The Background  

In Japan, there is a renowned chain of stores with an iconic penguin-mascot that is a must-see for tourists, serving almost 300 million customers a year. The famous merchandise stores started with humble beginnings offering a collection of discarded goods and samples from companies on the verge of bankruptcy in 1978.

With insufficient resources to hire workers, founder Takao Yasuda spent long nights restocking shelves and took note of the high number of late night shoppers who mistakenly came into his shop thinking it was still open.

Yasuda opened the first 24-hour store Don Quijote (also known as Donki) in 1989. Don Quijote, pronounced ‘dawn kee-ho-tay’, operates with the rare concept of a compressed display in which items are displayed in clusters, causing aisles to feel like mazes.

Browsers can find anything under the sun, from toilet paper, snacks, sex toys to luxury cosmetic brands and pre-loved Rolex watches.

The point of the display is hard to find, hard to take and hard to buy,” — Takao Yasuda, founder of Don Quijote Co.

Mr. Takao Yasuda, standing in front of handwritten cardboard signs and stacked displays in one of his Don Quijote stores. Source: Reuters

Strange to think that any shop owner would want their items to be hard to find but Yasuda’s compressed display is actually a brilliant strategy that led the business to grow to 350 stores in Japan and the US, with annual consolidated sales topping $7.4 billion in Japan.

Shoppers seemed to have taken to the treasure-hunt mentality making the stores a popular destination for tourists visiting Japan.

Japanese retail is built on the concept of saving time. We want our customers to spend more time at our stores,” — says Yasuda

By adopting a unique retail strategy to become a consumer magnet, what could possibly go wrong with Japan’s largest discount store?

The Challenge

Japan has always been among the world’s most loved destinations for travel and culinary experiences but in 2014, the country fell to 22nd as the most-visited destinations. Due to language barriers, foreign tourists contributed to only 3.5% of revenues, generated in major cities like Tokyo and Osaka.


Being a business that relies heavily on revenue generated by tourists who spend on average more than 40,000 yen ($365) each visit, compared with local shoppers’ 2,400 yen, Don Quijote recognized the need to spur the country’s dwindling tourism or be less dependent on it.

But around this time, the Japanese government increased consumption tax from 5% to 8%, sending Japan’s economy into freefall at an annual pace of 6.8% from April to June in 2014.

Despite the decrease of household spending at a worse-than-expected rate of 4.7%, Don Quijote’s sales rose 2.3%.  

But Yasuda knew it wasn’t enough, the company needed to find another stable revenue stream.

The Strategy

The important thing is to create a framework that attracts visitors to Japan, and that requires cooperation that goes beyond one company or industry,” — Yasuda told Reuters

Don Quijote’s strategy to pack its stores with more shoppers was incentives for more spending. The company signed deals with countless hotels and travel agencies to distribute membership cards that offered 3% cash back at Don Quijote.

The largest discount store in Japan was also reportedly behind the Japanese government’s decision to exempt tax for visitors. Starting Oct 1, all Don Quijote stores allow non-residents to shop tax-free nationwide and even pack the goods to follow airline guidelines.  

With emerging technologies and advancements in digital marketing and logistics, it seemed there was no better time to launch ecommerce.

Don Qujote’s online shopping website.

Don Quijote’s online shopping website positioned itself as the number one source for authentic, popular products from Japan straight to your home.

“When it comes to capturing inbound visitors, Don Quijote is unrivaled,” said Ryota Himeno, retail analyst at Barclays.

Although no official sales records from Don Quijote’s ecommerce site were found, an analysis at Barrons predicted that Don Quijote’s “store is immune [to the arrival of Amazon] because its price points are below the minimum break-even points for most ecommerce sites.” 

But its success, whether from online or offline stores, boils down to Don Quijote’s strong marketing tactics. Not only did the company specifically chose prime tourist locations across Japan to open its stores, the discount chain has adopted its own mascot.

The blue penguin donning a red cap is paired with its very own theme song called “Miracle Shopping” that plays on repeat in stores, bringing the Don Quijote stores to life.

Don Quijote has become woven into people’s lifestyles. For them, spending time at one of our stores has become part of their lives.”

