International Business Management & Operations
Project: (BUS/MBA 6750, Grade Received: A-)
Pret A Manager Should Expand To Israel and Canada
Pret A Manager (Pret) is not your typical local coffee or sandwich store. Pret operates between a restaurant and an on-the-go type of food store. Sell-by-dates do not exist on the sandwiches, they along with the coffee, are made fresh either in the restaurant or at a facility close by. The coffee which is the top seller is organic and that’s what Pret is looking to sell. Fresh, stylish and an organic life style.
Today on-the-go is crucial for the food consumer business, the consumer wants the product fresh and they want it quick. The price can fluctuate depending on quality over quantity in that respected order. The consumer doesn’t mind if they can’t afford the product, for it all depends on when they want it.
Pret is not a Starbucks or Dunkin' Donuts that offers fast food and cheap with a long shelf life. The success of Pret started in its 1986 opening with a strong bold mission. To create handmade natural foods which avoid chemicals, additives and preservatives for the fast food or unhealthy track. (Pret, 2015).
In 2015 with 30 years in the game Pret has grown its stores to over 350 worldwide shops. Pret now spans over several countries that include the United Kingdom, the United States, France, Hong Kong and Shanghai. They have grown a small healthy movement to a consumers market that is now targeted by companies all over the world. Pret has gained market territory with the same organic fresh new catch that is here to stay and a part of the future.
The company’s current position in their global strategy has been to leverage location by the consumer index for a healthier alternative. This alternative demand for products with less concentrated genetically modified organisms (GMO) and gluten is the healthier alternative choice. Pret has based their locations off of potential demand and created it into active customers.
Their unique alternative and attractive methods has lead Pret to a positive financial position. William Reed Business Media has done an article on their success from their financial reports. “The article focuses on the business performance of British sandwich store Pret A Manager. It mentions that the store has recorded a 9.71% increase in like-for-like sales in the 52 weeks period ending January 1, 2015. It adds that the total sales of the company increased by 16% while earnings before interest, taxes, depreciation and adjustments (EBITDA) increased 14%.” (Foottit, 2015). Pret has proven their game in market as well as through their financial standings.
New products and developments have accounted for an increase in sales with the businesses healthy food products causing the growth. “The chain saw an increased demand for 'grazing' options, such as protein pots, vegetable juices and more breakfast options as 57% of sales now occur outside lunchtime.” (Foottit, 2015). Pret has met their innovation and growth from their international brand, it’s now time take this to a new market and a new destination.
Two countries in which Pret is not currently present in is Israel in the Middle East and Canada in North America. The most effective market entry strategy to enter both markets is by franchising.
Israel is first on the expansion list for Pret. Israel already has a healthier food selection market that would cause attraction for a company like Pret to move in. What makes Israel special? Well it is a democracy that believes that business success leads to a greater domestic product. Israel has a political culture that wants businesses to move in and won’t create economic barriers. It is the start for research into what the Israeli market can do for Pret and what Pret can bring to the Israeli market.
MarketLine studies major companies, ranging from industry and geography profiling and it is one of the most innovative publishers of business research and study of the century. One of their prolific studies is their “Food Retail Industries” segment in which they have done a major dedicated study for the Country of Israel. The findings from MarketLine have been positive for Israel and more relevantly for a business seeking to move there.
The entire market value for Israel’s food retail industry experienced growth by 2.1% in 2014, now valued at $16.4 billion. The market value forecasts that in 2019, the Israeli food retail industry will have a value of $18.1 billion. This is a total increase of 10.4% from the findings in 2014. (MarketLine, 2015). All indications that Israel’s demand for the food retail market is nourishing and the ability to have a successful move-in are just a few steps away.
Canada is another endeavor that Pret needs to put on their expansion list. Although economic growth is at a minor slump because of outside factors, the market is ready for more organic and valued to-go coffee and sandwich spot. The investment at this point would be lower, meaning less to loose, because of inflation and the weakening of the Canadian dollar. For an outside company like Pret, this can be an advantage used for financial gains.
A study from the Canada Country Monitor indicated the following positive feedback for foreign investment in Canada. “Canada presents relatively little risk for foreign investors. Population growth is likely to be driven by immigration, based on a deliberate policy to offset increases in the dependency ratio in the natural population. Since 2006, Canada's population on average has increased 1% annually, or well above most industrialized countries.” (Canada Country Monitor, 2015). This lower risk is a positive investment for a company like Pret that should proceed with expansion into Canada. The population will still grow through immigration which will complement the international Pret brand.
As we pointed out many strengths, a further SWOT analysis can further describe the strengths, weaknesses, opportunities, and threats associated with the Pret and its potential move into the Canadian and Israeli countries. The strengths and weaknesses of Pret’s expansion will be an internal matter or attributed to the organization. We have looked at the opportunities and now will see threats that can influence Pret from external events or the general business environment. (Hill, 2011).
