Parle Products | South American Expansion

Parle Products is a global manufacturer of biscuits and confectionaries. The company's

primary market is India where it enjoys a 40% share of the total biscuit market and a 15%
share of the total confectionary market. The purpose of this case is to determine which
region offers Parle the best opportunity for expansion, what export mode Parle should be
used to enter the region, and the issues involved with setting up a distribution network. For
further information about the company visit the Parle website.
Case Analysis by Ryan Castrichini, Jesse Kanclerz, Patrick Rotchford & Travis Sick (Fall 2006)

Which region of the world should Parle Products

penetrate as its first choice?
After evaluating various regions where Parle does not distribute its products the best
opportunity clearly is the South American market. Narrowing the region down to a specific
country, we believe that Parle should target Brazil. Our evaluation of the Latin American and
Brazilian biscuit markets' attractiveness is explained in the following:

Market Size & Growth Rates:

Within the Latin American Bakery products market (Appendix-1), processed foods accounted
for 33% of total baked goods, with biscuits representing 14% of the subtotal. The other 67%
is considered unpackaged/artisan bread. Brazil closely mirrors these figures, with artisan
products accounting for 66% of overall bakery product retail value sales. In addition, annual
per capita consumption of bakery products in Latin America was estimated to be 28.4kg
(67lb) in 2005. This is more than three times less than in European countries. However, Latin
Americans have other channels in which to buy baked goods (artisans), therefore the per
capita consumption figure is likely to be skewed low. Considering the above information,
there appears to be a large untapped biscuit market in Latin America. Furthermore, this
market is growing. For example, from 1994-1997, Biscuit consumption in Brazil grew by
42.6% (Appendix-2).

Competition:
With the exception of Nestle (5% Market Share with its Tostines & Sao Luiz brands), no other
competitors have a market share of more than 3%. Ranking behind Nestle are Parle’s other
major competitors within the market: Danone, Kraft Foods and Bauducco. A reason for the
industry's fragmented nature is the prevalence of artisan baked goods. However, Brazilians
in particular seem to be slowly accepting private labels therefore Parle must enter the
market in the near future before other competitors establish dominant brands.

Costs of Serving the Market:

The cost of serving the Latin American market, within which is the Brazilian target market
will be dependent upon the choice of market entry mode. This shall be discussed in greater
detail when answering the following question.

Market Access:
In the absence of secondary data, we could not precisely determine if informal relationships
between existing suppliers, distributors and customers in South America will represent a
barrier to its successful entry. Considering the fractured nature of the baked goods market
in the region it may be safe to assume that Parle’s competitors have not sufficiently built up
daunting supply systems. Furthermore, within India, Parle has proven that it can successfully
build a distribution network, and we believe this can be replicated in South America.

What kind of export mode would be most relevant for

Parle Products?
The psychic distance involved with exporting to the South American region from India may
influence the managers of Parle to choose an indirect export mode. We advise against this
natural inclination, because this will prevent Parle from building its brand in the region since
it will have no control over marketing the product. Secondly, paying an agent would be an
added cost on top of producing, and shipping the product. As a result the price position of
Parle’s products would be eroded, which would mean having to target other customers
rather than the low and mid-range segments. However, Parle should target the lower income
market in Brazil. The reason is due to Brazil unequal income distribution, with the poorest
50% of the population holding 14% of the country’s wealth, and the richest 1% holding 13%
of the country’s wealth.

Rather, we advocate a more direct investment within the region which will provide Parle with
a shorter distribution chain and greater control over the marketing of its products. First,
Parle should acquire a branch sales office in Sao Paulo because a majority of distributors
have their headquarters located within the city. This will provide closer contact with
distributors and establish Parle’s presence within the market. After screening potential
distributors (See Question Three) Parle will enter into three year contracts with those
distributors who best match its criteria. Using distributors will provide Parle with companies
that already have established contacts with retailers. Parle will also have more control over
the marketing mix – but not price and placement. Although price and placement could be
used as screening criteria when choosing a distributor.

