Lotus Bakery, Case Study

Lotus Bakeries NV International case study Bart Bauwens Director Export November 2010 Personal introduction
• Bart Bauwens – 1967
• Master in Business Economics – University of Ghent, Belgium – 1991
• Master in Business Administration – National University of Singapore – 2008
• Specialisation in Export Management University of Antwerp, Belgium
• 1/1/2000: Start with Lotus Bakeries
• Director Sales & Marketing Lotus Bakeries Asia Pacific : 1/11/2003 – 31/07/2008
• Since 1/08/2008: Director Export Aim of this lecture : Introduce you shortly to Lotus Bakeries, our products and our structure and link it to our export strategy
• Go over some very simple basic principles to take in consideration in export with focus on 4 P’s
• Case: introducing Lotus in China
• Challenge you to think beyond the known and see international business with different eyes
• Q & A.

Contents : 1) Who is Lotus Bakeries ?
• •
• •
• • 1. History 2. Products 3. Organization 4. Results 5. Corporate Strategy 6. Realisation most important projects 2) Why exporting ? 3) How to start the export adventure ? 4) Case : Introduction of Lotus in China 5) Q&A 1) Who is Lotus Bakeries ? 1. History 932 1974 1988 2001 2006 2008 Foundation Lotus NV Merger with Corona IPO Lotus brand Acquisition of Koninklijke Peijnenburg (NL) Acquisition of Anna’s Pepparkakor (SE) 2.

Products Caramelised biscuits Gingerbread Cakes Waffles Pepparkakor Caramelized biscuits Gingerbread Cakes Waffles Pepparkakor 3. Operational organisation Corporate headquarters in Lembeke 3. Operational organisation Corporate Executive Committee Group Management Team Northern & Eastern Europe Belgium Netherlands France UK North America Export 3. Operational organisation Production plants Belgium: 4 France: 2 Netherlands: 3 Sweden: 1 Canada: 1 3. Operational organisation

Production plants Canada: Calgary F: Comines & Briec SE: Tyreso NL: Enkhuizen, Geldrop, Sintjohannesga B: Lembeke, Oostakker, Meise, Courcelles 3. Operational organisation Logistics centre Belgium – Central logistics centre in Lokeren for Belgium, France, Germany and export 3.

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Operational organisation Own sales organisations EUROPE San Francisco: USA & Canada Singapore: Asia Pacific 3. Operational organisation Other export markets
• Export department in Belgium for Europe and Middle East
• Cooperation with specialized importers 4. Results 2009 Evolution of turnover – in mio EUR 300 280 260 240 220 200 180 160 140 120 100 56,7 224,5 179,3 152,3 261,1 2005 2006 2007 2008 2009 4. Results 2009 EVOLUTION OF TURNOVER – in millions of EUR Evolution of turnover 2009 – in mio EUR 275,0 250,0 225,0 200,0 175,0 150,0 125,0 100,0 75,0 50,0 25,0 0,0 1987 1994 1995 2001 2002 2009 1988 1989 1990 1991 1992 1993 1996 1997 1998 1999 2000 2003 2004 2005 2006 2007 2008 4. Results 2009 Total turnover 2009
• 261. 1 mio EUR Evolution
• • Compared with 2008: + 1. 7% Like for like: stable evolution in 2009 versus 2008, taking in account:
• •
• Takeover Anna’s Divestment Harry’s Benelux Falling sales Jaffa Cake Bars with expiry of the contract with Mc Vities

Geographical turnover 2009 per area N-America 6,1% NE EU 8,1% UK 5,1% Export 5,1% Belgium 30,5% France 14,0% Netherlands 31,0% REBIT and REBITDA 2009 mio EUR 2009 2008 Evolution % Turnover Depreciation and amounts written off REBIT REBITDA 261. 1 (12. 1) 256. 7 (11. 0) + 1. 7 + 9. 8 34. 6 48. 2 34. 0 45. 7 + 1. 6 + 5. 5 REBIT and REBITDA 6 m 2010/ 6 m 2009 mio EUR Turnover Depreciation and amounts written off REBIT REBITDA 6 m 2010 6 m 2009 127. 2 (5. 6) 17. 5 24. 3 Evolution % 125. 9 (5. 5) 16. 1 22. 7 + 1. 1 + 3. 2 + 8. 8 + 7. 4 5. Lotus Bakeries growth strategy General theme of our strategic choices
• We focus our growth objectives on xpanding our best performing products…
• …not on ‘fixing’ weaker performing products
• We believe that… “The better a product is performing, the further it is away from its full potential” 5. Lotus Bakeries growth strategy Choices “To become the number 1 branded leader in our specialty bakery products by maintaining a clear superior taste experience. We want to achieve sales growth ahead of market growth to create room for more investments into the market. ”
• Original Caramelised biscuits : drive to full potential
• Pepparkakor: become clear leader in Nordics and focus on US + Export to Japan. OCB spread: make the success sustainable in home countries
• Gingerbread: sharpen positioning and invest behind stars
• Waffles: develop star products with international potential
• Cakes: invest behind stars
• Private label: be very selective Specific growth objectives based on consumer insights (penetration, frequency, value) Strong trade marketing capabilities to win the war in the store Sharp communication on consumption moments linked with brand essence Format innovations to expand star products Maintained lean and flexible supply model to follow the stars and trade activation 5.