The Japanese brand’s ability to attract flocks of young people and tourists to its stores has gained the attention of other notable retailers such as FamilyMart Uny that will transfer a 40 percent equity sake in wholly owned subsidiary Uny Co., a general merchandiser from Inazawa, Aichi Prefecture, to Don Quijote.

The Future

In addition to turning some of FamilyMart Uny’s stores into Don Quijotes, the pair are in talks about developing a service similar to Alibaba’s Alipay, which currently over 4,000 Japanese vendors are accepting, including both Don Quijote and FamilyMart.

Earlier this year, the company announced its goal to reach operating profits of $537 million by 2020 – 20% higher than the current target.

In order to achieve this, the company also opened its first store in Southeast Asia in Singapore, a country-state Yasuda actually relocated to for retirement. Why did he choose Singapore as HQ for the region?

Singapore is a very important market for us. It is also a good base for us as people speak English here and it makes it easier for us to expand globally.”

Singaporeans queueing outside Don Quijote (debuted as ‘Don Don Donki’ in Singapore) before it was officially opened on December 1. Source: Straits Times

The 1,397 sqm double-storey building is also offering in partnership with Hokkaido Marche, a themed retail and dining experience. There are also plans to launch at least 10 more stores by 2022.

This is exactly what Yasuda wants – having customers staying in the stores longer.

Yasuda looks to capture the hearts of Thais next, where about 901,400 of Thais visit Japan every year, ranked as the 6th highest foreign visitors to Japan. In fact, Thais were among the top overseas customers of ‘Donki’, after the Koreans, Chinese and Taiwanese.

If Yasuda gets his way, there will be a piece of Japan everywhere in the world.

 

The Background

Name any Chinese bike-sharing company that you know of and chances are that ofo and Mobike are among your top choices. There is however, another bike-sharing company worth talking about.

Founded as early as November of last year, Bluegogo is a Tianjin-based bike-sharing firm and has quickly become the third largest company of its kind in China, following, of course, ofo and Mobike.

Similar to its competitors, the dockless bike-sharing brand is equipped with a GPS tracker and users book the bikes through the Bluegogo app.

Because the bikes are station-less, they are scattered random spots throughout the city. In the first half of 2017 alone, Bluegogo already has 70,000 bikes in three Chinese cities: 35,000 in Shenzhen, 25,000 bikes in Guangzhou, and 10,000 in Chengdu.

Source: Mashable

Bluegogo has drawn several investors to fund its business and was valued at $140 million after pocketing a Series A round of $21 million in November last year and $58 million earlier this year.

With two large funds raised within a single year, the company seemed to be performing well in China that it began looking into overseas expansion to leverage the hype surrounding the share economy. What could possibly go wrong?

The Challenge

Like other share-economy startups, think Uber, ofo, etc., Bluegogo needed to find a way to become profitable.

One way to prove its worth to investors is its ability to expand.

“Bluegogo, being a latecomer to the bike-share game, needs to be aggressive” – Mashable

Bluegogo has not only been aggressive in expansion at home but also reaching as far as the US. The Chinese company chose San Francisco, the second most bike-friendly city in the States as its first venture into North America.

In January this year, the company was the first smartphone-enabled bike-sharing platform to launch some 20,000 dockless bikes in San Francisco, USA.

However, Bluegogo’s American Dream was not smooth sailing. Instead of a warm welcome by SF city dwellers accustomed to miles of bike lanes and high quality cycling facilities, Bluegogo faced angry lawmakers.

The company having achieved rapid success in China, implemented the same strategy in the US by placing dockless bikes everywhere on the streets of San Francisco. The problem was that the city ended up with large, messy and unsightly piles of bikes.

Leftover bikes from bike-sharing firms such as Bluegogo pile up in China. Source: Mashable

San Francisco has historically been known for its welcome mat, but in recent years we’ve let ourselves become a doormat. It’s time to put the public’s interests first, even if that means disrupting the disruptors,” said Aaron Peskin, Supervisor of the San Francisco Board.

Peskin even called the bikes a “public nuisance,” and vowed to destroy or even sell the bikes if they clogged up city streets.

