the world ($10 billion) and Italians consume 4.6% of the world’s supply of coffee. Coffee also dominates Italians preference for hot drinks and they prefer to drink it black. They are highly educated coffee drinkers and understand what high quality coffee truly is. (Giovanazzi) Although this market appears to be attractive, Starbucks will face many obstacles and challenges with the Italian consumer. Italian consumers mainly drink “espresso” and an occasional cappuccino. However, Starbucks is known for offering many flavored milky drinks such as the Vanilla latte or the iced caramel Frappuccino. The coffee market in Italy is already dominated by large manufacturers such as, Segafredo and Italians are loyal to their coffee brands. Starbucks will have to adapt extreme localization in order to persuade Italian consumers to enter their coffee shop.

Starbucks in other European countries are still lagging behind American and Asian stores. According to an article in the New York Times , Starbucks has never turned a profit in France. While Americans like to drink their vanilla latte on the go, French consumers prefer to sit and drink at the café with their friends. Therefore, Starbucks had to invest a lot of capital into their French stores in order to create more space for seating. For example, in Paris, a Starbucks next to the Paris Opera has grand architecture, a sleek wood coffee bar and a stage for poetry readings. Starbucks localized their stores in order to attract foreign and French consumers. However, not only Europeans are the same. Brits prefer to take their coffee on the go like Americans. (Alderman) Therefore, Starbucks cannot generalize the “European consumer” and must adapt to each country. They should also adapt to each region within a country. For example, Bavaria is much different than the state of Brandenburg in Germany. Localization is critical for Starbucks in Europe since many Europeans view Starbucks as another “evil American corporation” trying to take away business from local European coffee shops.

Starbuck’s CEO announced that Starbucks will open its first location in Italy in Milan late 2018. This Starbucks will be unique because it will be a Roastery. According to NPR, visitors will be able to experience the entire coffee-making process and special drinks will be offered which cannot be found at a regular Starbucks. (Example: “Shakerato, an espresso shaken with ice and a dash of demerara syrup”)(Maffei) The article continued to state that Starbucks will face fierce competition in Italy. There are about 149,300 coffee bars in Italy and there is about one coffee bar per 406 Italian citizens. Starbucks will also have to lower its price. At a local coffee house, one can order an espresso and a croissant under $3 dollars. While one drink at Starbucks is about $4. Additionally, Italian perception of Starbucks is not positive. Cristian Marone, co-manager of Bar dei Bossi in Milan stated, “I’d be more wary of the Italian bars in my neighborhood than of Starbucks’ diluted coffee. If I ever went to Starbucks, I would feel like a number, not a customer. In our bar customer care is crucial.” (Maffei)

Can Starbucks be successful in the homeland of espresso? Although they are the largest coffee market in the world, it will be the most difficult market to enter due to Italian consumer behavior and fierce competition. Starbucks should stay in large touristic cities in Italy since they can still attract tourists who are familiar with Starbucks and do not venture into smaller Italian coffee shops. Starbucks has already ventured into coffee culture cities such as Vienna. However, Starbucks should not expand into smaller cities in Italy or Austria. Italian consumers are educated about high quality coffee and already view Starbucks as “diluted American coffee.” Starbucks could focus on selling non-coffee products, such as pastries and sandwiches in order to generate revenue and be successful.

Sources:

Maffei, Lucia. “Starbucks To Open In Italy, Home Of Espresso, In 2018. Italian Cafes Say Bring It.” NPR. NPR, 28 Feb. 2017. Web. 17 Apr. 2017. <http://www.npr.org/sections/thesalt/2017/02/28/517783805/starbucks-to-open-in-italy-home-of-espresso-in-2018-italian-cafes-say-bring-it>.

Alderman, Liz. “In Europe, Starbucks Adjusts to a Cafe Culture.” The New York Times. The New York Times, 30 Mar. 2012. Web. 17 Apr. 2017. <http://www.nytimes.com/2012/03/31/business/starbucks-tailors-its-experience-to-fit-to-european-tastes.html>.

