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A proposal of Jamba Inc. to enter the
Kingdom of Saudi Arabia to market
Jamba Juice
Kathrin Auzinger-Hotzel
Auzinger-Hotzel, Aguirre, Akintade
Prepared for
Dr. Dennis J. WaldropManaging Overseas Operations
IMAN670Spring 2011
Proposal
Jamba Juice goals:• Advance internationally and expand market share• Generate additional cash flow and profits • Accelerate growth and transform company
Proposal: expand operations into the Kingdom of Saudi Arabia taking advantage of favorable trends and developments in the market • Market entry strategy: franchising• Master franchisee: Americana Group
Company Overview
Founded by Kirk Perron in 1990 Owned and franchised by Jamba Inc. Over 740 Jamba Juice stores: 351 corporate and 392 franchise
locations – available in 23 states as well as international locations
Company emphasizes a familial culture and commitment to the local community
Brand image focuses on celebrating life
Overview (cont.)
Mission, Vision and Objectives:• Mission is to help people “live healthier, balanced lives – natural
and fruitful”
• Company’s culture aims at conveying a vibrant, positive energy directed at making people enjoy life
• Long term goal is to transform itself from a made-to-order smoothie chain to a healthy, active lifestyle brand
• Company’s “Blend Plan” addresses financial turnaround, strategic turnaround, and functional excellence
Overview (cont.)
Products & Services:• Signature product is the Jamba Smoothie
• Offers a variety of better-for-you food and beverage products
• Provides apparel and gear displaying the company logo to customers via its stores and website
• Other products: natural energy drinks, frozen novelties, and smoothie kits that are distributed through retail chains across the US
Restaurant Industry
JJ’s category: cafés and beverage bars
Direct competitors: Mc Donald’s, Starbucks, Dunkin Brands Inc., and Krispy Kreme Doughnuts Inc.
Global economic crisis has depressed industry’s profit but is expected to bounce back over the next 5 years (projected growth 24%)
Profitability is expected to increase causing industry outlook to be above average
Health concerns have led to a decline in consumer confidence
Porter’s 5 Forces
Barriers to Entry (medium/high):• High capital requirements (local, equipment, fixed costs, etc.)• Economies of scale exist• Low profit margins• Access to distribution channels may be difficult (i.e. location)• Brand loyalty• Government regulation
Porter’s 5 Forces (cont.)
Threat of Substitution (high):• Substitutes are readily available• High degree of competitor fragmentation• Other products exist that perform the same or similar function• Buyers face no uncertainty or inconvenience when switching • Substitute products satisfy price, value, and quality expectations • Consumer preferences may limit substitution somewhat
Porter’s 5 Forces (cont.)
Bargaining Power of Customers (medium/low):• Buyers are diverse and geographically dispersed• Switching costs are low• Substitutes are readily available• Changing demand preferences & trend
Porter’s 5 Forces (cont.)
Bargaining Power of Suppliers (low):• Suppliers are diverse and geographically dispersed• Suppliers are unable to vertically integrate forward• Most suppliers provide generic resources that lack
differentiation• Some suppliers exert greater influence than others • Low switching costs• Substitute inputs
Porter’s 5 Forces (cont.)
Rivalry (intense):• Large number of diverse competitors• Industry growth is promising• Similar products, performance, quality, and strong images • Price competition vs. differentiation • Buyer cost for switching brands is low
PEST Analysis
Political Factors:• Geopolitical issues – political unrest, civil uprising, political
restructuring of neighboring countries• Governance and transparency issues• Conservative Islamic government• Local political discontent • Reform of legal system• WB Ease of Doing Business Rank 11
PEST Analysis (cont.)
Economic Factors:• Relative little market intervention, privatization & reforms • Increased public spending (infrastructure, education, etc.)• Dependency on crude oil exports• Currency pegged to US dollar• High inflation and unemployment• Real GDP growth in excess of 4.5%
PEST Analysis (cont.)
Social Factors:• Change in social stratification – 44% under age of 15
• Fast food sector growth 7-10% per annum
• Westernization and resulting health issues (obesity)
• Religion defines social interactions
• Arabs vs. guest workers
PEST Analysis (cont.)
