Carvel Ice Cream

Developing the Beijing Market

Group - II

Introduction
Started in 1934 by Thomas Carvel
Founded - Carvel corporation (Carvel) in Hartsdale, New York. He converted his mobile ice cream truck into a permanent roadside location. Originally, the company served only soft ice cream cones and milkshakes before developing other products, such as ice cream cakes. In 1998 Carvel owned and operated over 300 retail stores in the U.S. Canada, Puerto Rico and China and had granted franchise rights to over 600 others. It had also established over 4500 wholesale accounts throughout the U.S. These outlets were mainly in supermarkets, although some interstate highway restaurants and high end hotel locations had recently been developed. The Companys system wide sales for 1997 exceeded U.S. $600 million. Products: Fountain ice cream, 2) Ice cream novelties and ice cream cakes.

Carvel In China

Carvel established Carvel Asia Limited in 1994 to act as holding company for the ice cream makers operational investments in Asia starting in Beijing.
To this end, Carvel Asia limited teamed up with Chinas Ministry of Agriculture to create Beijing Carvel Food Company ltd. (Beijing Carvel), - J.V equally owned by both parties. By 1998 Beijing Carvel had established 10 retail stores and 150 wholesale accounts. In 1997 Sales exceeded US $ 725,000 forecast to break even within the next year.

Revenue 45% from ice cream cakes and 55% from fountain ice cream and novelty sales.
In US generated 60% from cakes and 30% from fountain prod and 10%from novelty items.

Beijing Carvels cakes were purchased most often birthdays, office parties, holidays and Festivals.
The Company had experienced losses every year since its inception; however financial performance had steadily improved.

The Beijing Market

Steven Wang - Business development manager - joined Carvel Asia Limited in Sep 1997. He moved from head office to Beijing with a priority mandate to increase Beijing Carvel's sales. Beijing ice cream market consisted of Standard and Premium based on price and quality. 98% of ice cream products consumed were manufactures by low-cost producers who offered std. quality products at low prices. Retail prices for these items usually fell between 1.5 & 7 Rmb. Baskin Robbins one of the Carvels strongest competitors in the US opened its first store in 1992. Three customer segments: middle & upper class Chinese professionals, an emerging generation little emperors and expatriate residents. 70% of cake sales from upper income working professionals. Comprises male and female Chinese, aged 25 to 45 who are seeking novel products and experiences.

Key points
Lack of information no official consumption data numbers for ice cream exist. Wang relied on his own observation, feedback from Beijing Carvel customer and Sales staff, information from business magazine and public reports to help him make his decisions. Citys overall economic growth rate for 1998-99 & 1999-2000 was 8 % - inflation expected to be 1.4%.

Chinas consumption of dairy products was among the lowest in the world.
Chinese health care professionals had advertising much greater consumption of dairy products in order to achieve improved health.

Over the previous decade, overall dairy product consumption had tripled in China & that ice cream was the most popular dairy product consumed.

Key points
Carvel has a very limited (165000Rmb) advertising budget for the year. Radio and Television advertising are ruled out by the low budget. Several segments of the Beijing population are potentially promising to Carvel. The three most attractive segments are (1) middle and upper class Chinese professionals, (2) "little emperors" (children), and (3) expatriate residents. Costs of Carvel products could be reduced by 5% by whipping more air into the ice cream (over run), but this might compromise Carvel's image for quality products.

Wang is considering introducing a new product, the "Piece of Cake" (a small, single slice of ice cream cake) to provide an inexpensive introduction to Carvel's cakes to Chinese consumers.
Carvel's products are available in Carvel retail stores (4 full-service and 6 scaleddown outlets), high-end supermarkets (25 accounts), local supermarkets (25 accounts), bakeries (40 accounts), and restaurants and bars (60 accounts).

Task
The manager of business development for Carvel Asia Limited was trying to determine how best to increase ice cream cake sales in Beijing. Issues: Not meeting the companys expectations for ice cream cake sales. Carvel would like to work to increase their brand awareness. Decision: What consumer to target ? What products to focus on ?

What prices to charge for those products ?

What points of distribution would best increase cake sales ? How to support these sales through various print media options ?

Analysis
In doing so, he needs to develop a complete marketing program which includes: Internal Analysis External Analysis Decisions about 4 Ps. Product offerings, Pricing, Placement (distribution) and Promotion Carvel Asia was a 50-50 joint venture between Carvel (USA) and China's Ministry of Agriculture.

Internal Analysis
Strengths:
Stores are self-sufficient, decreasing transport costs. Successful company in the North American market, so the expatriates living in Beijing will recognize the product as a familiarity from home. Less effort needed to be done to adapt a western-style marketing program unique offerings of ice cream cakes in different shapes/designs

Weaknesses: Smaller advertising budget. lack of brand awareness Insufficient market data available to start. Entering a market in which translations must be done to all internal data. (i.e.. Computer systems, menu, etc.)

Internal Analysis
Opportunities:
Partnership with Chinas Ministry of Agriculture. Market the product as a premium brand to differentiate and enter an untapped market in Beijing

70% of cake sales are from middle-upper class consumers. Carvel needs to capitalize on this and provide the entire experience that this group wants.
Freezer loan programs can be beneficial if Carvel carries it out properly by placing representatives in the stores more often and making sure their freezers are stocked and running.

Threats:
Lack of acceptance due to different cultural norms. Competition from other established Ice Cream companies, both local and American, that are cheaper Blind taste tests showed that many Chinese consumers still prefer the low-end variety of ice cream rather than premium varieties.