In Bluegogo’s defense,

There was a problem in communicating,” said Ilya Movshovich, BlueGoGo‘s North America VP of Operations. “The people we reached out to initially were not the people we needed to get to. We didn’t quickly enough communicate with the appropriate heads.”

Until even now, San Francisco has yet to approve Bluegogo’s presence and even imposed a new law to increase the penalty for Chinese bike-sharing companies planning to litter its city.

If expansion wasn’t success, monetization would have to come from deposits provided by Bluegogo’s claimed 20 million cumulative users. If only 10 million users paid a $14.96 deposit, it would mean the company has collected around $149 million in deposits, in addition to the $0.08 per half hour charge to ride.

So why was the company owing roughly $30 million in total outstanding payables to vendors, unpaid rent and overdue salaries?

Bluegogo’s empty Beijing office. Source: China Money Network

It also owed users $15 million worth of deposits as of November 2017.

To make things even worse, Bluegogo’s CEO Li Gang went missing early November 2017 and was later discovered to have fled the country. What was this once promising company going to do?

Li Gang, Bluegogo’s CEO. Source: Linkedin

The Strategy

In attempt to explain the disastrous situation, Li released an open apology letter. As cliché as it sounded, he blamed the company’s state on lack of financial support, claiming that Bluegogo was ‘on thin ice in the face of two well-funded players’, pointing fingers at ofo and Mobike backed by Tencent and Ant Financial, respectively.

The bike-sharing market is full of challenges, and my mind is too childish and naive to succeed in the sector.” – Li Gang

But there could be some light at the end of the tunnel. Li took the opportunity to announce a partnership with another small bike-sharing startup called Biker, who would be in charge of operating Bluegogo as usual under its management.  

The Future

The merger of small startups like Bluegogo and Biker is considered to be a typical one for competitive and costly markets. Li admitted that he will use the revenue generated from the partnership with Biker to pay off its debt.

Bike-sharing is an asset-heavy industry. As investors become increasingly cautious and reasonable about their bet, a timely merger or acquisition may be the only chance for second-tier players to survive,” – said Shi Rui, Analyst with consulting firm iResearch

Despite a promising partnership with Biker, there has been no word from the company itself to confirm the partnership.

The fall of Bluegogo has spurred the question, has the bike-share economy bubble finally burst?

There have already been three Chinese bike-sharing startups – Xiaoming Bike, Mingbike, and Coolqi – collapsing within a span of one year; the latter actually teaming up with Biker.

Even ofo and Mobike investors are said to be in talks for a possible merger to survive in China’s bike-sharing market, which was estimated to be worth $1.5 billion this year. Is the future of bike-sharing M&A and endless funds?

Without support from a wide range of investors and good financial planning capabilities, even the best bike product is powerless,” wrote Li Gang.

We beg to differ. A company that relies on solely on funding in the long run needs to rethink its business model. Good luck Bluegogo/Biker/Coolqi.

THE BACKGROUND

Every year towards the holiday season, millions of women (and men) around the world tune in to their televisions and laptops to watch “Angels” strut down a runway in elaborate and expensive lingerie side by side celebrities.

Victoria's Secret China

Victoria’s Secret Fashion Show 2017 in Shanghai. Photo Credit: W Magazine

Yes, it’s the annual and extremely famous Victoria’s Secret Fashion Show.

Started in 1995 as a way to market Victoria’s Secret as a highly coveted label, the show has become a spectacle that boasts: “the world’s best bras, the sexiest panties & lingerie, and the most beautiful Supermodels.

The brand has come a long way since its first store opening by Roy Raymond in 1977 in Palo Alto, adapting a boudoir style with dark wood, oriental rugs, and silk drapery – a foreign style concept in the age of bell-bottoms, maxi-dresses and bold monochrome colors.

And while in five years time, the company earned annual sales of more than $4 million in the US, something wasn’t working. Growth was stalling and bankruptcy was on the horizon.

Victoria's Secret China

The current store of Victoria’s Secret is designed to make women feel at home. Photo credit: Olarch

It was only until Leslie Wexner, founder of The Limited (now L Brands), stumbled upon the VS store and quickly saw what was wrong.

