Assessment of international marketing strategy for ready meal product entry

¶ … l Marketing

Tassal is a Tasmanian company engaged in the farming of Atlantic salmon and the subsequent production of frozen salmon entrees. The firm is increasing production and looking to expand overseas in order to increase its sales. Tassal has targeted the Hong Kong market, both for its sophistication and acceptance of ready meals, and as a gateway for future expansion into the Chinese market.

The Hong Kong market for ready meals is growing in most segments. At the low end are Chinese producers; at the higher end are international producers. The economic situation is not good in Hong Kong at present, but the market is still growing despite this. There are few barriers other than intense competition to the Hong Kong market. The best demographic on which to focus is the approximately 1 million wealthy Hong Kongers, the vast majority of whom are Chinese. This market is familiar with Western food because of its colonial past and the international nature of modern Hong Kong.

Tassal should enter the market via exporting. This allows it better access to distribution, and involves on low sunk costs. To reach this market, distribution is important -- Tassal's meals must be sold in the higher end shops where the target market buys its prepared food. In Hong Kong's advertising-dense market, the best for Tassal to be noticed is through point-of-purchase displays and promotions. It is important for the marketing to be placed in such a way that when the consumer forms the intent to purchase, they are able to do so immediately. The message should focus on the healthful benefits of the product and the clean, unpolluted image of Tasmania. If the Hong Kong entry is a success, long-term growth can be facilitated by forming a joint venture with a local firm to process and freeze the salmon that are sent up from Tasmania. This would give Tassal increased capacity and allow them to expand into the rest of greater China.

2. Introduction

Overseas expansion is a risky undertaking at the best of times. Even when foreign markets seem similar to the domestic market, the differences can be surprising. This case examines the possibility of Tasmanian salmon meal maker Tassal expanding into Asia. The beachhead for this move is to be Hong Kong. The city-state was chosen for a number of reasons, including a high ex-pat population, its familiarity with Western cuisine, the market's transparency and the wealth of the city relative to most other Asian markets. Tassal believes that lessons learned in Hong Kong can help to prepare them for a broader launch into the rapidly growing and increasingly sophisticated mainland China market.

3. Description of Brand

Tassal, so-named for its primary business of "Tasmania Salmon" was founded in 1986 as an aquaculture firm dedicated to farming Atlantic salmon raised with eggs imported from Nova Scotia. The firm's sole product is salmon, which it markets in a wide range of frozen meal preparations. These include both smoked salmon and a number of different marinated preparations. Over the past two decades, Tassal has grown its presence in the Australian market. The firm has done so by tying the Tassal brand to salmon consumption, encouraging consumers to equate salmon consumption with Tassal consumption. The firm is focusing its future growth on increasing its capacity and building the market for salmon products.

3. External Environment

The current economic environment is relatively unfavorable for expansion into Hong Kong in light of the global economic downturn. As with most developed economies, Hong Kong has suffered as a result of the downturn, and the government was forced into massive stimulus measures in order to stabilize the situation. The overall economic picture, however, is better in the medium-term. The government of Hong Kong predicts an average medium-term growth rate of 3.5%, inclusive of the near-term weakness (Government of Hong Kong, 2009). Inflation is expected to stabilize at 2% increase per annum of the consumer price index.

What makes Hong Kong such a compelling story in terms of its economic situation is that it is an ideal economy in which to test the Asian waters for Tassal. It is one of only a handful of first-world Asian countries, is one of the world's freest economies (Taipan Publishing Group, 2009) and it has strong trade links with Australia. The currency is stable and liquid, being the 9th most traded currency in the world (Taipan Publishing Group, 2009).

Hong Kongers are wealthy and has substantial disposable income. In addition, the city is uniquely positioned with close trade links to major south Chinese economic powerhouse cities such as Shenzhen and Guangzhou. Having a presence in Hong Kong gives Tassal a good springboard into the burgeoning Chinese economy.

