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Introducing O’Donnells Crisps to the French Market

MG4043 AssignmentTim Kelly1123337801Word Count: 3,180

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Page Contents

ContentsPage Contents.........................................................................................................................1

Introduction............................................................................................................................2

Economic Environment..........................................................................................................4

Cultural Environment.............................................................................................................7

Political Environment...........................................................................................................10

Geographical Issues..............................................................................................................12

Conclusion............................................................................................................................14

Bibliography.........................................................................................................................15

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IntroductionO’Donnells CrispsO’Donnells Crisps are natural potato crisps produced in Clonmel, Co. Tipperary. The crisps contain no artificial colours or flavours and have been produced since 2010 (Tipperary Food Producers, 2013). During this time, O’Donnells crisps have increased in popularity and are currently the number one kettle crisp brand in Ireland (Shelflife, 2015). Originally, O’Donnells Crisps entered into an exclusive agreement with Musgrave to supply to their partners Supervalue and Centra thus gaining a strong entry into the Irish market (O’Donnells, 2014).

However, if O’Donnells hopes to gain a strong influence in Europe, it might consider introducing their product into another European country such as France. The strong growth of O’Donnells may lead to a saturated domestic market in Ireland and thus to grow the company will need to diversify to new markets.

Overview of the IndustryThe potato crisp market is the second largest snacking segmentation in Ireland with approximately a person eating a snack 2.5 times a day (Bord Bia, 2014). Crisps are seen as an excellent on the go snack –convenient, affordable & portable. However healthy would be the key barrier to increasing consumption. Currently they make up 15% of all snacking occasions with standard crisps making up over half of these occasions (Bord Bia, 2014).

Crisps are worth 71.8 million euro in Ireland with consumers currently looking for new and interesting flavours in the market. However there are numerous issues currently facing the market as consumers switch to planned indulgence and are seeking healthier options (Tuamey, 2014).

Geographical Area and JustificationI choose France as it is currently the second largest consumer market for organic products in Europe (Lanigan, 2015) and also as a member of the European Union with Ireland, there are currently no trade barriers preventing entry. The French market is geographically close to Ireland with numerous air routes and sea crossings with is important in relation to perishable goods such as crisps.

Additionally according to a report by Enterprise Ireland, the French people appreciate and respect innovation and an entrepreneurial approach which links to the creation of O’Donnells crisps. The company was formed when Ed O’Donnell wanted to diversify his family farm during the recession and spotted a niche for an Irish artisan crisp. Since then it has grown to be very successful.

In terms of a specific location, it would be best to set up in the north-west region near Normandy and Brittany where agricultural is strongly concentrated (Enterprise Ireland, 2015).

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There is additionally a strong positive consumer perception of Irish products and a market size of 66 million (Lahad, 2014). However a major challenge may be the consumer preference for Made-in-France products.

Lastly, changes in French behaviour include the decision to stay in, use social media or invite friends over as a way to socialise (Euromonitor, 2015). This behaviour will include entertaining friends and families by preparing aperitifs and nibbles such as crisps which will then increase the consumption and sales of the crisp market (Euromonitor, 2014).

Target MarketFor the target market, I selected millennials which are individuals between the ages of 18-34. The market size of millennials as seen below (Euromonitor2, 2015) has been steadily increasingly since 2014 and thus are the ideal consumer segment.

Millennials are known for seeking healthy, convenient foods (Bord Bia*, 2014) with some preferring to graze and snack rather than eat at set meal times. Thus being the ideal target market.

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Economic EnvironmentIn order to gain an overview of the economy in France, I examined various aspects that could impact O’Donnells’ market entry and how they potentially could be dealt with.

GNI Per Capita

The current economic environment of France is a crucial in deciding whether O’Donnells Crisps should enter the French market.Economic factors have a strong influence on consumer behaviour specifically the level of GNI {Gross National Income} per capita which impacts a consumer’s ability to purchase (Douglas and Craig, 2010). As you can see below in the graph by The World Bank (2015), France have experienced rather anaemic growth since 2008 with a dip in 2012. This has been recorded of a growth of .3% since 2012 (Euromonitor3, 2015).

Despite this France still is one of the biggest spenders on public as a proportion of GDP in Europe (Euromonitor3, 2015). This has fuelled consistent government deficits and fed increasing public debts. As a result, business confidence is quite low and France is ranked 82nd on a global level for the Macroeconomic category by the Global Competitiveness Index. (Euromonitor3, 2015).