Victoria’s Secret didn’t appeal to women.

In Raymond’s quest to build a lingerie store where men felt comfortable, he had alienated his market demographic and so in 1982, Raymond sold Victoria’s Secret to Wexner for $1 million.

Under new leadership, Wexner immediately introduced floral patterns and colors to soften the once racy VS image to a more subtle and affordable look. It was envisioned as the “La Perla for the mass market”.

In the early 90s, Victoria’s Secret had become the largest American lingerie retailer with sales topping $1 billion a year.

“What I have thought about, and continue to think about, is that we are specialty merchants and our primary skill is knowing about women,” Wexner said.

The company had succeeded in popularizing and, more importantly, normalizing the idea of sensual lingerie as part of everyday wear, whereas before it was reserved for only special occasions such as honeymoons.

In 2013, the company recorded annual sales of $6.6 billion and was valued at $1.9 billion.

THE CHALLENGES

Now in the present day and 40 years after its birth, Victoria’s Secret is running into trouble with coming-of-age females that are choosing comfort over flash.  

Analyst from Guggenheim Securities shared that despite the brand’s continued domination in the US lingerie market, the biggest challenge for the business is its ability to continue generating fashion that resonates with new shoppers.

In the past, VS tried to grab more market share by expanding into categories like swimwear, athleisure, and apparel and although the categories generating some profits — they were not growing.

The brand was also getting backlash for not being inclusive to other body types in an age when championing plus-size models is applauded in the traditional fashion industry.

As Cora Harrington from Lingerie Addict said;

The sexy image it [Victoria’s Secret] cultivated for so long has grown stale because of the brand’s unwillingness to broaden how it defines beauty.

Victoria's Secret China

#ImNoAngel campaign to promote body inclusivity take dig at Victoria’s Secret

Victoria’s Secret has also been slow in international expansion and missing out on the opportunity to capitalize on the brand’s recognition on a global scale.

Stores outside of the US are operated by franchise partners and offer only an assortment of perfumes and lotions – very few offer Victoria’s Secret famous lingerie.

In its financial report released by L Brands earlier this year, Victoria’s Secret same-store sales have fallen 20% compared to a year ago. The number of stores is also down from 1,177 to 1,174 (including six openings and nine closures).

The report caused shares of parent company L Brands to plunge 16%, making it the worst performer in the S&P 500 Index. And in the last 12 months alone, shares have gone down by more than 40%.

“I wasn’t happy with the performance the last several years of Victoria’s Secret. I thought the brand had stalled out — in beauty, in lingerie and in the [online and catalog] channel. We had to make changes,” admitted Wexner.

With so much work to be done, could the Angels fly higher?

THE STRATEGY

In 2016, Victoria’s Secret shut down its swimsuit business and scaled down unrelated apparel items to cut costs and focus on its core products, lingerie and body fragrances. It also revamped its product line by launching a bralette collection last year to appeal to the younger generation.

“Why were we selling Uggs? Anybody can sell Uggs. No disrespect to Uggs. Nice product. But why are we selling Uggs? Does that really tie to the Victoria’s Secret brand?” said Stuart Burgdoerfer, CFO at L Brands.

Victoria's Secret China

The company also stopped producing the famous printed catalogue — saving them $150 million per year.

“We don’t think a catalog is a particularly compelling idea in the world of cellphones,” said Burgdoerfer.

No more catalogs meant Victoria’s Secret direct consumer channel is solely reliant on its ecommerce website that ships worldwide. In the recent years, online channel has become the driver of growth for the brand — 24% increase in sales in its October sales report.

Last year, the online channel contributed to over 21% of the company’s revenue.

Victoria's Secret China

Victoria’s Secret website is the answer for the brand’s international fans

The brand has also picked up the pace of its international expansion.

“We’ve been a patient second or slow third because we thought we would learn more,” said the founder, chairman, and CEO of L Brands, Leslie Wexner.  “We always asked ourselves: are you really building a sustainable international business?”

Like many other Western companies, Victoria’s Secret named China as the top destination for expansion, calling the country its most important market and predicted to bring in $1 billion in annual sales by 2021.

How is the company attempting to capture China?