Giovanazzi, Silvia. “The Italian Cofee Market 2010.” (n.d.): n. pag. USDA Foreign Agricultural Service, 2010. Web. <https://gain.fas.usda.gov/Recent%20GAIN%20Publications/The%20Italian%20Coffee%20Market%202010_Rome_Italy_12-3-2010.pdf>

Consumer behavior in the craft beer industry – a threat for Germany?

In the late 20th century, the beer industry in the US was consolidated with a few macro-breweries dominating the market. The majority of American consumers drank light lagers with little interest in imported beer from Europe due to effective marketing campaigns from large output breweries. However, during the early 21st century, the craft beer segment of the market began to increase as US consumers interest in high quality beer began to rise. Between 2004 and 2008, the craft segment grew by 6% to 12% annually due to the growth of independent and local breweries. 

Today, 4% of US beer sales are from craft breweries, however, it is still tremendous growth. In 2013, there was a recorded 1,500 breweries in development in the US. In 1980 there were only 537. According to Fortune magazine, the “craft beer boom” is not slowing down. The Brewers Association showed that production increased 16% in 2015. Therefore, one can observe that U.S. consumers’ preference is shifting away from light lagers to high quality craft beer. The Beer Institute study also announced that the beer industry has contributed $252.6 billion to the US economy. As for craft brewers, in the first half of 2015, they sold 12.2 million barrels of beer according to Fortune magazine. Even consumers in Europe have shifted their preference toward craft beer. Craft beer is gaining popularity in Scotland, Denmark and Belgium.

One would assume craft beer would also be growing popularity in Germany as well. Germany has a rich history of producing beer over thousands of years and it is deeply rooted in their culture. However, breweries find themselves restricted too old traditions and are unable to create innovative beers. A popular tradition is the Reinheitsgebot or the beer purity law. The beer purity law is 500 years old and specifies which ingredients are allowed to produce beer and this law is holding back Germany’s craft beer scene. A well-known craft beer brewery in southern Germany, Camba Bavaria, has been criticized for brewing outside the limits of the purity law. Additionally, small microbreweries in Berlin call their craft beer Malzgetränke,”Malty Drinks”, in order to experiment and avoid violating the Reinheitsgebot.

German’s strict beer traditions may be a reason why beer sales have been declining in Germany. In 2001, 10.7 billion liters were sold, while in 9.57 were sold in 2015 according to Germany’s Federal Statistics Office. Additionally, according to Euromonitor, beer consumption is expected to continue to decline as regional traditional beer become less popular for consumers. Larger breweries in Germany are now seeking new markets in China and India in order to protect profits, using Germany’s purity law as a marketing tool.

Is consumer preference in Germany shifting towards craft beer as it is in the U.S.? Germany’s purity law might be a very large reason for the decline in beer consumption in Germany due to its strict tradition. As in the wine industry, Germany might have to make adjustments to its 500 year tradition in order to increase the profitability of its’ beer market. In the US, craft brewers produced one out of every 10 beers sold. Additionally, It has been reported that U.S. beers have already been exported to 10 million people worldwide in 2015, according to the Belgian brewers, a trade group. Craft beer already gained popularity in other European countries and foreign beer producers could quickly threaten traditional breweries in Germany as consumer preferences shift

Sources:

http://fortune.com/2015/08/05/beer-industry-craft-beer/

https://www.pri.org/stories/germany-creative-craft-brewers-face-against-medieval-purity-law

http://www.usatoday.com/story/news/world/2016/08/04/american-brewers-hop-into-europes-craft-beer-heartland/87931840/

History of Craft Brewing

The Socially Conscious Consumer

Outsourcing has generally benefited companies in term of low costs and economies of scale. However, as consumers have been becoming more “socially conscious,” the tag “Made in China” could influence consumers purchasing behavior. Under the new Trump administration, it appears that outsourcing has become increasingly unpopular as well.  President Trump has openly criticized companies, such as Apple and Boeing, for outsourcing. Overall, it appears that globalization has become unpopular. Due to past consumer behavior towards companies which have outsourced their manufacturing, should companies avoid moving business operations overseas?