TaxesFrance is regarded as having a very high tax rate which has discouraged investment and reduced the country’s competiveness (Euromonitor3, 2015). It is commonly regarded as one of the highest taxed countries in the world as can be seen by the graph below (Euromonitor3, 2015). A report by the World Bank (2015*) mentions that it takes 137 hours filing, preparing and pay total taxes amounting to 62.70% of total profit.

However, France has introduced a credit against corporation tax and reducing labour tax rates paid for by employees in order to make taxes less costly to employers.

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There are also four different VAT rates with a standard tax rate of 20% and a reduced rate of 5.5% on all food products which will increase the current price of a packet of O’Donnells Crisps. This will need to be considered in pricing the packet of the crisp in the country.

Labour MarketAs I will discuss in my research into the cultural environment, French consumers have a Made-in-France preference and thus it is paramount to find high quality French ingredients, thus a strong workforce in the agricultural industry is paramount. Unfortunately, agriculture accounted for only 1.3% of graduates in 2014 (Euromonitor3, 2015)

Furthermore as I discussed in the introduction, the ideal target market are millennials between the ages of 18-34 which is an issue as youth unemployment reached 24.5% in 2014 as most companies search for more experienced personnel (Euromonitor3, 2015). This has led to a ‘brain-drain’ as the youth of France emigrate during these difficult times.

Additionally, France has one of the highest average wages in Europe at €17.80 per hour (Euromonitor3, 2015). The current minimum wage in France is €9.61 per hour (Wage Indicator, 2015) for a person over the age of eighteen.

Impact on O’Donnells EntryFrom an economic view point, there are numerous aspects of the market which will negatively affect entry to the market. The GNI of France has experienced anaemic growth consecutively for the last three years. Therefore the spending power of consumers is low and they may avoid unnecessary spending and thus ignore O’Donnells crisps if they enter the market.

Secondly, France’s high tax rate reduces the amount of potential profit which is a significant factor as it will take time and investment to develop a reputation. The VAT rate of 5.5% increases the cost of the product and although French consumers prefer value, they are

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susceptible to a bargain (Euromonitor, 2015). Thus they are losing sales to potential customers and are further subjected to taxes on any profit made.

Thirdly, there is a lack of graduates in the agricultural industry thus reducing suppliers and increasing price if O’Donnells decided to utilise French ingredients. Additionally, the youth unemployment will affect the target market of millennials which I recommended in the introduction.

In summary, based on the current economic situation it would be difficult to successfully enter the market. Security issues in France may also be an issue due to the recent string of terrorist attacks in France. Therefore, based solely on the economic research I would advise against entering the market for the time being.

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Cultural EnvironmentDue to the research conducted, I have decided to focus on the individual cultural factors related to eating consumption such as social habits and local preferences before looking into the strong business culture in France.

Eating habitsRecently, French people are choosing to stay at home and prepare their food due to the recent emergence of culinary-themed television programs (Euromonitor, 2015). In 2014, sweet and savoury snacks such as crisps experienced a value growth of 6% due to the increasing demand of pre-dinner party snacks and aperitifs (Euromonitor, 2015). This implies that crisps are commonly utilized as a social product as French consumers rarely engage in convenience snacking and approximately 80% of all meals are eaten with other people (Euromonitor4,

2015).

Additionally, due to the economic crisis, many French people are choosing to stay in, watch television, use the internet or invite friends over rather than go out to eat (Euromonitor, 2015). Therefore, in order to be successful O’Donnells Crisps would need to market their product so it acts as a social link between people..

Made in France

During the horse meat scandal of 2013, French consumers became more conscious of where food products are manufactured. Thus French manufacturers and producers are increasingly relying on country-of-origin labelling (COOL) and in some cases are providing region specific labelling indicating where in France ingredients are sourced from (Euromonitor, 2015).

In some supermarkets, there are specific shelves allocated for Made in France products (Euromonitor, 2015). They have also been forced into using more French based suppliers and organic farmers as consumers increasingly follow the trend of buying French products. The aim is to restore confidence in French production.

Even though French perception of Irish products is high (Lahad, 2015), it would be important for O’Donnells crisp to create a product that reflects local French tastes and preferences. By adding local ingredients, it can add a regional feel to their products while also linking to heritage culture (Euromonitor, 2011). For example, Sibell’s brand strategy focuses on capitalizing on their French ingredients with a core focus on local French tastes.

