by Professor Jin K. Han, Dr Sheetal Mittal and Havovi Joshi of SMU and Professor Yong Seok Sohn of Kyung Hee University | 8th March, 2018
The results had been announced, and Kyung-Il-Lee, global business head of the SPC Group —with Paris Baguette as one of its major brands, was delighted! Paris Baguette had just been declared the winner at the Coupe du Monde de Boulangerie, touted as the most prestigious baking competition in the world held each year in Paris. It certainly didn’t get bigger than this—the ‘French inspired’ Korean franchise bakery chain, subsidiary of the SPC group, had taken on its toughest challenge by entering the French market in early 2014, and now, just two years later, its baguettes had been officially declared as the best in the world. The bakery chain had proved that it could compete against a host of truly French boulangeries to win favour with the locals, the world’s most discerning consumers of a baguette.
Paris Baguette had started operations in 1945 with a small bakery in North Korea. From those modest beginnings, the chain had grown steadily, and by 2014, it boasted of more than 3200 outlets in South Korea and another 200 plus outlets across China, USA and Southeast Asia to become a truly global premium bakery brand.
Buoyed by its international appeal, the company felt ready to enter France, opening its first store in 2014 and the second store in 2015. Positioned as a ‘premium health conscious brand’, Paris Baguette quickly found resonance with the French by diligently following traditional baking standards and suitably localising the menu. Additionally, its café style service and innovative product mix that included international flavours helped differentiate it from other brands.
The stores in Paris were doing exceedingly well, and winning the competition was clearly a boost to Paris Baguette’s endeavours, paving the way for further expansion into France as well as other European markets. This was significant given that the Korean domestic market was saturated with intense competition and also heavily regulated against corporate bakeries, so future growth would in all likelihood only come from the international operations.
The question now was to decide the appropriate strategy for the bakery brand when entering other European markets. Which country or countries should it go to after France? Also, should it leverage on Paris Baguette’s French success by emphasising on the selling proposition of ‘French-ness’, or should it find a staple bread specific to each European country and replicate the strategy followed in France?
What would be the appropriate market expansion strategy for Paris Baguette to pursue going forward?
A company has potentially two key routes to follow for growth opportunities: deeper penetration of its existing markets or/and new market development. With expansion in the Korean market not being a viable option, Paris Baguette focused on international markets that offered high growth rate for the bakery and cereal industry, and were culturally more inclined towards consuming bread such as China, US, Vietnam, Singapore and France.
The focal point of PB’s global strategy across all markets has been to upscale, differentiate and localise. It positions itself as a premium brand, targeting upper class consumers. However, while the brand is an undisputed leader in the domestic market, the going has not been easy for PB in the international markets.
For further market expansion, the choice of the market, and the consumer value depends upon the business model PB plans to pursue. If the company wants to leverage its integrated supply chain model, then it would be prudent to consider regions such as Asia, where European-style food is considered both novel and aspirational. This would allow PB to take advantage of its core competencies of centralised production, proprietary dough and standardised baking process in providing high quality and wide variety while keeping the costs low. On the other hand, PB enjoys a strong first mover advantage in Europe. Other than high quality and taste, the bakery is much appreciated for its innovative Asian-inspired menu by the French, a strong value proposition to offer to other European countries as well. Moreover, by being the first Asian bakery brand to do so, others despite offering a similar value proposition may find it difficult to compete against PB. However, expansion into Europe may warrant PB to pursue the business model that it adopted in the French market whereby the wheat was sourced and processed in France only, instead of South Korea.
The two routes to international expansion are significantly different from each other. While the Asian route has many advantages being more cost efficient (integrated supply chain model), and culturally similar to PB’s existing markets, it is also a more competitive landscape given the presence of other Asian bakery brands vying for similar brand positioning as PB. The Europe route, on the other hand, while offers the opportunity to position PB uniquely, would require significantly higher supply chain and marketing costs.
One of the key learnings that the case highlights is that however effective a business model may be, it is not extendable beyond a point. It is important to understand the limitations of any approach, which may be in terms of geographical expansion, financial sustainability, suitability to the consumer market in question, or availability of critical resources among many others.
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