There are few political or legal obstacles to expansion into Hong Kong. The Hong Kong market is open, in particular with regards to food in general and seafood in particular, owing to the city-state's lack of food self-sufficiency (CIA World Factbook, 2009). Hong Kong is a stable nation, with a limited democracy. It is little impacted by the volatility associated with the Chinese economy, as it runs on a completely different legal and political system to its mother nation.

The main risk within the legal/political environment is the use of "safety" concerns as a trade barrier. In 2007, some Australian seafood shipments were turned back by China (Wall Street Journal, 2007). This did not affect Hong Kong, but with other agricultural products facing similar barriers it is a risk that Tassal should consider. The frozen nature of the products and the strict quality control afforded by Tassal's aquaculture model give the firm the ability to mitigate this risk.

The cultural/social environment of Hong Kong is exceptionally favorable for Tassal for a number of reasons. Hong Kongers are known for their love of food and the city-state is considered one of the world food capitals. While salmon is not considered to be traditional Cantonese fare, Hong Kongers have considerable culinary influence from the days of British rule and from the large expatriate community. As a result, Hong Kongers are open to trying new types of foods and are relatively familiar with the Western diet. This is evidenced by the high-profile presence and popularity of Western-style luxury grocers such as CitySuper in the city-state.

There are few geographic issues with the Hong Kong market. The city is small and one of the most-density populated places on earth. The process of shipping from Tasmania to Hong Kong is straightforward. Hong Kong is home to one of Asia's largest and most important ports, due to a combination of natural gifts and the rapid increase in the export of Chinese goods (Hong Kong Port Development, 2009). The journey from Australia is relatively short compared to other major developed markets, again making Hong Kong a natural choice.

Technology has little impact on the ready-meal business, in particular with respect to frozen fish meals. The main technological concerns for Tassal are with respect to developing safer and more efficient fish farms. This is, however, a domestic issue, largely unrelated to expansion overseas.

Salmon is a rich fish, but unlike in Western countries, there is no move in Hong Kong towards "healthy" lifestyle choices, save in the ex-pat communities. Hong Kongers are fans of conspicuous consumption, including with respect to food. That said, there is some indication that nutrient value is an important factor in purchasing decisions (Market Research Centre, 2006). The city dwellers have always led hectic lives, which provides a strong market for convenience foods. Frozen, ready-made meals have increased in prominence on the Hong Kong food scene in recent years. However, the bulk of these increased sales has come from firms in mainland China, who are leveraging their ready access to the Hong Kong market to gain share and build the industry there.

5. Competitor Analysis

The Hong Kong market for imported seafood and agri-food market in Hong Kong was worth 12.5% in 2005. The population growth rate in Hong Kong is just 1.2%. Sales of packaged food and beverages accounted for $5.6 billion in 2005 and was been expected to grow at 4.3% annually (Market Research Centre, 2006). This indicates that the packaged food industry is growing more quickly than the population, hinting at the market growing as a result of shifts in consumer tastes more than through organic population growth.

Chinese firms dominate the Hong Kong seafood market. China controls 90% of the freshwater fish market. Suppliers of all imported seafood, including saltwater species, are more fragmented. Chinese firms hold a 23.7% share, American firms have an 11.3% share, and Japan has a 5.1% share, the same as Australia and Brazil. With packaged foods, the market is heavily fragmented. The market leader, with over 1000 products, is the domestic firm The Garden Co, which holds just a 4.5% share of the market (Market Research Centre, 2006).

The frozen ready-meal market is dominated by Unilever. The company holds a 52% market share for its Knorr, Bertolli and Lipton brands. The company competes vigorously, with extensive marketing campaigns, strong distribution and excellent brand-building. Another major competitor in the Hong Kong market is COFCO (China National Cereals, Oils and Foodstuffs), which competes in the canned ready meal market and holds a 51% share there. All ready meals can be considered competitors for Tassal. COFCO is a Chinese brand with a major Hong Kong subsidiary. Another major competitor is Kraft, which markets a wide variety of all food products, including some ready meals (Market Research Centre, 2006).