For starters, the company has moved away from a franchise model in China in favor of company-owned stores by acquiring the stores from its franchise partner.

“It seems to me that we’re going to be doing most of the heavy-lifting anyway. It makes sense we should be in it completely,” says International President of L Brands Martin Waters.

Earlier this year, the company opened two flagship stores in Shanghai and Chengdu. The stores carry the full VS assortment including lingerie, Victoria’s Secret Sport, and Victoria’s Secret Pink.

The brand’s biggest show of commitment has been recording its annual fashion show to China — making Shanghai the first Asian city to host the famous Victoria’s Secret Fashion Show typically held in the US.

And while China has become Victoria’s Secret’s most recent muse, it hasn’t overlooked emerging markets and opened a full flagship store in Singapore November 2016.

Victoria's Secret China

Inside the Victoria’s Secret flagship store in Singapore. Photo: Victoria’s Secret

“Singapore is seen as an ideal test bed for brands looking to break into Southeast Asian markets, and is viewed as an important place to build brand awareness,” said Sarah Lim, Singapore Polytechnic’s senior retail lecturer. “They don’t just sell products, but strengthen their brand with fashion shows and experiential shopping.”

THE FUTURE

Despite the lackluster sales performance in 2017, there are early signs that the worst may be over for Victoria’s Secret.

L Brands stock has already seen a jump in the recent weeks as analysts report on the company’s turnaround efforts and despite competitors clamoring to grab the top spot, Victoria’s Secret still has commanding market share in the US.

If the company continues to play its cards right, Victoria’s Secret may have regained its wings to fly high again.

THE BACKGROUND

US-homegrown sportswear brand Under Armour was founded in 1996 by the former captain of University of Maryland’s football team, Kevin Plank, in his grandmother’s basement. Having first-hand experience with clothing unsuitable for sweaty sports led him on a path to find a better fabric.

The first T-shirt from the brand was made from moisture-wicking fabric, which contained fibers that drew sweat off the skin for faster evaporation. It was the perfect material to keep athletes cool and dry.

In the first year, the company generated $17,000 in revenues by selling it to college football teams.

Under Armour sales

Two years later, Under Armour signed its first league-level deal to become the official supplier for NFL Europe in 1998. Fast forward to 2005, after the company struck deals with media powerhouses like Warner Bros, ESPN, NBC, and organizations like NHL, MBL, and USA Basketball — it eventually went IPO and raised $157 million .

In 2010, the company’s annual sales topped $1 billion for the first time.

Confident with double digit growth in the last few years, Under Armour eyes an aggressive $10 billion valuation in 2020, up from the $4 billion valuation in 2016 but with recent headlines reporting the company’s decline in quarterly sales for the first time, is the goal feasible?

THE CHALLENGE

Under Armour underwent scrutiny after posting its Q3 2017 earnings report, revealing the company’s first quarterly sales decline (-5%) since going public in 2005. The news drove the company’s stocks down by more than 20%.

Under Armour sales

Under Armour’s growth has been going down after hitting its first $1 billion revenue in 2010. Source: Quartz

Citing the weakening sportswear market in North America, Under Armour is joined by Nike in the disappointing growth of this quarter. But is it really lacking consumer demand when competitor Adidas successfully grew its business in North America by 32% in the first half of 2017?

Under Armour CEO Kevin Plank admitted that the company celebrated fast growth too early.

“I think we probably were a little braggish,” said Plank.

“This is now about more than external factors; it demonstrates issues with the brand and its proposition,” wrote Neil Sanders, Managing Director of research firm GlobalData Retail.

Another analyst from the firm also mentioned that Under Armour “does not have the clarity or a sense purpose in the way that Lululemon or even Nike does.”

In the US, the company is mostly a wholesale brand and heavily dependent on its wholesale partners, which made up 65% of its 2016 revenue. Meanwhile, its direct-to-consumer (DTC) segment — a mix of the company’s offline and online footprint — only contribute 31% of the revenue.

So when the partners are getting disrupted by online and their retail stores are closing down , the company’s performance is also highly impacted — or to quote Quartz :

“It’s selling products that customers aren’t buying, at stores where they’re not shopping — and when they’re shopping, they don’t want to pay full price.”

