Tony's Chocolonely is a Dutch company operating in the Food & Beverages industry more precisely in the chocolate industry. Founded by Teun van de Keuken in 2005 with the aim of offering chocolate that is completely free from child labour, the main objective of the company is to lead the world into producing exclusively fair trade chocolate that is 100% free from exploiting child labour.
Mission and Vision
The mission of Tony's Chocolonely is to offer chocolate free from child labour. To ensure that the process of chocolate production is totally free from child slavery, Tony's Chocolonely makes effort to create awareness, leading as an example and inspiring to act. They want to inform the society that 2.1 million children are working as slaves only in Ghana and in Ivory Coast (Akweley, 2017). To create awareness of the 100% slave free chocolate Tony's Chocolonely will increase its marketing expenses in the United States, however in Europe it expands to new countries. They believe that the more chocolate they sell, the more they contribute to children saved from slavery. That is why the expansion is of key importance for Tony's Chocolonely for the whole society. The vision of Tony's Chocolonely is to have 100 % slave free chocolate in the world (Tony's Chocolonely, n.d.) (Craft, 2018).
Reason for expansion
Tony's Chocolonely employs 83 workers. Its headquarters office is in Amsterdam, in the Netherlands and has another office in Portland in the United States of America. Furthermore, the company is present in Belgium and in Sweden. Additionally, there is an expansion process going on currently to the German, Norwegian and Finnish market (Tony's chocolonely, n.d.). To further realize its objective Tony's Chocolonely now targets to reach the Danish market. The reason for expanding to Denmark will be further justified in the project.
Thus, the objective of this research project is to find out how Tony's Chocolonely can expand further to Denmark. Based on the annual fair trade report, the company believe that the more chocolate they sell the more they contribute to liberating children from slavery (Tony's Chocolonely, 2017).
To be able to succeed with its expansion plan to Denmark, Tony's Chocolonely has to critically analyse possible causes and the possible solutions of the business issue. The use of underlying theory in unavoidable. For this reason, a situational analysis was conducted which reveals the company's core qualities and weaknesses.
1.2 Research Objective
Instead of a business issue Tony's Chocolonely has a business opportunity of expanding its business to Denmark. Since in the past it expressed its operations to the US, which are currently doing really well. It started in Portland and spread through a degree where now the products are available in stores in nearly every states (Tony's Chocolonely, 2017). Therefore, Tony's Chocolonely has an opportunity to expand into other markets as well. However, the objective is to find out how can Tony's Chocolonely be able to expand to the Danish market successfully.
2.1 Situational Analysis
For every strategic business decision, it is significant to conclude a situational analysis that defines what could have caused the business issue and the possible solutions to solve the problem. This analysis comprises of internal and external factors of the company's existing and potential customers, capabilities, about the business environment and the impact of the plan might have on these factors (Lake, 2017). For making an expansion decision to Denmark it is essential for Tony's Chocolonely to analyse the chocolate industry.
According to the most resent annual statement of Tony's Chocolonely, the current market share in the Netherlands is 16.7%, which indicates that the company is a big player in the market and Tony's Chocolonely had made a huge impact on the chocolate market in the Netherlands. The company is aiming to achieve the same result in the US, where the turnover was 2 million Euro, which is a 400% growth compared to the previous financial year of Tony's Chocolonely. Since, they only consider their products at the Introduction stage of the product life cycle, an increasing growth is expecting in that market (Tony's Chocolonely, 2017). Moreover, from this we can see a growing trend for the Tony's Chocolonely products.
Current marketing strategy
The marketing expenses has raised compared to the previous financial year, which led to a growth in Tony's Chocolonely current markets. The company is currently using a contextual marketing strategy, which is an online marketing model where people are targeted by upon user information. Moreover, the company keeps a Tony's FAIR in each year in order to raise awareness, this is also included in its marketing strategy. Furthermore, it is known that currently the company has an access for only a defined marketing budget which indicates that it has limitations in the marketing field (Tony's Chocolonely, 2017).
Customer segmentation and customer needs
Tony's Chocolonely is currently targeting consumers who are excited for chocolates and also aware of the risks that may occur throughout the supply chain. Those consumers are marked as the core customers of the company, which are both loyal and profitable at the same time. Moreover, it also differentiates the at-risk customers, who are not loyal customers but on the other hand, those ones gain a lot of profits for the company (Tony's Chocolonely, 2017). However, the growing trends are attracting many more customers currently, those trends are discussed under the point of 2.1.6.