(AP Photo/Emile Wamsteker)

Global companies such as Apple and Nike have both been criticized for unethical outsourcing. Nike outsourced its’ manufacturing in South East Asia in order to reduce costs. When the poor-working conditions of one of Nike’s factories was exposed, Nike faced a huge backlash from the public and its’ consumers. According to Forbes, “Nike saw its earnings fall 69 percent and was forced to lay off workers.” (Guthrie) Nike was only able to avert the crisis when it created the Fair Labor Association (FLA). (Nisen) This non-profit organization works with companies to improve abusive labor practices across the globe. Apple also joined the FLA when it was criticized by consumers for its relationship with its’ manufacturer in China, Foxconn.  Thus, Apple also quickly adapted to consumers’ behavior to avoid further criticism. As a result, companies across the global have created Corporate Social Responsibility reports. By 2013, 72% of S&P 500 companies have created a Corporate Social Responsibility report. (Bliss)

Therefore, it is highly possible that outsourcing manufacturers has had a large impact on consumer behavior globally. Due to this shift in consumer behavior over the past decades, companies should adjust their supply chain strategies and align it with consumers’ values. According to a global Nielsen report, 66% of consumers globally say they would prefer to buy a product or service, “from companies that have implemented programs to give back to society.”(Nielsen) Additionally, the study continues that the “socially conscious consumer” would prefer to work for companies, which give back to society as well as invest in these companies. These consumers across the globe generally are under the age of 40. Thus, the study also concludes that not all consumers currently care for CSR. However, there is a large segment of consumers who do care and this segment could increasingly grow over the next few decades. (Nielsen) Thus, outsourcing manufacturers could hurt a company’s brand to consumers who are socially conscious.

Companies, which have focused on “giving back to society,” have generally been very successful. Shoe company, Toms, promises consumers that after every purchase, a pair of shoes will be donated to someone in need. His socially conscious and for-profit strategy resulted in helping more than 51 million people and revenues were as high as $392 million after 10 years CEO, Blake Mycoskie, started the business. (Buchanan) Another example, can be seen with Unilever’s Sustainable Living strategy. Therefore, the criticisms Nike faced as well as the success of Toms, show that consumers are becoming increasingly socially conscious. Perhaps it is not directly outsourcing which consumers dislike, but overall how ethical a companies’ supply-chain is and whether successful companies strive to give back to society.

References:

Bliss, Richard T. “Shareholder Value and CSR: Friends of Foes?” CFO. N.p., 28 May 2015. Web. 25 Feb. 2017. <http://ww2.cfo.com/risk-management/2015/02/shareholder-value-csr-friends-foes/>.

Buchanan, Leigh. “What’s Next for Toms, the $400 Million For-Profit Built on Karmic Capital.”Inc.com. Inc., 27 Apr. 2016. Web. 25 Feb. 2017. <http://www.inc.com/magazine/201605/leigh-buchanan/toms-founder-blake-mycoskie-social-entrepreneurship.html>.

Guthrie, Doug. “Building Sustainable and Ethical Supply Chains.” Forbes. Forbes Magazine, 09 Mar. 2012. Web. 25 Feb. 2017. <https://www.forbes.com/sites/dougguthrie/2012/03/09/building-sustainable-and-ethical-supply-chains/#720d2ed04179>.

Nisen, Max. “How Nike Solved Its Sweatshop Problem.” Business Insider. Business Insider, 09 May 2013. Web. 25 Feb. 2017. <http://www.businessinsider.com/how-nike-solved-its-sweatshop-problem-2013-5>.

“The Global, Socially Conscious Consumer.” Newswire | The Global, Socially Conscious Consumer | Nielsen. N.p., 2012 Mar. 201227. Web. 25 Feb. 2017. <http://www.nielsen.com/us/en/insights/news/2012/the-global-socially-conscious-consumer.html>.

 

Global Consumer Behavior In the Electric Vehicle Market

As a California resident, it is difficult not to notice the Tesla Supercharger stations on Highway 5 as well as electric vehicle charging stations at supermarkets and university parking lots. Although gas prices are currently low, Californian consumers still seem interested in purchasing hybrid and electric vehicles (EV). During my travels abroad, I also noticed electrical buses in Vienna as well as Tesla Vehicles on German highways. Due to my observations, I wondered whether consumer behavior is becoming increasingly environmentally conscious around the world or if it is mainly due to government incentives. I wanted to understand what influenced consumer behavior in the EV market in the US versus in Europe.