Technological Factors:• Lack of skilled workers• Education reforms• Rising female workforce participation• Infrastructure improvements
47.02%
21.32%
7.52%
7.84%
15.67%
0.63%
KSA Budget 2011 (SAGIA)
Education & Training
Health & Social Services
Municipal Services
Transportation & Communication
Water, Agriculture, etc.
Other
Market Analysis
Economic, Social, and Cultural Factors• Developing factor conditions (infrastructure, educations, etc.)• Changing Demand conditions (westernization, globalization)• Related and supporting industries are becoming more
sophisticated • Changing industry composition
Market Analysis (cont.)
Demand and Trends• >65,000 foodservice outlets• 7-10% annual growth in restaurant industry• Expected health food sector growth of 12% per year• Health concerns due to increasing obesity and diabetes• Limited availability of healthy, nutritious and delicious choices
Market Analysis (cont.)
Government• Transparency, corruption and potential political instability • Cumbersome contract enforcement (lengthy legal procedures
and opaque processes)• FDI faces strict government scrutiny before approval – BUT KSA
is one of the top ten recipients of FDI in the world • No controls or restrictions on foreign exchange transactions or
capital payments and transfers
Market Analysis (cont.)
Strategic Map: Competitors Saudi Arabia• Size: matters (capital requirements)
• Strategic distance varies, but can be overcome
• Mobility barriers: low
• Intergroup rivalry: high
Market Analysis (cont.)
Many diet and health foods do not meet local taste preferences and have failed to be enjoyable, tasty, and competitively priced
Lack of wholesome, convenient choices that appeal to health conscious individuals
Jamba Juice’s competitive advantage:• Unique product offerings • High quality, delicious foods • Tasty through combining fun, fruit, and flavor • Combination of beverages and snacks positions JJ ideally to take
advantage of the growing health food market
Marketing Plan
Product:• Focus selection on nutritious fruit smoothies and juice
blends• Provide a selection of healthy treats to appeal to the
“sweet tooth” of the Saudi people• Adapt to cultural and regional preferences• Streamline product offerings• Adhere to local quality, safety, and sanitary requirements• Adapt labeling and packaging
Marketing Plan (cont.)
Pricing:• Premium pricing strategy
• Brand strategy and image • Healthy and high-quality product
• 80% of the working population is comprised of non-nationals• Non-nationals are familiar with Western product and brands• Willing to pay higher prices for high-quality, healthy
products
• Premium price strategy will help JJ differentiate its product offerings from fast food service companies
Marketing Plan (cont.)
Promotion:• “Pull” strategy- advertising and promotional strategies
• Capitalize on one of the most popular forms of promotion in KSA: advertising on television• Product Comparison Advertising• Product Family Advertising• Corporate Advertising
Marketing Plan (cont.)