THE STRATEGY

“Under Armour is not so broken that it cannot be fixed. But the days of glory, when it would post double-digits uplifts in sales, are over. Now is the time to work out, slim down, and become more competitive,” said Sanders.

To face the ‘ difficult environment ’ that the company will likely face into the next year, Under Armour needs to reduce its cost structure and restructure the business in a way that suits the pace of the company’s not so rapid growth anymore.

Plank declared 2017 to be a reset year for the company and announced it was going to cut 2% of its global workforce (roughly 280 job cuts), mostly at its HQ.

“After 6.5 years of more than 20% top-line growth that ended in the fourth quarter of last year, we are clearly operating in a different environment, particularly in our largest market (of) North America,” said Plank.

Not all is bleak for Under Armour. Although North America slumping its sales in the international market is exceeding expectations with 35% quarterly revenue growth to $350 million.

The company also plans to put more focus on its direct to consumer segment, especially ecommerce.

Under Armour’s direct-to-consumer sales, including ecommerce, grew 15% year-on-year while overall sales decreased 4%. – DigitalCommerce360

“We’re protecting and prioritizing international expansion, ecommerce development, footwear design development, areas like that while we continue to dig in deep and kind of right-size the cost structure,” said CFO David Bergman.

In Asia , the company saw 89% of sales growth in Q2 to $93.6 million, driven by customers from China, Taiwan, and Korea. The company’s interest in Southeast Asia has also increased . The company, through retailer Triple , plans to open 35 stores in total across the region including Vietnam, Brunei, Indonesia and Thailand.

“Establishing the retail network in rapidly growing markets such as Southeast Asia is regarded as the key element to leverage this brand marketing strategy,” said Toshi Sakurai, GM of consumer service Mitsui APAC (invested in Triple, the sole operator of Under Armour Asia).

Under Armour sales

Under Armour online stores in Southeast Asia are operated out of Singapore.

THE FUTURE

“As we look to close out 2017, we do not expect these conditions to improve. And although it’s too early for us to provide an outlook for fiscal 2018, our initial assumptions anticipate continued strength across our international and direct-to-consumer businesses,” said CEO Kevin Plank.

Double-digit growth again on its home turf might not be in the cards for the company anytime soon, but with a $231 billion global appetite for sportswear growing steadily, Under Armour only needs to play to its strength in the international arena.

THE BACKGROUND

Most people would agree that Hershey gives the best kind of kisses — the chocolate kind that is – but did you know the largest chocolate confectionery makers in the US started with a different kind of sweet before getting hooked on chocolate?

Hershey China Ecommerce

Vintage ads for the famous Hershey’s Kisses

Founder Milton Hershey was fascinated with candy ever since his apprenticeship with a candy maker as a teen in 1873. He decided to launch his own candy company and failed twice before discovering the right mix of caramel and fresh milk. In 1886, Lancaster Caramel Company was launched.

His love for chocolate didn’t start until 1893 when he saw a chocolate-making machine for the first time and bought it to make a chocolate coating for his caramels. After witnessing the intensifying demand for chocolate, Hilton sold his caramel business for $1 million to devote himself to chocolate.

The Hershey Chocolate Company was born in 1900.

“Caramels are just a fad, but chocolate is a permanent thing.” – Milton Hershey

The company found success by developing its own recipe for milk chocolate and making chocolate bars affordable to Americans that had never tasted chocolate before.

The iconic Hershey’s Kisses was launched in 1907, propelling the company to a record $5 million in annual sales by 1911.

Over the course of 127 years, Hershey has only grown bigger, adding popular brands to its portfolio including Reese’s, Kit-Kat, and Cadbury. The company leads the US market for chocolate with 44.1%, but how about the rest of the world?

THE CHALLENGE

Success in the US is a double-edged sword for Hershey as it pushed the rest of the world to the back of its mind for a long time. As the result, the company became a latecomer in grabbing the attention of the fastest growing chocolate market – emerging countries like China and India.

Hershey China Ecommerce

Hershey comes in at fifth place for top chocolate companies in the world. Source: Statista.