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Indulgence Research conducted by Euromonitor (2015) indicates that despite the recent rise of health and wellness concerns, pleasure and authenticity are generally more important thus leading to the increasing demand for impulse and indulgence products such as sweet and savoury snacks has continued to rise.

According to Hofstede (2015), indicates that the French are far less relaxed and happy than usually assumed. Thus more and more consumers are choosing to indulge in snacks as a form of escapism from their gloomy lives and the current economic climate (Euromonitor, 2015). This trend has affected the country’s leading manufacturers as they focus more on pleasure rather than innovation on reducing fat and sugar content.

O’Donnell could potentially gain market share by solely focusing on their pleasure aspects but to experience strong growth by emphasizing their health aspects and gluten-free products to distinguish themselves and their brand.

Business CultureFrance due to its membership in the European Union is open and welcoming to foreign direct investment. As I mentioned in the introduction, there is a high perception of quality in Irish products by the French. However, there are business areas an Irish company must understand before they enter the French business environment. For example, it is accepted that French government will show high levels of intervention in the economy before which is reflected in the country’s investment regime (Euromonitor3, 2015).

Furthermore, in order to understand the reasoning behind this, O’Donnells crisps must research the current business culture in France. For my research, I’ve chosen two key observations by Hofstede (2015) which will impact the acceptance of introducing a new marketing strategy.

Firstly, France scores 63 on Long Term Orientation. As a result, business conditions in France respect those who show an ability to adapt traditions easily to changed conditions, a strong propensity to save and invest, thriftiness, and perseverance in achieving results.

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Secondly, France score high on Uncertainty Avoidance, it is paramount to provide individuals all necessary information before any meetings or negotiations. They prefer planning, regulations and rules to help structure their lives.

If O’Donnells crisps wishes to work with French companies to enter the French market, they will need to be hardworking and dedicated in achieving results while also preparing regulations for employees and being very transparent with their information. Furthermore, this will also show respect to French culture. This will earn French employees respect and encourage them to support and believe in O’Donnells ideas to enter the market while also allowing them to provide crucial advice.

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Political EnvironmentThe political environment in a country can greatly impact business practice, therefore it is paramount to analyse the political environment in order to plan and anticipate any necessary changes. This section will discuss the political stability, level of corruption and social tensions which may impact O’Donnells crisps in operating in France along with how they can be dealt with and whether O’Donnells should enter the market or not.

Political StabilityFrance has a relatively stable government. In 2015, the current Socialist government survived a vote of no confidence called by opposition due to a controversial economic reform bill with the aim to restructure the economy (Euromonitor5, 2015). However, public opinion on the current Socialist regime. For example, in 2013 only 26% of people had a positive opinion of President François Hollande (Chrisafis, 2013). This may due to be a perception of Hollande as a weak leader as in 2014, the government was dissolved over an issue of the best way to deal with the stagnant economy (Chumley, 2014)

Additionally, if O’Donnells decides to enter the French market, it may potentially face a new political party as the presidential election will be in 2017.

CorruptionCorruption is not an issue in France although there have been some minor instances of bribing government officials (Euromonitor5, 2015). Despite France being a supporter of anti-corruption measures, there has been criticism by some for their failure to take initiative and enforce them. For example, an article by the Eric Randolph (2015) while reporting on the bribery case of French power company Alstom noted that France has failed to convict a single company over bribery abroad since the introduction of the anti-bribery convention in 1999.

Social TensionsFrance has established foundations and a steadfast democracy but there have been increasing social tensions in recent months (Euromonitor3, 2015). This has been due to numerous issues such as the weakness of the French economy, youth unemployment and failure to provide opportunities and integrate ethnic and religious minorities.

This had led to two terrorist attacks this year alone. In January 2015, Paris suffered terrorist attacks when Islamic radicals stormed into the offices of satire magazine “Charlie Hebdo” and killed 12 people {including editorial staff} (Euromonitor3, 2015) Additionally on the 13th of November, Paris suffered another round of attacks across the capital where 130 people lost their lives (RTE News, 2015).

These tragic attacks have lowered the position of France on the World Ranking’s for “Political Stability and Absence of Violence”. These attacks may potentially reduce investment into the country as people are terrified by the violence but this remains to be seen. However, during this time numerous countries poster their support for France in this difficult time (Gribbs, 2015), and this may reduce the potential fallout of foreign investment.

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Analysis of Political EnvironmentDespite the robustness of French democracy, the lack of belief in the current socialism regime indicates that the current government is not as stable as regularly perceived. This could have a negative influence on the business environment in France.