Current Pricing strategy
Currently Tony's Chocolonely is using a segment pricing strategy where it differentiates its customers to a segment. This segment is called a quality-sensitive segment where consumers are willing to pay more for additional benefits. In this case, as it was stated before, consumers are aware of the risks that chocolate carries and since Tony's Chocolonely is offering a product which is completely slavery free, they are willing to pay more (Tony's Chocolonely, 2017).
After an analysis of the chocolate industry, we have identified the main trends that define the opportunities within Tony's Chocolonely:
- There is an increasing Fairtrade adoption within the industry (Justice Djokoto, 2015).
- The demand for speciality chocolate is growing in Europe.
- Consumers awareness is rising of the cocoa production and the impact on it.
- Transparency and traceability is increasing among companies.
- The demand for Corporate Social Responsibility (CSR) reports are increasing in European countries (Affairs, 2018).
Tony's Chocolonely has realised these trends and incorporated in into its core business which helped the company to the previous years of success.
Conclusion situational analysis
Due to the focus on conscious, profitable and loyal customers who are targeted with segment pricing strategy and to the increased marketing expenses, Tony's Chocolonely already possesses a notable share in the European chocolate market. More precisely, in the Netherlands it had already achieved a considerable market share which further opened up the company's further opportunities. After the success in the Dutch market, Tony's Chocolonely expanded to the United States also with high success from the beginning of the expansion. Trends underpin that the demand for Tony' Chocolonely's high-quality and slave-free chocolate is increasing, so does the overall awareness and demand for fair trade chocolate. This trend implies a huge opportunity for Tony's Chocolonely to expand further in the Danish market and grow its market share in Europe.
2.2 Danish Market Analysis
The main reason for the country selection for Tony's Chocolonely is that the high GDP, moderate inflation and stable growth of Denmark makes the country attractive to expand to. Besides the great economic indicators of the country, Denmark possesses further advantages that Tony's Chocolonely can utilize. APA
Prior to expansion to Denmark it is required to examine the target market therefore in this section Danish market and the competitors of Tony's Chocolonely will be explained and PESTLE and SWOT analysis will be provided.
The Danish market sees a growing trend for pure chocolate which means than consumers are willing to pay additional money in order to receive the chocolate in the quality they require. Another trend in the Danish chocolate market is the increasing awareness for fair trade chocolate products. Both of these trends are perfectly in match with what Tony's Chocolonely can offer the Danish market. However, most Danish consumers are loyal to the brands they have been purchasing and that can pose a potential a risk of Danish expansion with the new products of Tony's Chocolonely. (Euromonitor International, 2017).
The PESTEL analysis provides an insight from the external factors that influence the environment of the company. Conducting Pestle analysis in Denmark from political, economic, social, technological, environmental and legal aspects thus enable Tony's Chocolonely to have a broader insight of the Danish market and to make its expansion decision.
Political: Denmark is a constitutional monarchy with its government operating as a cabinet, thus the budget planning, the execution of the laws and guiding both the internal and foreign policy are the responsibilities of the Cabinet. Furthermore, Denmark's customs regulations imply that EU rules are the fundamental in forming the Danish governance.
Denmark has a progressive tax system with a corporate tax rate of 22% (Appendix 1). Withholding taxes for companies is also 22% in relation with the dividend payment from the mother company to the Danish affiliate (Pwc, 2017). VAT taxes on goods and services are 25%. All this information is relevant for tax efficiency of the Danish expansion (Trading Economics, 2018).
Economic: With 36,100 euros Denmark had the 4th highest GDP per capita in Europe in 2016. Additionally, in 2017 Denmark had the 8th highest overall GDP, 288 billion euros, among European countries excluding the ones Tony's Chocolonely is either already present in or are currently expanding to. Following the same logic, Denmark had the 5th highest government surplus/deficit ratio in Europe in 2017 (Destatis, 2018).
The growth of GDP illustrated by Appendix 2 was 2.2% in 2017 and is expected to fall back to 2.0 in 2018 and 2019 (OECD, 2017).
Interest rates are set by the Central Bank of Denmark on the basis of the ECB key rate. After more than 10 years' negative interest rates the current -0.65% is projected to rise slowly and moderately, but will still stay below 0 until 2020, meaning that Tony's Chocolonely can easily borrow money for financing their operations, purchases and payroll. The aim of the country is to peg the Danish krone to the euro, keeping the exchange rate of euro 2.25% lower or higher than 7.46038 Danish kroners for low inflation (Trading Economics, 2018).