(Ebus in Vienna, Austria)

(Tesla Supercharger station)

According to an Ipsos global poll, 75% of Germans, 91% of Chinese and 57% of Americans believe we must change our habits quickly in order to mitigate climate change and environmental damage. These statistics match well with the International Energy Agency’s report in 2015. They reported that, “the year of 2015 saw the global threshold of 1 million electric cars on the road exceeded, closing at 1.26 million.” (IEA, pg. 4) (Figure 1) The electric car market also expanded in seven countries above 1%: China, the United Kingdom, Norway, the Netherlands, Sweden, Denmark and France. However, the report concluded it was due to government policies and incentives. They also concluded that in order for the electric vehicle car market to expand, further policy support is required.

Therefore consumers behavior in the US and abroad are mostly influenced by government incentives in the electric vehicle market. Despite my observations, the electric vehicle market did not sustain growth in the US in 2015 as well as in Japan. The Ipsos global poll shows that Japanese and Americans consumers are less concerned for the environment than French consumers (where the EV market grew above 1%).  65% of Americans and 45% of Japanese agree that Companies do not pay enough attention to the environment, while 78% of French consumers believe companies do not pay enough attention. (Mori) Therefore there could possibly be a correlation between the EV market and consumer behavior towards the environment.

The study continues to report that “financial incentives and the availability of charging infrastructure emerged as factors that were positively correlated with the growth of electric vehicle market shares.” (IEA, pg.11) For example, Norway provides strong incentives for consumers to purchase electric vehicles by giving them tax exemptions, waivers on road tolls and access to the city bus lanes. (IEA, pg.11) France and China also give strong incentives to consumers. China gives tax expemtions and France offers purchase incentives of 6,300 euros for cars emitting,”less than 20 grammes of CO2 per kilometre.” (IEA, pg.14)  Although incentives are correlated with the growth of the electric vehicle car market, consumer behavior toward the environment may influence the EV market as well.

I was not surprised that the electric vehicle car market is growing rapidly in China. Due to a growing middle class and urbanization, the Chinese government must adopt environmentally friendly transportation methods in order to improve air quality and living standards. Additionally, according to the Ipsos poll, 93% of Chinese believe companies do not pay enough attention to the environment. (Mori) Therefore Chinese consumers are environmentaly conscious and it may correlate with a growing EV market.

Barriers of purchasing electrical vehicles, such as  high costs and lack of confidence in new technology also can influence consumer behavior. If I were to purchase an electric vehicle, I would also feel nervous about locating charging stations and adapting to unfaimilar technology. However, The IEA reports that battery costs will continue to decrease and the electric vehicle market should continue to grow over the new years. (figure 2)

There is also a growing awareness of electric vehicles in the US. The National Renewable Energy Laboratory published a study of the US population that showed that 24% of respondents stated they would consider purchasing a hybrid vehicle, while 20% stated they would consider purchasing an electric vehicle. 48% were also able to, “name a specific plug-in electric vehicle make and model.” (Singer) Consumers in the US and abroad seems environmentally conscious and have an awareness of the electric vehicle market. However, it seems that in order to truly influence consumer behavior in the US and abroad, government policy plays a huge role in the electric vehicle market.

Sources:

Mori, Ipsos. “Environment.” Global Trends Survey | Environment. N.p., n.d. Web. 06 Feb. 2017. <http://www.ipsosglobaltrends.com/environment.html>.

“Global EV Outlook 2016 Beyond One Million Electric Cars.” (2016): 1-29. International Energy Agency. International Energy Agency, 2016. Web. 2 Feb. 2016. <https://www.iea.org/publications/freepublications/publication/Global_EV_Outlook_2016.pdf>.

Singer, Mark. “Consumer Views on Plug-in Electric Vehicles — National Benchmark Report.” (2016): n. pag. National Renewable Energy Labroatory, 2016. Web. <http://www.afdc.energy.gov/uploads/publication/consumer_views_pev_benchmark.pdf>.