External Analysis
Political: 1.5 billion Little Emperors between 5 and 12 in Beijing who are getting everything they ask for after one child policy was imposed in 1979. Chinas consumption of dairy products is on the rise, with ice cream being the leading dairy product consumed after healthcare professionals encouraged this practice. Chinas government may have laws regarding targeting products towards children, so Carvel would have to make sure they are abiding by all laws. Economical: China has seen a 75% increase in average annual base incomes in the last three years, bringing about the possibility of middle-upper income workers spending more on luxuries like ice cream. Carvel is dealing with consumers who have a smaller disposable income than what the company is used to in the North American market.

External Analysis
Social: Most Beijing consumers are not accustomed to buying dairy products like ice cream, leaving an opportunity for Carvel to enter the market. Beijing produces 30+ newspapers who are reaching hundreds of thousands of people. Beijing consumers are known to be cautious about buying new products that they are not used to, due to the purchase risk involved.

Technological:
The ice cream industry is not influenced by technology. Any advances in technology that will benefit companies will be used industry wide not giving any advantages to a particular firm.

Consumer Segmentation Analysis

Markets Expatriates Children Number of People 100 000 1.5 million What do they want? Geographical

Familiar products of Very concentrated their home country in specific areas Children are open to anything as long as it appeals to them High quality products Spread out across different areas of the city Spread out but also living in wealthier areas

Middle Upper Class Professionals

1.5 2.3 million

4 Ps of Marketing
Price: Carvel should mainly keep their prices on par with its competitors like HaagenDazs and Baskin Robbins.

Decreasing prices to attempt to increase sales will sacrifice Carvels quality imagine.
Product: Carvel should introduce Little Loves and Piece of Cake at a small cost to introduce consumers to their product and develop a loyal market that wants to keep going back. The company can scale back their menu and concentrate on only a few menu items that are performing well in the Beijing market.

4 Ps of Marketing
Place:
Carvel may consider closing 3 or 4 of their current locations and focus more closely on generating revenue in the remaining locations.

They should conduct research before closing or opening any new stores and look into what locations were most successful and what ones were not performing as well.
Carvel should attempt to open a location in the same popular shopping district that Haagen-Dazs and Baskin Robbins have already set up.

4 Ps of Marketing
Promotion: Since radio and television are not viable ways of advertising, Carvel should take advantage of the 30+ daily and weekly newspapers. Carvel could afford to produce the advertising leaflet within budget. This could be distributed by their uniformed employees in popular shopping areas of the city and possibly be places in high end restaurants for customers to take home. They can also afford to participate in the entertainment coupon book that would reach 10 000 upper income members each year. Even if Wang could not capitalize on knowing the publications manager and purchase a placement for 2500 Rmb., Carvel could still afford the 4000 Rmb. placement.

Suggestions
Target consumers:
Heavily market product toward youth aged 5-12 by reaching them through schools, parks, childrens activities etc. because 20% of Chinas population is under the age of 15. Since there are 1.5 million children in China, we think Carvel could reach between 10% and 25% of that population. With 10% of them buying 2 cakes a year, at an average cake cost of 110 Rmb.

Suggestions
Formulation of pricing and product policies: Wang needs to carefully consider the position of Carvel's products vis a vis Baskin-Robbins and Haagen-Dazs products. This is key, developing appropriate product and pricing policies. Also, Wang needs to consider longer term implications of product and pricing decisions. If Carvel is committed to the Chinese market (as it seems to be) the product and pricing decisions Mr. Wang makes need to build for the future and not simply maximize current year sales.

Suggestions
Sales target to Beijing's expatriate community (Short-term):
Begin our marking process in Beijing with a short-term focus on the expatriates. There are not many of them in comparison to the two other markets we could target, which suits our current marketing budget. They will recognize the brand and we will have easier sales. In the future we could expand to reach other markets. If Carvel were able to reach 20% of this market, with each of these people buying two cakes a year at 110 Rmb. they could have reached targeted revenue.

Suggestions
Sales target to Beijing's expatriate community (Long-term):
Given the small percentage of expatriates as part of Beijing's overall population, allocating too much of the limited advertising budget to target such a small group may be short-sighted.

Furthermore, there would be little or no spillover from advertising to expatriates into the rest of the Beijing population.
In the long run, it probably makes sense to build product awareness among the Chinese population of Beijing.

Suggestions
Retail outlets and Distribution of its products in Beijing:

All retail stores should carry a complete (or very wide) range of Carvel's products.
High-end supermarkets tend to concentrate on the expatriate market and probably would not need to carry products (such as Piece of Cake) geared to other market segments. Bars and restaurants may be the most suited for the smallest sized product offerings (Piece of Cake and Little Love), since they will tend to be consumed on the spot. Carvels marketing at middle-upper class working professionals age 25-45 by opening stores only in high-end locations (ie. restaurants) to build exclusivity. With 1.9 million people in this market, we think Carvel could reach between 5% and 15% of their population. Apart from other distribution decisions made, Carvel needs to restructure the way its representatives are compensated for signing on new accounts.

Suggestions
Limited advertisement budget: The Shopper's Guide, leaflet, and Entertainment Guide all could help boost Carvel's sales.

Since each option reaches a different target market, Mr. Wang may find it necessary to spread his spending across the alternatives.
The message should be specifically tailored to each communication medium.

Spending should reflect which segments Mr. Wang feels are the most important to Carvel's long-term profitability in Beijing/China.
Any suggestions should be very low cost.

Discussions