Average inflation in Denmark was 0.49% in March 2018 and is forecasted to be 1.8% next year. Based on OECD value, Denmark is one of the countries with the lowest inflation in the world (OECD Data, 2018). Low and stable inflation can guarantee low costs and certainty for Tony's Chocolonely in Denmark.
These measures all support the advantages of expansion to the strong economy of Denmark. Political and economical elements all prove that Tony's Chocolonely is organizationally ready for the Danish market penetration.
Social: Population grows with the average of 0.36% in 2018 in Denmark, and 38.76% of the population represents the majority of people in the age group between 25 and 54. (World population review, 2018).
In the labour market of Denmark, the so-called Flexicure Nordic Model is applicable which describes the security and flexibility of workers. Most important factors affecting Tony's Chocolonely's expansion is that due to this system establishing businesses and hiring employees can be executed in a fast and cheap way in Denmark. Additionally, there are no restrictions regarding overtime of workers (Denmark DK, n.d.).
Technological: Denmark is one of the technological leaders in the EU valued with the first rank at the Digital Economy and Society Index in 2017 by the Commission. Klynge, Tech Ambassador of Denmark has launched the “TechPlomacy” initiative, by which technology and digitalization enjoy first priority in Danish development, which means a promising future economic growth opportunity for Denmark (Udenrigsministreit, n.d.) (Politico, 2017).
Environmental: Denmark is one of the leaders in promoting Corporate Social Responsibility. With its slave free chocolate, Tony's Chocolonely is provided with a huge opportunity in Denmark, since it represents what the Danish society highly values. With its marketing expenses in the country Tony's Chocolonely can spread its aim of global challenge for transforming the chocolate industry into 100% child labour free (Tony's Chocolonely, n.d.).
For transparency, Tony's Chocolonely provides information about the fact that 9,6% of the price of one bar chocolate is spent on CSR reasons: cocoa price for the farmer (7%), Fairtrade Premium (0.8%), extra premium top of Fairtrade price for traceable cocoa mass (0.9%), Fairtrade license fee (0.3%) and contribution to Chocolonely Foundation (0.6%). For the price breakdown see Appendix 3 below. Further information about the company's CSR policy and about how they contribute to fair trade and environmental issues is provided by Tony's Chocolonely in their Annual Fair Report that is accessible by every customers and companies.
Legal: Legal factors in Denmark affect how Tony's Chocolonely is able to opeate in the country. The rights of Danish workers are included in the Danish Labour Law. Foreign companies can choose to enter into an individual or collective bargaining agreement, which is established between trade unions or employee organizations that represent workers and an individual employer or its representative organization. (Workplace Denmark , n.d.) In Denmark minimum wages of employees in Denmark are not set by the European Union, additionally, collective agreements stipulate whether employees are payed on their 25 days of holiday, and on maternity or paternity leave. It defines the maximal working hours, that is usually 37 but maximum 48 hours weekly, about the notice period before termination of work contract and about redundancies.
Discrimination Act of the Labour Law stipulates equal opportunities and treatment of workers regardless of gender, race, ethnic, social or national origin, age, religion, political belief or sexual orientation (Pwc, 2009).
Consumer behaviour, on the other hand, is defined by the Danish Consumer Law. This requires detailed description from the company's products and policies in order to provide consumer protection and preserve consumer rights (Pestleanalysis, 2016). After all these processes are considered and the compulsory prerequisites are fulfilled Tony's Chocolonely is legally ready for the expansion from a legal perspective.
Because of the collective bargaining agreement Tony's Chocolonely enjoys the freedom of utilizing the performance of its workers without limitations stipulated by already set by European Union or governmental laws (Professional Academy, n.d.).
Current competition: As mentioned above in 2.2.1 Danish consumers tend to stick to the products they are used to buy, therefore the main competitors of Tony's Chocolonely in the high-quality chocolate market are Mondelez Denmark ApS, Tom's Gruppen A/S and DK-Konfekture K/S.
Tom's Gruppen with its product portfolio including Toms, Anthon Berg and Galle & Jessen brands, owned 30% share of the market last year being the market leader. By contrast, the company is losing from its leading market share due to difficult positioning strategy of mid-priced and premium chocolate. For this reason, Tom's Gruppen focused its marketing investment more in traditional chocolate products therefore providing more opportunity for Tony's Chocolonely to grow with its premium chocolate in the Danish market.
Marabou offered by Mondelez Denmark ApS was the Danish leader brand in 2017 with its high cocoa and low sugar content in its products. The company possessed 16% of the market share (Euromonitor International, 2017).