The fragmented nature of the industry and the multiple distribution channels gives rise to an interesting industry dynamic. Firms can be intensely competitive, but for the most part they compete against one their own merits, rather than against one another. This allows new entrants to gain access to the market without significant backlash. With multiple distribution channels available, there are many ways for firms to enter the Hong Kong market. Competition is based on a wide range of metrics -- Western firms tend to opt for premium pricing backed by strong brand identity. A firm such as Tassal should expect to compete on this basis, largely with other Western brands, but all the while should also expect to have to take market share from established domestic and Chinese competitors.

Growth potential in Hong Kong is strong. The market for ready meals is growing more rapidly than the population. This indicates a trend towards ready meals in the market. It should be noted that a portion of the potential in the Hong Kong market lies in the lessons that will be learned in advance of a major launch into China. It is the Chinese market that holds the most potential with GDP growth rates between 8-10% annually. The move into Hong Kong is merely the first step in a broader expansion strategy for Tassal.

Another distinguishing characteristic of the Hong Kong market is the lack of ovens. Only 0.1% of Hong Kong homes have ovens (Market Research Centre, 2006). All of Tassal's dishes can be heated in a microwave (Tassal, 2009) but this remains a hurdle that the company must overcome in order to gain a foothold in the market. Tassal can view this as an opportunity, however, because it allows them to place additional emphasis on developing microwave-friendly products. This is essential because oven penetration in China is around the same level as that of Hong Kong.

6. Market Segmentation

The only relevant market for Tassal is the consumer market. Within this market, there are a couple of useful means of segmentation. The first is by income level and the second is by ethnicity. Income level is a useful means of segmentation because there are significant differences in disposable income among Hong Kongers At the high end, 14.4% of households earn more than $6,338 per month; while at the low end 14.8% of households earn less than $951 per month in Canadian dollars (C$ is worth just slightly more than the A$). This disparity presents opportunities not only for the development of mass market products but also for niche products. If Tassal enters with high-end positioning, it can tap into that 14.4% (approximately 1 million people).

The other means of segmenting the market is by segmenting according to ethnicity. Caucasian ex-pats are a small minority in Hong Kong with just 36,000 Caucasians in Hong Kong as of 2006, ten thousand fewer than in 2001 (Census and Statistics Department, 2006). These are a mix of second- or third-generation white Hong Kongers and ex-pats. They are concentrated geographically, in particular in Mid-Levels and other neighborhoods uphill from the downtown core. Most Hong Kong Caucasians are in the upper income brackets.

The most attractive segmentation method, therefore, is by income. The dwindling population of Caucasians and small market size thereof makes that segment relatively unattractive compared to the 1 million wealth Hong Kongers overall. While penetration into the Caucasian market is likely to be easiest, it is not large enough to justify the expense of entering the Hong Kong market. Moreover, by targeting by income, the primary target customer will be Chinese. This will help Tassal to learn how to market to Chinese consumers in advance of its push into the mainland down the road.

7. In the short-term, the best way to enter the Hong Kong market is by exporting. Tassal's production cannot at this point be transferred out of Tasmania. The company sources its salmon from proprietary fish farms, located in Tasmania. The infrastructure investment cost for fish farms is very high (Tassal website, 2009). As such, it would be very difficult to start a new facility and enter the Hong Kong market in a timely manner. Additionally, fish farming is best carried out in remote geographic regions to minimize the impact of civilization on the farms and the impact of farms on existing fish stocks. As such, it would be difficult to set up a fish farm in Hong Kong. Thus, in the short-term, the best approach for market entry is to export the fish products to Hong Kong on freezer tankers.

Another compelling reason for exporting is that the company can trade on its geographic origins. Hong Kongers use healthfulness as one of their purchasing criteria (Market Research Centre, 2006). As such, they may be more open to fish from a place with a pure and natural image such as Tasmania. If the salmon for the dishes was sourced from China, Hong Kong or other East Asian locale, it may not have the same cachet in the market with respect to purity and cleanliness.

Lastly, exporting in the short-term allows Tassal to explore the possibilities of the greater Chinese market without making a high level of investment in infrastructure. Market entry can be conducted strictly through a licensed distributor and this gives Tassal the ability to exit the market easily. Since it is their first foray into international markets, a steep learning curve can be expected. As such, it is valuable for the company to be in a position to exit the market if they are unsuccessful, without having to absorb a high level of fixed or sunk costs.