The company’s attempts to gain market share in China by acquiring Shanghai Golden Monkey (SGM) didn’t pay off due to issues with its distribution networks. It instead became a hindrance to the company’s growth and pushed them to cut down 15% of its global hourly workforce.

“They added thousands of employees and eventually SGM took down the company’s international business,” said David Mandel, a research analyst with Consumer Edge Research LLC. “I believe Hershey will now try to build its China business through an ecommerce approach.”

With the chocolate market in Asia Pacific expected to outgrow Europe and North America, can Hershey win the region?

THE STRATEGY

Merger and acquisition (M&A) has been the company’s not-so-secret secret to expansion, as admitted by CEO Michele Buck.

“I’m very open to mergers and acquisitions. I see them playing a key role in our growth agenda moving forward. We have an opportunity with M&As to go into spaces where our brands currently can’t travel. And that will be one way we grow,” says Buck.

But it’s careful with its decisions. Last year the company rejected a $23 billion takeover bid from Mondelez International that would have created the world’s largest confectioner.

Another channel the company has pursued to target developing markets such as China, the company turned to ecommerce.

To leverage the appeal of import products in China, Hershey launched a flagship store on Tmall in 2013 and opened another one on Tmall Global, Alibaba’s cross-border ecommerce platform.

Hershey China Ecommerce

Hershey’s store on Tmall Global.

“We found that when consumers search for confectionary online, “imported” is a frequently used search term. And when they search for chocolate, they are particularly interested in imports from US and Japan. We wanted to tap into consumer demand for premium, imported products, and an elevated consumer experience,” said Sylvia Fu, Hershey’s Ecommerce Director.

Hershey China Ecommerce

Sylvia Fu presents Hershey’s strategy at the Tmall Global launch. Source: Alizilla.

Selling on both e-marketplaces allowed Hershey to workaround regulation and trademark rights that limited the company to only selling products online that are also available offline.

“We have been able to win in-store even as ecommerce has accelerated. Right now, we’re focused on partnering with retailers and investing in capabilities to unlock growth for our brands online. I believe we are in a really good position to win in an omnichannel world,” said Hershey’s President Todd Tillemans.

THE FUTURE

Not only is the company looking outwards in terms of market expansion, the traditional chocolate company is also looking beyond its core product. CEO Michelle Buck has expressed the company’s vision to turn into an innovative snacking powerhouse.

“Consumers have lots of different snacking needs. Sometimes during the day they’re looking for a treat, and they know that confection is a treat. They see it for what it is. It’s certainly not a center of the plate category,” Buck said.

“I’m really focused on creating shareholder value, and for me that’s about driving our core brands,” she said. “It’s about making sure we bring great innovation to the marketplace because that’s what consumers are looking for.”

And with the company’s recent bid for Nestle’s confectionery business that is currently up for grab, Hershey might soon secure a sweet spot at the top.

THE BACKGROUND

Asia Pacific really likes their whisky.

The gold liquid makes up 40% of multinational alcoholic beverage company DIAGEO sales in Asia, compared to only 25% of its global sales. One of the brands that sit under the behemoth is Johnnie Walker, the world’s most widely distributed blended whiskies.

The immensely popular liquor started out life in 19th century Scotland when John “Johnnie” Walker began selling it from his grocery shop. It was his son, Alexander Walker, who took the elixir global with a simple distribution model.

Shippers would take the bottled whisky with them on their journeys around the world, sell them, take a commission and handover remaining profits to the firm. Over 100 years later, the brand sells over 120 million bottles across 200 countries in bars, restaurants, breweries and lounges.

Four bottles of Johnnie Walker are consumed every second” – Pittsburgh Post-Gazette 

So the question arises, if in today’s digital world, people can order clothing, groceries, razors and even pets online, why not alcohol?

Companies like Drizly, Saucey, Paneco, Wishbeer and yes, Johnnie Walker, are attempting to offer their own solutions to ensure that consumers can enjoy a drink at any time of the day, but not many have found lasting success.

The Challenge

After shutting down its luxury e-tail site “Alexander & James” after a short four year run, DIAGEO publicly acknowledged that it was struggling to find success in online direct-to-consumer, referring to it as,

A pot of gold at the end of the rainbow that you need to keep on chasing.”