Tony's Chocolonely competitive advantage: Since the Danish premium chocolate market competition can be defined as monopolistic, meaning high competition and easy entrance to the market and possibility for one company to gain large market share with differentiation, Tony's Chocolonely can apply its competitive advantage for a successful expansion in Denmark (Hediger, n.d.).
What makes Tony's Chocolonely stand out from its competitors in the high-quality and premium-priced chocolate market is its relationship with CSR policy. Since premiumisation is a growing trend in Denmark (Euromonitor International, 2017), consumers are willing to spend more on products that contributes to their health, but with purchasing the products of Tony's Chocolonely they are also engaging in improvement of the living standard of many people in the world. The competitive advantage of Tony's Chocolonely in growing internationally is that it can trace the source of cacao and provide a transparent value chain for consumers. To further enhance its superiority over competitors, Tony's Chocolonely is working on achieving the traceability of all ingredients of its products (Leander & Poomsirivilai, 2009). With providing this uniqueness, the product of Tony's Chocolonely is ready for the Danish market entry.
Price elasticity of chocolate
The price of chocolate is affected by many factors but more precisely we differentiate supply and demand drivers. Supply factors are more dominant drivers of chocolate's price volatility. Since the main ingredient is cocoa, which price is commodity driven, it sets the prices according to the varying levels of volatility on commodity prices. In our case, the main focus is on the two major component of cocoa: cocoa butter and cocoa powder. In those components supply fluctuations can create major movements in prices. Moreover, actions to reduce the use of illegal labour may result in a lower supply if the labour force is being cut or if farmers would have to pay higher wages to legal labour. On the other hand, the overall demand for chocolate is continuously rising since the recession in 2008. Furthermore, in the United States there is also an increasing demand especially for the dark chocolate since a research was released which showed the positive effects of dark chocolate on heart disease (Zucchi, 2018).
In summary, the price of chocolate is fluctuating since it is belonging to the commodity market. On the other hand, the current trend from 2008 is rising the demand for the product itself. However, any disruption within the supply chain of cocoa may lead a major impact on the price.
Level of Social Responsibility in Denmark
The Government insist that all Danish companies must report on their Corporate Social Responsibility (CSR) which creates transparency. Many of the major companies are therefore reporting on CSR and also implemented a CSR policy into their business. Since the reporting became compulsory, it showed many benefits for the country. Moreover, the Danish Government is aiming to be the leader in promoting human rights and environmental issues.
Based on the situational and market analysis, a SWOT matrix had been conducted. This table summarizes the main finding of the situational analysis from external and internal aspects. The created SWOT matrix helps Tony's Chocolonely to understand its main opportunities and capabilities.
Figure 2: SWOT matrix, own illustration
Conclusion Danish market analysis
After analysing the Danish market, it becomes clear that Tony's Chocolonely may be able to expand to this country successfully. This is due to the governmental regulations and also the fact that Danish Government strikes to be a leader in sustainability and therefore Tony's Chocolonely could come through easily. The price elasticity was examined which gave an insight of what leads the price of the components of the chocolate. This led to a conclusion where we can state that chocolate is more supply driven rather than demand driven. The current trends which were examined under paragraph called “Current trends” applicable for the Danish market. Moreover, since the competition in the premium chocolate market in Denmark is high with few barriers to enter the market and it is possible for Tony's Chocolonely to gain a large market share applying differentiation with strong competitive advantage of cacao traceability and transparent supply chain.
2.3 Theoretical background
There are two relevant theories connected to expansion to foreign markets that can be implemented in case of Tony's Chocolonely. Moreover, a best practise is also being analysed in this section.
The so-called Tortoise theory can be applied in a business environment. It refers to the accelerated pace of expansion of a company to a new market. Besides the business dynamics required by the highly competitive market, it enhances the significance of intelligently slow pace providing readiness for the expansion in a financial, legal, product, organizational and other aspects. Provided that a company is financially stable enough it can expand further to other countries. In order to operate in a new market, legal procedures are to be done and continuous compliance with the new rules are required. The product that is to be sold in the new area must be ready for the new market and the organization needs to be prepared for the expansion. If the company expands according to the appropriate phases - the current one on the basis of the result of the previous- a long-term sustenance is ensured for the business. Furthermore, the ‘Tortoise theory' for businesses suggests that a firm should always strive for a better position that the one that its competitors have (AtlasCorp, 2016). This theory is applied in Tony's Chocolonely's case; it is logical for the company to expand to Denmark when they are prepared for entering new markets from all aspects mentioned before.
