Chocolates El Rey, a medium sized Venezuelan chocolate company, produces top-quality chocolate made with single-origin Venezuelan cocoa beans. Jorge Redmond, the CEO of Chocolates El Rey, called a meeting with senior management in late November 2006 to discuss the company’s growth strategy. El Rey can accomplish this task through many ways; growing the United States industrial market using its own brand name, relocating their plants to low-income countries, or to scale up the retail segment in the United States by using multi-origin cocoa bean chocolate.
Each of these viable alternatives to expand El Rey have positive and negative side effects. El Rey has come a long way since its founding in 1929; yet, the company has to address limiting factors in order to become recognized worldwide. Chocolates El Rey is a Venezuelan Multi-Latina corporation that manufactures, transports, and sells chocolates and other baking goods. Jose Rafael Zozaya and his father-in-law Carmelo Tuozzo both started the company in 1929 under the original name Tuozzo Zozaya and Company.
A product line that started with only chocolate bars for hot cocoa in the food services sector has expanded many types of cocoa powders, chocolate bars, drops, and discs. The modernity of the company came when Jorge Redmond joined the company as a partner in 1973 and then bought out both Zozaya and Tuozzo in 1976. Redmond is responsible for the growth of Chocolates El Rey with the principal vision to “build a world-renowned business spanning cocoa production to the marketing of chocolate. Redmond’s vision can be attributed as the reason that El Rey branched out of their singular segment of food services into retail, industrial, and beverage markets. Growth in all segments was paired with increased profits until 2001 when the company was faced with sizable debt due to a lack of capital investments and machinery constraints. The following three years had results marginally above the break-even but were followed by three years of substantial recorded profits.
In an effort to continue the trend, the board of directors of Chocolates El Rey demanded growth and Redmond was faced with the task of deciding where to allocate new resources. El Rey has developed the lion’s share of both the Venezuelan domestic food services market and the industrial segment with 70 and 75 percent of the market respectively. In smaller beverage segments, Chocolates El Rey is ranked second in the domestic market. When analyzing the retail market in Venezuela, of the $45. 3 million in sales, Nestle holds the majority of the market share at 65% while El Rey only has 2. 5%.
The small market share can be partially attributed to the view of El Rey products as a luxury good, making them sensitive to the sporadic income of Venezuelan consumers. The cost of production of El Rey’s products is primarily attributed to the strict use of single-origin beans. The high product cost confines El Rey’s growth and entry into other markets. The company is facing many different problems limiting their growth, El Rey’s main objective. Being that they are a small company, they will benefit from expansion. El Rey is a company that has seen success with limited resources and money to expand.
Given new ideas and opportunities, El Rey can maximize on the marketing strategy to expand its product line into the United States. In order to achieve this, El Rey needs to market their brand to different target segments and international markets. El Rey is a single origin company leaving them with scarce resources and little space to begin expansion. Venezuela also suffers from a limited supply of cocoa beans, which continues to inhibit the company’s ability to grow. At the end of the 1990s El Rey’s growth plan was to venture into the production of cocoa at an experimental hacienda called San Joaquin.
This project was started as research devoted to finding ways to accelerate the cocoa production process. Unfortunately, San Joaquin was invaded by pisatarios, revolutionaries supporting President Chavez; El Rey lost their crops and investment in San Joaquin. After this, El Rey decided to stay out of the production of cocoa beans and focus on the production of chocolate. This began the reign of President Chavez in which he limited foreign direct investment in Venezuela and limited Multi-Latinas from becoming multinationals.
Policies changed constantly, and El Rey’s management was worried that attitudes towards producers of luxury goods could worsen as President Chavez’s policies become more radical. El Rey must devise a new strategy to change their target market and avoid conflict with Chavez. El Rey is currently targeting their chocolate towards a specific niche, one of wealth and economic stability. The company cannot grow if they focus on this specific niche by using high quality cocoa beans. Due to Venezuela’s limited supply, El Rey will never have enough resources to expand by selling single-origin chocolate.
El Rey lacks sufficient marketing and advertising. Making a successful marketing team is important to expand and pursue entry into international markets. Right now El Rey’s marketing team is non-existent; they rely on word-of-mouth advertising to sell their products. Although successful in Venezuela, El Rey will not be able to meet Redmond’s expectations for growth using this technique. El Rey clearly has many problems that can be fixed, leaving them with many options for growth and expansion in order to succeed. One of the best growth options El Rey has is to develop their market segment in the United States.
This can be accomplished by creating more competitive priced products through using cheaper raw materials, such as lower quality beans or multi-origin beans. This would make it easier for El Rey to expand and also help to solve the problem of using the limited resources of Venezuela. El Rey also needs to create a marketing department, which will help them set up and develop an effective marketing strategy. A major chocolate competitor of El Rey, Nestle has allocated resources through marketing their products to increase consumer awareness.