Lotus Bakeries growth strategy TOP culture TEAMSPIRIT PASSION OPEN DIALOGUE We are using 3 main brands: Lotus, Peijnenburg and Anna’s: Lotus is the main international brand Home markets NL Speculoos BE/FR Nordics International Pepparkakor Spread Ginger – – – bread Waffles – – – Cakes – 6. Realisation most important projects. 6. Realisation most important projects. 5. New corporate website 2) Why exporting ? Geographical objectives
• Caramelized biscuits: become a global player as market- and brandleader. Geographical objectives
• Gingerbread : become market- and brandleader in The Netherlands, Belgium, France

Geographical objectives
• Cakes : originally regional. Market- and brandleader in the local market of each speciality. Geographical objectives
• Waffles: strong presence in countries with own sales office. Geographical objectives
• Annas Ginger Thins: maintain leading position in Scandinavia and introduce it world wide. Geographical objectives
• •
• •
• • Diversification of the market Need for new turn over Competition in home market Demand from abroad Unique product to bring to the world Love to travel 3) How to start the Export adventure ? How to start the export adventure ? Analysis and home work
• SWOT – Analyse
• 5 Forces Model of Porter
• McKinsey 7S Model
• Go – No go
• Practical and start
• 4 P’s SWOT Analysis 5 Forces Model – Porter What determines the average industry profitability ? 7S Model What are our core competences on Company level ? Go – No go Concentric approach Go ? Start 4P’s or 7 P’s 4 P’s
• More in production oriented industries
• Product
• Price
• Place
• Promotion 4P’s or 7 P’s 3 extra P’s
• More in a service industry
• People
• Process
• Physical Evidence 3. 1 Unique product and unique concept for export Some questions on the product The product for export is not the same as the product for your domestic market: Why? Some questions on the product
• Which products can I sell in export? Why should I export this product?
• Do I have to adapt the taste, shape, details of the products?
• What about the local rules in f. i. food safety?
• What about the local rules in packaging and labeling?
• What about the size, weight, colour,… of my product?
• Is my packaging suitable for overseas export (transport, palletisation,…. ) Some questions on the product
• Do I have a story on my product or an unique concept? Does my product requires special production methodes, different from the methodes used for my domestic products?
• Do I need to do more indepth research? 3. 2 Price structure for export Bottom up calculation
• Cost price calculation: how much does my products cost basically?
• Raw materials, labour, overheads, internal transport, warehousing, General & Administration costs, …
• How much gross margin do I need – want ? Bottom up calculation
• Which Incoterm do we use?
• Ex Works -> inside EU
• FOB -> overseas
• Others: liability? (C&F, CIF,…) Bottom up calculation
• Extra costs for export? Extra packaging & extra labels
• Transport: refer or not? Special transport modus?
• Extra people involved?
• Extra documents (certificate of origin, health certificate, transport documents, …)
• Insurance Bottom up calculation
• Extra costs for marketing support overseas
• •
• •
• Sampling & degustation Introduction & Listing fees Actions and promotions Local sales team? Instore activities, publicity, advertising, … Top down check
• Competition
• Who is it and what type of products do they sell
• What is their pricing level? Top down check
• Market
• How much spending power do people have? What proportion of that power is spent to products like mine?
• Is the market price sensitive or not? Potential extra costs & barriers
• Potential Extra Costs
• Import duties
• Exchange rate: cost of money Potential extra costs & barriers
• Potential Barriers
• Tarrifs
• Import duties, Transit duties (India),…
• Non-Tarrifs
• Rules, laws that change,…
• F. i. closure of Chinese ports during Olympics 3. 3 Place : Local Distribution in export What kind of local distribution ? Different forms of partnership in distribution depending on how complex you want to go
• Agent : intermediair between you and potential clients.

You sell to the local client, the agent gets a commission.
• Importer: you sell directly to him; he markets your product
• Importer – wholesaler What kind of local distribution ? Different forms of partnership in distribution depending on how complex you want to go
• •
• • Representative office: check the market Sales office: part of own organisation Joint Venture: check the market Local production: own local company Be prepared Who is our local partner ? Checklist.
• General information: name, address, phone numbers,..
• How is he structured? Who are his clients?
• Geographic structure: e. g. in China: is he all over the country?