The Uppsala internationalization model defines that companies first tend to expand to markets that are nearby and enhance their knowledge of the local market and focus on the control of resources and after becoming more experienced, they expand further to more distant markets differing in language, geography and politics (CarneiroI, de Silva, & Rocha, 2008). In our case, this theory is applied at Tony's Chocolonely, the Danish expansion is justified since the company is already present in and have mastered its knowledge in the areas close to the county.
As a best practice we can raise the example of the American chocolate brand, Mars expanding to Europe. Mars was founded by Frank C. Mars in Washington, America in 1911 employing 125 people in its factory. After increasing production, in 1960, American facilities were extended, and a European factory was built in Veghel, in the Netherlands.
In 1992 with its famous brands, for instance Milky Way, M&M's, and Snickers, Mars became the leading manufacturer in confectionery and candy products in America
After gaining leader position in America, Mars understood its demographical complexity when it was penetrating into the European market, thus decided to advertise itself in sports events for instance Formula 1, and NASCAR that are of significant importance in the United Kingdom and in France. With this step, the company gained considerable market share (Eturf, n.d.). Today with half of its total sales coming from Europe, the European expansion of Mars was successful and effective and therefore can show an example worth to copy by other companies wishing to expand to Europe (AdvaMeg, 2018).
Tony's Chocolonely can replicate this marketing strategy considering the advertising of its products on the most significant sports events in Denmark.
3 Conceptual model
After analysing Tony's Chocolonely current situation and the Danish market and the underlying theories, a conceptual model was created in order to fulfil our research question. The precise evaluation of the situational analysis and the theoretical analysis revealed major cause-effect relationships. These relationships have to be taken into account when proposing a solution on how to enter successfully the Danish market. In the following session, all variables are going to be discussed and explained. For the hypothesis which derived from the conceptual model, please see Appendix xx.
Figure xx: Conceptual model
As it can be seen in the above chart our dependent variable is a successful Danish market entry of Tony's Chocolonely. This variable is directly acquired from our research question –which is how Tony's Chocolonely should expand to the Danish market.
Degree of product readiness: Entering a new foreign market is only achievable by aligning to the local preferences. In that case, an extensive market research is needed in order to see the local tastes and preferences. By product differentiation it is easily achievable to align to those desires which can be done after determining if any localization of the products is necessary.
Degree of organisational readiness: When a company is expanding to a foreign country, it is crucial to adhere an organisational readiness. This includes all the cultural differences, regulations, customs which requires Tony's Chocolonely to be flexible in the procedures implemented in an international activity to assure employees are engaged on the company's plans. In this case, Tony's Chocolonely may evaluate its organisational structure whether it is suitable for the expansion. Moreover, it may think of developing policies, procedures which comply with local requirements while it must be balanced with the overall company policies. Since Tony's Chocolonely is aiming to expand to a foreign country it is crucial to understand the basic cultural differences. Moreover, creating the organisational structure according to that is a fundamental element, and if it is well aligned the success is more likely to be achieved.
Effective marketing strategy: As an essential key for the new market entry is an effective selling and marketing strategy of Tony's Chocolonely products. Tony's Chocolonely must address sales strategy, marketing programs, pricing, branding/value proposition. In order to monitor the effectiveness of this strategy a development of a marketing plan and KPI's are highly suggested. In order to establish a prosperous business, creating an adequate marketing and sales plan is inevitable. Moreover, in order to get an effective marketing strategy there must be aligned the plan.
Degree of legal Readiness: Degree of Legal Readiness: Prior to foreign expansion, it is important that Tony's Chocolonely meets legal requirements of Denmark. When legal processes are appropriate documentation is approved by government agencies, furthermore the industry specific rules, such as ensured compliance and needed required certifications, are obeyed the commercial risks will be minimized therefore gives legal right for the expansion (Evans, 2015).
Degree of Financial Readiness: As a foundation of every business finance is very important from many aspects. Therefore, being aware of the local taxations and banking systems is inevitable. Thus, being aware of the local situation and developing a budget business plan is highly affects the successful market entry of Tony's Chocolonely.
Usage of advertisement in significant events: This mediator variable is further explaining the relationship between the effective marketing strategy and the successful market entry. As it was stated in the used best practise Tony's Chocolonely can replicate Mars's marketing strategy considering the advertising of its products on the most significant sports events in Denmark. In order to do so, Tony's Chocolonely must align the marketing and sales plan in accordance with this method.
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