El Rey is currently in the premium chocolate market, which is a limited market in terms of consumption. In the United States chocolate is consumed by 78% of the population, with only 14% of the consumption being premium chocolates. They should target their marketing plan towards the majority of chocolate consumers, non-premium chocolates in the Unites States. Senior management must decide how to implement these means in order to become a competitive retailer in the United States chocolate market.
Many alternatives can be chosen to limit the problems El Rey has encountered to fortify Redmond’s vision, “to build a world-renowned business spanning cocoa production to the marketing of chocolate. ” Some alternatives for expansion can be accomplished by creating a greater focus on the food service sector in Venezuela, followed by expanding into other Latin American countries, and ultimately the United States. El Rey controls 70% of the food services market in Venezuela; this success shows that they know how to sell their products to large distributors. Using this successful strategy, El Rey could enter into ther Latin American and United States food service markets. Another alternative possible for El Rey would be to expand into countries with a lower cost of labor rate, such as China or India, to produce their goods. The less expensive labor and cost of materials will allow a greater profit margin for the company. The extra money can be used to introduce new product lines, create advertising, and boost other sectors of El Rey’s company harboring growth. El Rey can also expand into United States through their in retail segment by expanding its marketing strategy and lowering its raw materials price.
The senior management of El Rey will need to re-envision its strategy and services in order to maximize growth. Senior management needs to choose to move along with expanding El Rey into the United States through the retail sector. The benefits of this choice outweigh the other alternatives. The first alternative of having a greater focus on the food services market in Venezuela; this is a valid approach to expanding the company because El Rey has the capacity to increase production in their current lines.
However, this will not be the best alternative for El Rey considering they control 70% of the food services market in Venezuela leaving reduced room for growth. Expanding into international food service markets will take time to build relationships with new distributors, as the company has experienced in Venezuela. This does not fulfill Redmond’s demands as it could take months or years for El Rey to start seeing gains in growth and expansion. The second alternative of expanding plants into countries with lower labor rates would minimize costs to El Rey in the form of salary and wages.
Countries such as China and India have little to no production of chocolate; this has both positive and negative impacts on El Rey’s option to set up new plants. Minimal competition is a positive sign for any company entering new markets. Consequently, El Rey will not be able to compare other company’s successes and failures to their plans. In countries such as China, government has strict laws and regulations for entry of outside companies. Nestle is gaining market share around the world daily creating time constraints for El Rey.
Although many benefits would come from this expansion, they are not as great as other alternatives. Expansion of the retail market of El Rey will be most beneficial to the company as a whole. Exports to the United States will focus during the holidays when chocolate is most consumed; Easter, Christmas, and Valentine’s Day. Once the retail market grows in the United States, El Rey will be able to use their profits to further expand their company’s other three sectors. In order to maximize profits, the senior management in El Rey will need to create a marketing strategy.
El Rey will need to create a second product line consisting of multi-origin cocoa bean chocolate. They will sell them both as countlines, which are chocolate bars and straightlines, which are small identical chocolates eaten as a snack. These are the top two most consumed chocolates in the United States. El Rey’s exports will be centralized in the United States around the Mexican border as well as into major coastal cities with ports, such as New York and Los Angeles. This focus will minimize the transportation costs and result in maximum exposure.
These areas are most likely to have a diverse population where consumers might be familiar with the El Rey brand. El Rey will be able to target the mass market by selling in supermarkets, drugstores, specialty shops and convenience stores. If Redmond’s expectations are met for the growth of the company, Chocolates El Rey stores can be opened in major cities in the United States within the first five years. The price will be comparable with that of Nestle and Hershey’s chocolates because the multi-origin beans will reduce the cost of production.
Since El Rey lacks the money to heavily advertise their brand, they will only advertise during the top three holidays in the United States. This is the best alternative because statistics show in 2001 that chocolate sales in the United States totaling $13. 1 billion compared to non-chocolate candy sales of $7. 6 billion. This market is growing and expanding each year, creating an opportunity for Redmond and El Rey to make their vision a reality.
Although it is a bold move for El Rey to veer off the idea that they were founded on in 1929, single-origin cocoa beans, this alteration must be implemented in order to expand the company. The move from single-origin cocoa beans to multi-origin beans may have a negative brand image impact on the company in areas such as Venezuela, as El Rey’s current consumers are focused on quality. Due to their limited availability and premium prices, the flavor grade beans from Venezuela are going to be used in small percentages and for sale in Venezuela and high-end shops in the United States.
The secondary line of retail chocolates El Rey produces will only be for sale in the United States, along with their production and sales of premium chocolates in Venezuela. In order for El Rey to create a “world-renowned business spanning cocoa production to the marketing of the chocolate,” they must create a secondary line to appeal to a bigger market of consumers. Redmond’s leadership has of Chocolates El Rey has brought the company to the level of success it resides at today, however these new ideas will be necessary to revolutionize the company and to induce the demanded growth.