Over the long run, there is little reason to change if they are only going to remain in the Hong Kong market. Even if setting up a fish farm in Hong Kong were possible, it is likely cost prohibitive to do so. It is possible, however, that Tassal could benefit from setting up a joint venture in China in order to serve Hong Kong (and of course China). Potential demand in Hong Kong alone is insufficient to justify any further investment beyond exporting. However, the grander strategy may have the firm seeking additional aquaculture production sites in China. Not only is China a major fish exporter to Hong Kong, but it is also the source of a significant amount of ready meals. Competitors based in China have both cultural and cost advantages over foreign producers.

Therefore, it is recommended that for long-term market development, Tassal should explore the option of a joint venture with a local firm. One possible form for the venture could be Tassal shipping fish to China for processing locally. Another form would be finding a local partner to help develop fish farms in China. Joint ventures are virtually essential in China because of government control of the economy and limitations on foreign direct investment. Moreover, local knowledge is required in order to operate any facilities and to ensure cooperation of potentially corrupt local authorities.

If the move into Hong Kong is sufficiently successful, a joint venture could even be developed in Hong Kong, forgoing the mainland entirely. Many of the leading ready meal companies in the Hong Kong market are domestic, so manufacturing capability exists locally. In addition, these firms have the strongest distribution networks and the best marketing. Tassal's salmon-based meals would act as a complement to the lines of many of these firms, especially the companies specializing in Western-style food.

In terms of timeline, beginning by exporting and then moving to a joint venture roughly corresponds with an increase in the commitment level of the company to the Hong Kong market. Tassal initially is conducting a trial to see if they can unlock the potential of the market. Once they realized that they can sell their meals in the city, they will be willing to increase their commitment to the market. A joint venture does just that. It would be foolish for a firm with no international experience to commit to an overseas expansion, but once the company has demonstrated that it can succeed in Hong Kong, it is in a stronger position to increase its commitment level. Given the nature of the business and the nature of the market, the joint venture is the most logical means of doing this.

8. International Marketing

The brand would be positioned in the market at the medium- to high-end. Primary research indicates that the income disparity in Hong Kong is high; therefore price point interpretations are understood to be broader. Some of Tassal's products are marketed as "twice a week" (Tassal.com, 2009), which indicates that the firm wishes to price at the medium end. If the product is priced at too much of a premium, it will not sell with anywhere near that frequency; if the product is priced too low, it will not be sufficiently profitable and the brand image could suffer. This pricing policy is consistent with Tassal's current pricing policy. The ability to price in the Hong Kong market consistently with the pricing in Australia is not coincidence -- cost factors are Australia-based and therefore costs will not be lower, making it unreasonable for the firm to charge less in other markets.

The product's target market is comprised of the 1 million most affluent Hong Kongers. These are predominantly Chinese. Primary research has indicated that Hong Kongers use nutrition as one of their key purchase criteria, at least when selecting supermarket food. Therefore, the price should hopefully be supported with a positive image of Australian food in general. Among the small ex-pat community, this is not a problem, especially as many such individuals are Australian or New Zealander, and because many imported food products, such as milk products, come from Australia already. This food familiarity can be expected to increase the food familiarity profile among Chinese Hong Kongers as well. Among such consumers, there is no evidence of secondary research having been conducted with respect to their attitudes towards Australian foods in general or salmon in particular. Because it has been shown that country-of-origin does impact perceptions of a brand (Phau, 1999), it is recommended therefore that as other companies around the world do, Tassal should conduct primary research on such perceptions prior to entering the Hong Kong market.

Another line of primary research that must be conducted -- secondary research would yield imperfect results and thereby put legal access to the market at risk -- is with regards to labeling requirements. Each nation has its own such requirements and consultation with local authorities on the matter should be made prior to label redesign. In Hong Kong, of course, there will need to be some label redesign, to include the Cantonese language on the label. Other required changes will come from the relevant authorities.