However, corruption is low in France and thus O’Donnells should be treated fairly and equally in regards to complying with legislation as opposed to resorting to bribery in order to receive the right to enter the market.

Another major issue is the failure to address the ongoing social tensions in France which led to two terrorist attacks in 2015. These issues have a negative effect on the business environment or potentially French people may avoid going out to social occasions such as Football games due to fear and thus prepare to stay in and socialize instead. This may potentially lead to an increase in sales.

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Geographical IssuesI believe France has numerous geographical issues such as the infrastructure, agricultural resources and population are essential in order to successfully market O’Donnells in France. By examining each of these concepts, I hope to provide understanding how O’Donnells could enter the French market.

InfrastructureAs reported by Euromonitor3 (2015), France ranked 8th at a global level for its first class infrastructure. However, due to the poor economic climate, the French government have reduced spending since 2010 such as the Grand Paris Project.

Due to the high level of power distance, power is centralized and as such most highways lead to France’s capital Paris (Hofstede, 2015). This facilitates the distribution of O’Donnells throughout France and most importantly the capital of Paris.

PopulationAs reported by Euromonitor3 (2015), France ranks eight globally for market size due to its high population size approximately $1.5 trillion in 2014. According to Euromonitor6 (2015), their current population is 64.00 million which is an increase of 10.4 million since the 1980’s.

Additionally, the population of 15-24 year olds for which O’Donnells are targeting is approximately 11.82% of the population of France (CIA, 2015).

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Lastly, Paris has a population of 10.843 million (CIA, 2015).

Agricultural Resources52.7% of land is used for agricultural use (CIA2, 2015), additionally France main agricultural produce being potatoes and dairy products. However, as mentioned previously France has a low level of graduates in the agricultural industry.

Analysis of Geographical IssuesFrance’s infrastructure would help distribute O’Donnells crisps particularly to Paris, due to its high urban population, which is connected to nearly all major motorways. Additionally, the population of France is approximately 10 times the size of Ireland and thus there is a large potential market.

Additionally, France has strong links to the rest of Europe thus the product could potentially use France as a gateway to further markets depending on its success.

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ConclusionBased on the research conducted, I would argue O’Donnells should avoid entering the French market for now. Firstly, the current tax rates and high unemployment of the target markets will reduce the potential profit to be made by O’Donnells regardless of the success of marketing campaign to reap immediate rewards.

Secondly, the product will need to take part in strategic alliances in France due to the strong sentiment towards French brands despite the belief of Irish products being of high quality. These business relationships would take time to develop strong bonds with French organisations and it might be easier for O’Donnells to further develop their business in Ireland.

Thirdly, the current political environment in France has experienced two serious terrorist attacks in Paris this year which leads to security concerns. It is currently unknown how this will affect the business environment in France.

However, France has a strong infrastructure and a high level of consumption for sweet and savoury goods which should continue to grow. Thus I would recommend O’Donnells currently avoid deciding to enter the French market for the next few years before undertaking further analysis in 2018 to decide if it is worth the time, money and resources.

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Euromonitor3 (2015) ‘Business Environment: France’, Euromonitor Passport [Online]. Available at: http://go.euromonitor.com/Passport-Home.html (Accessed: 08/11/15)

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Gribbs, A. (2015) ‘Vive la France! The world shows its support for Paris’, CNBC, 16th November [Online]. Available at: http://www.cnbc.com/2015/11/16/vive-la-france-the-world-shows-its-support-for-paris.html (Accessed: 23/11/15)

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Lahad, Stephanie. (2014) Overview of the French Retail & FS Market [Online]. Available at: http://www.bordbia.ie/industry/events/SpeakerPresentations/2014/MPIMarketsDay2015/France%20-%20Belgium%20Market%20Overview%20November%2013th,%20Stephanie%20Lahad,%20Bord%20Bia.pdf (Accessed: 03/11/15)

Lanigan, N. (2015) France: 2nd Largest Consumer Market for Organic Products in Europe [Online]. Available at: http://www.bordbia.ie/industry/manufacturers/insight/alerts/Pages/France2ndlargestconsumermarketfororganicproductsinEurope.aspx?year=2015&wk=30 (Accessed: 03/11/15)

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The World Bank* (2015) ‘Doing Business in 2016: France’, The World Bank [Online] Available at: http://www.doingbusiness.org/data/exploreeconomies/france/~/media/giawb/doing%20business/documents/profiles/country/FRA.pdf (Accessed: 08/11/15)

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