Place (Distribution):• Franchise agreement
• Control cost• Limit risk exposure• Support expansion targets
• Advantages of franchising• Rapid expansion into the KSA market• Low political risk exposure• Standardized method of marketing• Motivated franchisee
• Seek a master franchisee agreement with a local entity- Americana Group (Americana)
Operating Plan
Labor Supply
Skilled labor shortage
Medium to high-skilled employment dominated by guest workers
Regulations
Labor Law – Based on the Royal Decree no. M/51
“Saudisation” and workforce diversification quotas
Religious laws prohibiting “gender mixing”
Cultural Considerations
Power Distance Strict hierarchical management structures preferred
Uncertainty avoidance Explicit rules and control mechanism required
Individualism vs. Collectivism KSA a collectivist Society
Polychronism
Operating Structure
Operating Procedures
Jamba Juice Training and support Tracking of goals and
achievements Marketing initiatives
implementation and trend data gathering
Americana HR and staffing Sourcing and procurement
activities KSA supply chain Assist in implementing
marketing initiative
Store Operations and Layout
Locate in or near malls and/or universities
Cultural differences need to be considered • “Gender Mixing” • Religious, cultural, and moral requirements
Store layout • Restricted/separated seating areas for single man, woman
and families • Additional modifications to local needs (i.e. hours of
operations)
Inventory Management
Both companies will share responsibility for products sales, needs and quality• Implement management and tracking software to monitor
levels, condition, quality, and expiration dates• Synthesize just-in-time and materials requirement methods
to arrive at an ideal supply level• Optimize purchase and delivery schedules• Monitor frequency and quality of orders • Share, retrieve and distribute information about
performance
Control and Service
Quality Control Abide by KSA’s food safety
regulations determined by the Saudi Food & Drug Authority
Implement JJ quality standards and objectives
Instill commitment through training
Customer Service Create a welcoming
atmosphere
Take the extra step to deliver a personalized service - identify and anticipate needs
Be polite, helpful, courteous, knowledgeable, and address complaints to the satisfaction of the customer
Financial Objectives
Objectives• Financial growth
• Growing JJ’s business and revenues • Generate additional cash and profits
• Financial efficiency • Raise productivity levels• Generate economies of scale and scope• Improve overall performance through effective use of
resources
Historical Analysis
Income Statement• Per store revenue
contribution increased from $650 thousand to $725 thousand
• Net loss declined from $113.3 million in 2007 to $16.7 million in 2010
• Franchising income has increased by approximately 35%
Balance Sheet• Superior asset strength• No long-term debt• Decrease in current
liabilities
Historical Analysis (cont.)
Statement of Cash Flows • Cash Flow from
Operations were negative in 2010
• BUT Positive FCF • Positive, increasing cash
position
Ratios• ROA and ROE improving• Gross margin, current
ratio, quick ratio, and financial leverage are close to industry averages
• High inventory turnover – above industry average
Pro Forma Assumptions
Est. Gross Revenue per Store: $665K
Est. Revenue Growth: 10%
Franchising Fees: • Royalties 5.5%• Marketing Fees 4%
Corporate Tax Rate: KSA only 20%
No external financing – neither debt nor equity
Pro Forma Overview
Pro Forma Highlights
PF Income Statement Initial investment $400K
Profitable by Y3
Positive NPV ($13.7 million)
PF Balance Sheet No debt
Increasing asset strength
Year 1 Year 2 Year 3 Year 4 Year 5
$(2,000,000)
$-
$2,000,000
$4,000,000
$6,000,000
$8,000,000
$10,000,000
Gross Profit Net Profit
Pro Forma Highlights (cont.)
PF Statement of Cash Flows Positive cash balance by Y4
CF from operations will be positive by Y3
PF Ratios Liquidity increases with
store count
Positive activity measures by Y3
Year 1 Year 2 Year 3 Year 4 Year 5 $-
$1,000,000.00 $2,000,000.00 $3,000,000.00 $4,000,000.00 $5,000,000.00 $6,000,000.00 $7,000,000.00 $8,000,000.00 $9,000,000.00
$10,000,000.00
$151,456 $695,506
$1,912,641
$4,207,811
$9,257,185
Operating Expenses
Gross Profit
Risks
Financial risks (currency and exchange rate risk, government regulation, inflation)
Economic conditions (global market volatility, rising commodity prices)
Competitive environment (competitors, trends, R&D, innovation)
Risk of expropriation: low JJ’s capital structure Double taxation
Financial Controls
Integral component in managing success, attaining goals, and measuring performance
Responsibility and accountability of staff and management • Adhere to corporate policies and relevant accounting
standards• Meet performance and strategic targets • Periodic (monthly, quarterly, annually) reporting of
performance• Reporting frameworks ensuring accurate financial and
accounting data• Periodically monitor and assess compliance
Balanced Score Card
Balanced Scorecard Flow Sheet
Conclusion
KSA offers many opportunities JJ can capitalize on
With proper risk management JJ can succeed in KSA and become segment leader
JJ’s values and consideration of KSA culture will play an important role in the acceptance of its products and services.
Entering KSA with the help of Americana will play an important role in achieving JJ’s strategic objectives: • Advancing the company internationally • Accelerating its growth • Generating additional cash flow and profits