Own sales people?
• Logistics: does he has his own warehouse and trucks? How is he organised?
• What other products does he import – distribute – manufacture ? Be prepared Who is our local partner ? Checklist.
• Conditioning of the products locally: refrigerator or not, stock capacity, how will he handle our products?
• Is he a brand builder? Is he market leader?
• Exclusivity or not? Territorial protection?
• How to check?
• Via internet or own network etc
• Via banks, Chamber of Commerce, business Clubs,…
• Via Embassy or FIT 3. 4 Promotion : Export marketing Export marketing Brand or Private label ? OEM ? What does our brand means in that country?
• What is our brand positioning?
• What is our target public there? Export marketing What actions ?
• Sampling and tastings
• How to measure the impact of actions? How to get the exact figures? Nielsen , GFK,… Export marketing Local rules on advertising ?
• Any restrictions ?
• Anything we can’t do ? Export marketing Cost of marketing actions :
• How much budget do we need ?
• How much is paid by our local partner ? Cultural issues
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• •
• Cultural: position of men and women? Religious rules (written or non written) Language Colours Political issues: avoid . 5 People : Internal Structure Internal structure Do we have an export department ?
• •
• • Do we need an export manager? Who will do the back office? Can we be reached the whole day? Do we master the languages? Internal structure Export needs to be structured Focus leads to succes. Other departments Logistic department :
• Inter company transport
• Transport to harbour
• Export documents Other departments Quality management :
• What rules?
• How to use them in a commercial way Other departments IT department :
• Internet connections
• SAP Other departments Finance department :
• Export cost money

Other departments General management :
• Everybody in the company must believe in export
• Communication with collegues and management: personal PR
• Take everybody with you in the story 3. 6 Process : Process Procedures, flows, processes etc. by which services are consumed :
• How does the supply chain go from our suppliers over our company all the way to the end consumer of our product or service?
• How do we manage and controle those processes?
• Audits? ISO? 3. 7. Physical Evidence : Physical evidence The ability and environment in which the service is performed
• What tools do we need to perform and deliver? How can we measure our clients needs and expectations ?
• How can we meet these expectations ?
• How to reach customers with other expectations ? 4. Case : Introduction of Lotus in China 4. 1. Prospection phase Prospection phase Since 2000 we started to follow the Chinese market and tried to get insights
• How is the market organised and structured
• Who are the local and international players in the market – production and sales ?
• How does the supply chain looks ?
• What type of consumers do we have and what is the segmentation we can do ? Prospection phase Partner selection : done by 2004
• How do we want to enter the market ? No own production
• No own company
• No direct delivery to the retailers
• ? Via an importer
• They know the market
• They take ownership and responsability Prospection phase Partner selection : done by 2004
• Who are the import companies?
• What is their strenght and potential ?
• What kind of contract do we have ? Analyse 2009 : Analyse of existing partner in view of challenges in growth and logistic power for world expo 2010 : new partner selected 4. 2. Start up phase Start up phase : Products :
• Only speculoos
• Focus on coffee + cookie concept
• Single wrapped packs and family packs Start up phase :

Region :
• China is too big to be seen as one country
• Different languages
• Different cultures
• Different eating paterns •…
• Where do we start ?
• Shanghai
• Rest of China (e. g. Carrefour) 4. 3. Growth phase Sales & marketing support 2010 : Sales are supported based on a marketing plan
• What action : sampling and tasting, TG/gondola, 2nd placement…
• Cost of actions
• Estimated volume and sales
• Agreed by Lotus Bakeries Sales & marketing support 2010 : Support :
• Mostly in free sampling goods, participation to exhibitons, tastings … Pricing situation
• Mostly our price level in the trade is OK.

We are cheaper priced then high end brands like Bahlsen, JDS etc… and of course higher priced then local manufactured products.
• Positioning : sophisticated (from Europe), yet accessable. Brand salience in China Challenges :
• Need to translate our brand salience and visualise this link with coffee consumption at home. Brand salience in China Challenges :
• Consistency in our communication:
• Look and feel of new OCB packaging
• Sampling booth
• Website: www. lotusbakeries. cn
• Action and promotions Brand salience in China Challenges :
• Technical : how do we make publicity ? What kind of setting ?
• What kind of models ? Sampling in the basis Possible sampling places and moments ?
• •
• • World expo at Belgian Pavillion Retail in Shanghai during the expo period In atrium or shopping centra Street : sampling in Nanjing Lu, Huaihai Lu and other main shopping streets
• Bars, hotels… during night events ?
• Exhibitions : Food & Hotel China, Sweets China, at the entrance and corridors, in our booth… Sampling @ Expo
• In 3 locations : at the entrance of the Belgian Pavillion, in coffee shop and in shop
• Lotus has developped the wrapper and will give 8. 00. 000 biscuits for free
• 1 biscuit per second
• Biggest sampling action for Lotus ever Sampling @ Expo
• The focus is on one pack : OCB 25X1 which is sold in the pavillion at the same price as downtown Shanghai (22 RMB)
• Local coordination by PAF trainee Sampling @ Expo Queuing for the Belgian Pavilion Queuing for the Belgian Pavilion sampling sampling sampling sampling sampling In the shop In the shop In the shop In the shop In the shop Questions ?
• Thank you for your attention
• www. lotusbakeries. com