The company recently lost its place to Kweichow Moutai as reigning liquor market leader in China as the Chinese taste shifted to premium brands, especially for gifts and elaborate events.

DIAGEO Online

Moutai’s market capitalisation reached $71.5 billion on the Shanghai exchange in April, while Diageo’s London capitalization is $71.1 billion. Source: FT and Bloomberg.

In light of the company’s closure of “A & J” earlier this year citing that “consumers don’t look for specialty shops online”, the company is shifting focus to sell its products on platforms like Amazon and Tesco.

A partnership with a mass marketplace is appealing for two reasons; (1) it already has a large audience and (2) enables the sale of DIAGEO products online.

“We can raise awareness, but if they can’t buy the products, it’s void. [The partnership with Amazon] gives us that complete circle – we can entertain and educate viewers with how-to guides, and then make it as easy as possible for them to make the purchase,” said Johanna Dalley, World Class Global Director at Diageo Reserve.

“It’s the perfect storm – we are creating content that inspires people to buy our brands, and we can directly look at conversion and click-through rates.”

But what happens when strict regulations in emerging markets like Thailand prohibit the use of photos or celebrities to promote the brand’s lifestyle?

THE STRATEGY

Big C, one of Thailand’s largest retailers, offers a range of beverages from beer to wine online but the website states it cannot display any photos/logos/names of alcohol due to the country’s Alcoholic Beverage Control Act.

DIAGEO Online

Big C product selection for liquor on its website. Thailand has banned the promotion of alcoholic beverages sales but many companies risk the fine.

On the other hand, Wine Connection and Wishbeer, both operate websites in Thailand that contain photos of wine bottles, craft beers and sales. The companies are risking the 150,000 – 200,000 THB ($6,040) in hopes of a stronger payout.

A fair assumption given a recent study found that approximately 30% of Thai people started to drink alcohol after seeing images of their favourite celebrities posed with drinks.

If DIAGEO is willing to risk the fine, which no reports indicate it has ever been enforced, it has a strong direct-to-consumer opportunity in Southeast Asia – especially Thailand, Singapore and the Philippines – because of the region’s growing online adoption and preference for spirits and beer.

DIAGEO Online

Source: Chartsbin

DIAGEO, in particular Johnnie Walker, has long been eyeing emerging markets. Brazil, Mexico, Thailand, and China are some of the brand’s top seven global markets.

How has the company approached selling in these markets?

In Diageo’s case, the company has created a four-part ecommerce strategy:

  1. Developing a strategy and getting its ‘house in order’ (internal restructuring, hiring, etc.)
  2. On-trade and off-trade strategy
  3. Activating ecommerce channels (strategic partnerships with pure players, delivery companies, etc.)
  4. Direct to consumer through individual brand websites

Anyone looking at DIAGEO’s key moves in the online space cannot say the company hasn’t tried.

In 2016, the company announced a partnership with Deliveroo to offer an ‘alcohol-on demand’ service called thebar.com in certain areas in the UK. It’s a similar and popular strategy like Wine Connection’s partnership with delivery company, honestbee, in Thailand.

DIAGEO Online

honestbee home delivery of Wine Connection products.

Charles Ireland, Diageo GM for Great Britain, Ireland and France, says DIAGEO is spending more money on digital platforms like Google, Facebook, Instagram and even dating app Tinder, than traditional media for the first time. The goal is to use videos and other forms of content to educate and raise awareness.

“There is a shift towards content marketing within Diageo more broadly. In terms of monetisation, we will see more partnerships with Amazon from a commercial perspective. Other retailers are content hungry too, and are looking for content for their websites. [We will] provide them with content if it helps people click through to purchase,” said Dalley.

THE FUTURE

In Asia, the demand for alcohol is not the problem when beer sales consistently outpace GDP growth like in Vietnam since 2009. The biggest challenge is lack of awareness and oscillating regulations.

“In terms of direct to consumer [selling], I think there are consumer goods companies that are doing it quite successfully, but we haven’t quite hit a successful formula yet and we’re continually working on it,” says Charles.

Keep walking Johnnie, you’ll get there.