For Israel, MarketLine’s study found potential threats with Israel’s share in the territories market. “Geography segmentation Israel accounts for 11.5% of the MEA food retail industry value.” (MarketLine, 2015). The rivalry and competition for the market segment places Israel between fierce players. This is because of a weak product differentiation and “consumer's negligible switching costs, combined with a challenging and volatile industry environment.” (MarketLine, 2015).
A weakness that Israel faces is its market percentage in comparison to Saudi Arabian and Emirates industries. These competing countries will grow with CAGRs over the same period, to reach higher margins valuing themselves at a total $71.4bn for S.A. and $12.5bn for the Emirates in 2019. (MarketLine, 2015).
The Canada Country Monitor gives great reasoning for an outside company to invest at this point in Canada’s economic slump. However, what goes down is not necessarily a given to come back up. These weak economic outputs, struggles and slumps that Canada keeps on having may affect the purchasing power and consumer demand for Pret’s products and cause a major threat to their operation. This is a threat because of it’s outside the company control.
Furthermore, more economic issues tend to lean against calculating Canada as a possible contender. “The Canadian labor market will modestly improve in the next two years…For the rest of 2015, the Canadian labor market will likely be weak”.(Canada Country Monitor, 2015). This modest increase at a present value is simply not enough to assume anything good from Canada, especially because there is no expectation for a tremendous gain in their economic stance. Again, this is just the market as a whole which may make it seem that Canada is an unattractive market. But it is so because they are still in the process from a slow recovery from their recent recessions.
There is minimal political risk in both Israel and Canada because of its democratic parliamentary system. The government systems for true democracies has been a champion of business and a capitalistic economy, the sort that Pret would benefit from. Social culture for both countries relate to Pret as well. Canada has taken on the world trend of healthier and fresher, in Israel this has always been the case due to its agricultural infrastructure in place.
In Canada the political system has a strong tendency of letting the governments solve all the problems. Another issue is that any politician fails, the voters and taxpayers are often unable and unwilling to pay for the personal responsibility. These characteristics do not fare well against competitive markets and simply cannot always rely on being subsidized by the government. As a consequence of heavy government reliance, Canada can be a risk and is not in the lead of productivity or business leadership. (Canada Country Monitor, 2015).
Mode of entry will be to franchise the Pret stores to the major cities of the two countries. In Israel it will be Jerusalem and Tel Aviv, in Canada sites should be looked at Toronto, Ottawa and Waterloo. Franchising Pret to these new locations will build brand recognition in the top cities and allow Pret to communicate with its customer, but the customer that now lives in the new location.
Franchising is not what it used to be, it is better. There is a tremendous gain in brand control from technological advances that allows the expansion by the Franchisor and is thus executed by the franchisee. An article in Entrepreneur discusses how the franchise industry has changed “With fast-evolving consumer technology and a broadening palate, the franchise world today looks very different from that of a decade ago.” (Daily, 2015). The article continues with proofs of companies that are franchising today and the success they have in the retail food industry thanks to the utilization of technology and communication management devices.
Licensing is part of the strategy, but it should not be on the table for the first 3 years. Thereafter, replications of Starbucks model will be used to license the business out for a better return without heavy investment. Licensing in this style means that hotels and malls will be able to incorporate a Pret store into their locations. “These smaller venue licensed Starbucks, which for this paper are of primary concern, are operated by an individual or organization (casino, hospital, etc.) who is managing the Starbucks for some agreed period of time (1-5 years) per the licensee agreement with the Starbucks Corporation.” (Gerhardt S, 2015). Once Pret’s licensing is initiated and there is sufficient research done that the franchise operations are successful, the licensing can be implemented on the Starbucks model. This way there is no heavy operational costs added to the risk of losing brand strength.
The company’s international strategy is for globalized brand recognition. Currently in the United Kingdom and the United States Pret has established their upper class on-the-go freshness where customer brand is growing. This globalization theory is expressed by Professor Theodore Levitt in his writings “Worldwide communications carry everywhere the constant drumbeat of modern possibilities to lighten and enhance work, raise living standards, divert, and entertain. The same countries that ask the world to recognize and respect the individuality of their cultures insist on the wholesale transfer to them of modern goods, services, and technologies.” (Levitt, 1983). Levitt, one of the founders of globalized business studies exemplifies the measures that Pret will need to take during their new expansions.
