In 2001, chocolate production (without semi-finished products) in Germany reached to 730,000 tons, of which 50,000 tons were exported. Sales volume of German chocolate market was the biggest in the Europe (EUR 3.4 billion). Approximately 100 producers existed in the chocolate industry. 35% of the market was served by the 2 biggest players: Ferrero (from Italy) and Kraft Foods (from the USA). Both of them marketed multiple brands of chocolate and were producing mainly for mass market. There also existed many family-owned small confectioners. They were specialised in fine chocolates and exquisite pralines.
Lindt & Sprüngli, a medium-sized company, hold the 3rd position in the German chocolate market. The company served only premium segment.
Market could be segmented by the type of chocolate used in the production: dark chocolate, white chocolate or whole milk chocolate. But the most common way was to distinguish the market by the product type: chocolate tablets, pralines, seasonal products, chocolate bars, chocolate surprise products and chocolate snacks. Lindt & Sprüngli products comprised only the first 3 types: chocolate tablets, pralines, seasonal products.
The following main distribution channels could be identified:
- Specialty stores – carried high quality chocolate, provided good service to customers, enabled confectioners to receive direct feedback from consumers and to run promotions at the point of sale.
- General retailers – consist of food retailers and discount stores. This channel distributes products for mass market. Discount stores are classified as hard (focusing only on price) and soft stores. General retailers provided low or no service for the customers.
- Proprietary shops or praline boutiques – usually owned by small family-owned confectioners. This channel allowed the manufacturer to be very close to end-customer and evaluate their feedback. Flagship stores, also qualified as proprietary shops, were used mainly to promote brand image.
- Convineince stores – focused mainly on impulse purchases.
- Online shops – were only marginaly important in Germany.
- Factory outlets – were used to sell the overproduction or second choice products.
Specialty stores were the core distribution channel for the Lindt & Sprüngli. But discount stores were putting high pressure on Specialty store. In 2000 discount store sales increased by approximately 40% compared to 1992, and Lindt’s sales in specialty stores dropped by around 14% compared to 1992 (though moderate increase from 1997). Since 1997 Lindt & Sprüngli also used food retailers and soft discounters as additional distribution channel. Their step was made with caution and didn’t take full advantage of segment growth, though raised high disapproval of specialty stores.
Lindt & Sprüngli has different strategic alternatives.
- Company can choose exclusive intensity for distribution: totally quit the mass market and sell only through specialty stores. (Michael R. Solomon, 2009) In this case, Lindt’s brand image would increase, appropriate service would be provided, control on the distribution channel would increase, emotional connection with the customer would be established, close feedback sales in specialty stores would be monitored and specialty stores will be satisfied with decision. The negative effects are – decreased revenue (mass market is a big market), increased bargaining power of specialty stores. (Grant, 2010)
- Intensive distribution largely focusing on mass market is another option (while distribution through specialty stores is sustained). For implementing this strategy the company should largely use food retailers and soft discounter. This will probably increase the sales, and lower specialty stores’ bargaining power. In this case Lindt & Sprüngli could decrease its expenditure on R&D. The negative effects of this option are lower brand image, little or no control on the quality of service, little or no feedback from consumer, vertical channel conflict (high competition will lead to lower margins) dissatisfaction of specialty stores. Use of hard discounter would have destructive negative affect on brand image. (Spekman, 2009)
- Flagship stores could be used to increase brand image and brand identity. This would also decrease bargaining power of specialty stores and could bring dissatisfaction of the latter. 4. Factory outlets could be used to sell the overproduction at low price. The overproduction of high priced products shouldn’t be sold here. 5. For using convenience stores Lindt have to develop new products like snacks. Use of this option will negatively affect the brand image. 6. Online shops could be used for premium products. Especially for the seasonal products, it could be used to arrange a delivery as a gift.
Given to increase the sales and to sustain the company’s philosophy of providing high quality chocolate, the best solution for Lindt & Sprüngli could be the use of multi-channel distribution. Company can split into 2 different brand names: Lindt Luxury (for example) and Lindt. The first would be for high quality premium products with rigorous selected ingredients, and the second would serve mass market. This strategy only partly would harm brand image, but would increase the market share and revenues. Specialty stores would be only partly dissatisfied, as their products would differ from those of retailers and discounters. Online shops could be used additionally.
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