Secondly, Parle should set up a manufacturing subsidiary within the region. We recommend
an acquisition because the fractured nature of the baked goods industry suggests that a
number of smaller underperforming companies could be purchased. Producing Parle G
within Brazil will eliminate the risk of currency fluctuations in addition to reducing the cost of
transporting the product to Brazilian distributors.

How could Parle Products conduct a systematic screening

of potential distributors or agents in foreign markets?
In order for Parle Products to conduct a systematic screening of potential distributors in the
foreign market of Brazil they will need to examine potential candidates firm’s knowledge of
the product and local markets, experience and expertise, their required margins, credit
ratings, customer care facilities and their ability to promote the exporter’s products in an
effective and attractive manner. In terms of finding a beneficial intermediary, Parle could
take some steps such as obtaining recommendations from institutions such as trade
associations, chambers of commerce and government trade departments as well as
advertising in suitable trade papers. This is just the first step in acquiring a distributor that
will allow Parle Products to enter the Brazilian market. Discovering a well known established
distributor will be ideal in this particular situation.

Criteria For Screening Potential Distributors:

• Number of retail chains that they service

• Types of retail in which they service

• Size of the firm

• Physical facilities: cleanliness and maintenance/standards and policies

• Willingness to carry inventory: proper apparatus to ensure the freshness of product

• Knowledge of product: well educated and informative of product (biscuit)

• Use of promotions: flexible and willing to work with promotions

• Reputation with other suppliers

• Record of sales performance

• Cost of operations: all costs up front and negotiated/no hidden fees

• Experience: have a solid record with clients and have worked with product (biscuits)

• Knowledge of Indian and English language

• Knowledge of business methods in manufacturer’s country

Along with these key components Parle Products would want to create a “wish profile” that
will allow them to establish what they are setting out to look for in a distributor and as they
are gathering data on potential choices they are able to view the selections and evaluate
them based upon their wish profile.

Following such guidelines will play a crucial role in eliminating weak options and exposing
the stronger more desirable choices that Parle Products will eventually consider conducting
business with. When they do finally select their distributor of choice it is very important that
a contract is set up and negotiated between the two parties.

What would be the most important issues for Parle

Products to discuss with a potential distributor/agent
before final preparation of the contract?
There are many issues that need to be dealt with before the finalization of Parle's contracts
with potential distributors in Brazil. First of all, there are general provisions that need to be
discussed. The identification of the parties to the contract is the first. Parle has 1,500
distributors servicing 425,000 retail outlets in India. We will look to find many distributors of
food stuffs, yet an example we will use is one particular company we found information on.
The parties for this contract would be Parle Products and a Brazilian Distributor called
Atacadao Distributors, who is the largest distributor of foodstuffs in Brazil.

Secondly, the duration of the contract would need to be discussed; since we are looking to
set up our own distributing company in Brazil, we feel three years would be the optimum
length for the first contract. Three years will give Parle the ability to become more
comfortable in the Brazilian market and assess whether it will be able to set up our own
distributing company in Brazil and be successful at it. The definition of the covered goods is
next. Parle G will be the best brand for the Brazilian market. This brand is known for its
quality and low price. This is significant because of the inequity that exists between the rich
and poor. Introducing the product which has the best mix between low price and high quality
will target the larger poorer demographic.

The next issue to be discussed is the territory covered. Due to the fact that Brazil accounts
for about half of the population of South America, our success in Brazil initially will dictate
whether we extend the scope of our imports to the entire South American continent.
Atacadao Distributors is the largest distributor of food stuffs in Brazil and already does
R$1.334 billion in sales. Atacadao has 16 other outlets around the country not including
their headquarters in Sao Paulo so they will be able to service a good portion of Brazilian
retail outlets.

After the general provisions, which are the bulk of the contract, there are obligations that
need to be addressed. Obligations of the manufacturer (Parle Products) would be conditions
of termination, delivery of goods, prices, and inventory requirements. Rights and obligations
of the distributor include payment arrangements, customs clearance and competitive lines.
Shared rights and obligations include the trade of valid information about product
(manufacturer) and information about advertising and promotion (distributor). The most
important and contentious issues out of the ones listed above are termination and
cancellation conditions as well as competitive lines being distributed already by the
distributor.