Furthering Pret’s strategy is the reliance of the continuation of educated consumers on the importance of a healthier fresher food choice. The goal is not to become just another quick food joint in Israel and Canada, but instead to share the delicious and nutritious benefits profitably. Pret will have to organize an e-marketing strategy based off of consulted outsourcing to bring in these new customers from these areas. Light and limited marketing as Pret already has a name and a reputation.
Contingencies and Potential Dilemmas
Objectives for expansion is to make more money and to do this Pret will need to continue building their already globalized name and brand. Pret is a business owned by Bridgepoint, a holdings firm that invests for monetary reasons in businesses. The deal of acquisition back in 2008 put Pret at 500 million euros of value.
Dilemmas internally can be impacted in Canada and Israel for Pret just being another investment company’s product. And not something still operated at the personable level that is highly attractive in the market of 2015. Further dilemmas hold up in Israel because of their threats of terrorism. Because Israel is in the unstable Middle East and has daily potential terroristic threats, it is a major issue for a company to seek investment there as risk high. Considering the terror attacks of 2015 in Paris and how Pret was able to cope with that incident, there would need to be consideration in how much security protection will be implemented into the Israeli stores.
Human resource management will encourage current successful managers in stores across that Pret owns now and offer them opportunity to move to the international new locations. Pret should also consider hiring a human resources firm to outsource the hiring in Israel as the store concept there would be newer and different.
Internal creative and implementation for the products will happen at implementation, but there are some products to be developed down the road. Potential products in Israel and Canada are going to be completely opposite. Canada being colder will create a demand for expanded products under the maple and more winter flavors for new product. Israel is hotter than Canada and in fact hotter than mostly all other countries of current operation for Pret. Spicier sandwich selections need to be developed instantaneously as this is the natural attractive food market there already. As for the efficiency for a coordinated production system, the system can be replicated for the ones Pret has now. Where at the store or in most scenarios very close to it, there is another production spot for the fresh creation of the sandwiches. Pret will have to seek real estate options for this because in New York City for example there is a higher rent cost.
Ready For The move
Based on the analysis at this time Canada should be the first country in which Pret should expand to. Canada is the most appropriate for the expansion because of its lower risk. A weaker economy will allow Pret cheaper costs as a foreign investor. Pret should also take advantage of the North American Foreign Trade Agreement that allows them to move more resources from the United States to Canada in the most efficient way.
In conclusion, while being an extremely challenging undertaking, the expansion for Pret’s business is an electrifying opportunity. It is also essential in the globalization of a business. The business plans and strategy of implementation is a crucial process for the endeavors success.
Different types of business structures and implement will generate different outcomes, but remember the key concept of it all, making a profit. Pret’s ability to forecast the outcome of the move is bound to its competitive edge and brand recognition. Pret has sufficient foundation to take on this challenge with full throttle. The Pret of today will last, and create an exuberance for the Pret of tomorrow.
Canada Country Monitor. (2015). Country Reports for Canada. IHS Global Inc. Retrieved from http://proxygsu-sho1.galileo.usg.edu/login?url=http://search.ebscohost.com/login.aspx?direct=true&db=bth&AN=110719590&site=eds-live&scope=site
Daily, J. (2015). New frontiers in franchising. Entrepreneur, 96-101. Retrieved from http://proxygsu-sho1.galileo.usg.edu/login?url=http://search.ebscohost.com/login.aspx?direct=true&db=bth&AN=109238711&site=eds-live&scope=site
Foottit, L. (2015). Pret reports strong rise in both sales and stores. (9-10). (W. R. Ltd, Compiler) United Kingdom. Retrieved from http://proxygsu-sho1.galileo.usg.edu/login?url=http://search.ebscohost.com/login.aspx?direct=true&db=bth&AN=102375963&site=eds-live&scope=site
Gerhardt S, H. S. (2015, 9). ENTREPRENEUR OPTIONS: "FRANCHISING" VS. "LICENSING" (MCDONALD'S VS. STARBUCKS AND CHICK-FIL-A). ASBBS Ejournal, pp. 80-88. Retrieved from http://proxygsu-sho1.galileo.usg.edu/login?url=http://search.ebscohost.com/login.aspx?direct=true&db=bth&AN=108548019&site=eds-live&scope=site
Hill, C. (2011). Global business today. Boston, MA: McGraw-Hill.
Levitt, T. (1983, 5). The Globalization of Markets. Harvard Business Review. Retrieved from https://hbr.org/1983/05/the-globalization-of-markets
MarketLine. (2015, 08). Food Retail Industry Profile: Israel. London, United Kingdom. Retrieved from http://proxygsu-sho1.galileo.usg.edu/login?url=http://search.ebscohost.com/login.aspx?direct=true&db=bth&AN=109458951&site=eds-live&scope=site
Pret. (2015). Pret.com. Retrieved from About Pret A Manager: www.pret.com