A proposal of Jamba Inc. to enter the

Kingdom of Saudi Arabia to market

Jamba Juice

Kathrin Auzinger-Hotzel

Auzinger-Hotzel, Aguirre, Akintade

Prepared for

Dr. Dennis J. WaldropManaging Overseas Operations

IMAN670Spring 2011

Proposal

Jamba Juice goals:• Advance internationally and expand market share• Generate additional cash flow and profits • Accelerate growth and transform company

Proposal: expand operations into the Kingdom of Saudi Arabia taking advantage of favorable trends and developments in the market • Market entry strategy: franchising• Master franchisee: Americana Group

Company Overview

Founded by Kirk Perron in 1990 Owned and franchised by Jamba Inc. Over 740 Jamba Juice stores: 351 corporate and 392 franchise

locations – available in 23 states as well as international locations

Company emphasizes a familial culture and commitment to the local community

Brand image focuses on celebrating life

Overview (cont.)

Mission, Vision and Objectives:• Mission is to help people “live healthier, balanced lives – natural

and fruitful”

• Company’s culture aims at conveying a vibrant, positive energy directed at making people enjoy life

• Long term goal is to transform itself from a made-to-order smoothie chain to a healthy, active lifestyle brand

• Company’s “Blend Plan” addresses financial turnaround, strategic turnaround, and functional excellence

Overview (cont.)

Products & Services:• Signature product is the Jamba Smoothie

• Offers a variety of better-for-you food and beverage products

• Provides apparel and gear displaying the company logo to customers via its stores and website

• Other products: natural energy drinks, frozen novelties, and smoothie kits that are distributed through retail chains across the US

Restaurant Industry

JJ’s category: cafés and beverage bars

Direct competitors: Mc Donald’s, Starbucks, Dunkin Brands Inc., and Krispy Kreme Doughnuts Inc.

Global economic crisis has depressed industry’s profit but is expected to bounce back over the next 5 years (projected growth 24%)

Profitability is expected to increase causing industry outlook to be above average

Health concerns have led to a decline in consumer confidence

Porter’s 5 Forces

Barriers to Entry (medium/high):• High capital requirements (local, equipment, fixed costs, etc.)• Economies of scale exist• Low profit margins• Access to distribution channels may be difficult (i.e. location)• Brand loyalty• Government regulation

Porter’s 5 Forces (cont.)

Threat of Substitution (high):• Substitutes are readily available• High degree of competitor fragmentation• Other products exist that perform the same or similar function• Buyers face no uncertainty or inconvenience when switching • Substitute products satisfy price, value, and quality expectations • Consumer preferences may limit substitution somewhat

Porter’s 5 Forces (cont.)

Bargaining Power of Customers (medium/low):• Buyers are diverse and geographically dispersed• Switching costs are low• Substitutes are readily available• Changing demand preferences & trend

Porter’s 5 Forces (cont.)

Bargaining Power of Suppliers (low):• Suppliers are diverse and geographically dispersed• Suppliers are unable to vertically integrate forward• Most suppliers provide generic resources that lack

differentiation• Some suppliers exert greater influence than others • Low switching costs• Substitute inputs

Porter’s 5 Forces (cont.)

Rivalry (intense):• Large number of diverse competitors• Industry growth is promising• Similar products, performance, quality, and strong images • Price competition vs. differentiation • Buyer cost for switching brands is low

PEST Analysis

Political Factors:• Geopolitical issues – political unrest, civil uprising, political

restructuring of neighboring countries• Governance and transparency issues• Conservative Islamic government• Local political discontent • Reform of legal system• WB Ease of Doing Business Rank 11

PEST Analysis (cont.)

Economic Factors:• Relative little market intervention, privatization & reforms • Increased public spending (infrastructure, education, etc.)• Dependency on crude oil exports• Currency pegged to US dollar• High inflation and unemployment• Real GDP growth in excess of 4.5%

PEST Analysis (cont.)

Social Factors:• Change in social stratification – 44% under age of 15

• Fast food sector growth 7-10% per annum

• Westernization and resulting health issues (obesity)

• Religion defines social interactions

• Arabs vs. guest workers

PEST Analysis (cont.)

Technological Factors:• Lack of skilled workers• Education reforms• Rising female workforce participation• Infrastructure improvements

47.02%

21.32%

7.52%

7.84%

15.67%

0.63%

KSA Budget 2011 (SAGIA)

Education & Training

Health & Social Services

Municipal Services

Transportation & Communication

Water, Agriculture, etc.

Other

Market Analysis

Economic, Social, and Cultural Factors• Developing factor conditions (infrastructure, educations, etc.)• Changing Demand conditions (westernization, globalization)• Related and supporting industries are becoming more

sophisticated • Changing industry composition

Market Analysis (cont.)

Demand and Trends• >65,000 foodservice outlets• 7-10% annual growth in restaurant industry• Expected health food sector growth of 12% per year• Health concerns due to increasing obesity and diabetes• Limited availability of healthy, nutritious and delicious choices

Market Analysis (cont.)

Government• Transparency, corruption and potential political instability • Cumbersome contract enforcement (lengthy legal procedures

and opaque processes)• FDI faces strict government scrutiny before approval – BUT KSA

is one of the top ten recipients of FDI in the world • No controls or restrictions on foreign exchange transactions or

capital payments and transfers

Market Analysis (cont.)

Strategic Map: Competitors Saudi Arabia• Size: matters (capital requirements)

• Strategic distance varies, but can be overcome

• Mobility barriers: low

• Intergroup rivalry: high

Market Analysis (cont.)

Many diet and health foods do not meet local taste preferences and have failed to be enjoyable, tasty, and competitively priced

Lack of wholesome, convenient choices that appeal to health conscious individuals

Jamba Juice’s competitive advantage:• Unique product offerings • High quality, delicious foods • Tasty through combining fun, fruit, and flavor • Combination of beverages and snacks positions JJ ideally to take

advantage of the growing health food market

Marketing Plan

Product:• Focus selection on nutritious fruit smoothies and juice

blends• Provide a selection of healthy treats to appeal to the

“sweet tooth” of the Saudi people• Adapt to cultural and regional preferences• Streamline product offerings• Adhere to local quality, safety, and sanitary requirements• Adapt labeling and packaging

Marketing Plan (cont.)

Pricing:• Premium pricing strategy

• Brand strategy and image • Healthy and high-quality product

• 80% of the working population is comprised of non-nationals• Non-nationals are familiar with Western product and brands• Willing to pay higher prices for high-quality, healthy

products

• Premium price strategy will help JJ differentiate its product offerings from fast food service companies

Marketing Plan (cont.)

Promotion:• “Pull” strategy- advertising and promotional strategies

• Capitalize on one of the most popular forms of promotion in KSA: advertising on television• Product Comparison Advertising• Product Family Advertising• Corporate Advertising

Marketing Plan (cont.)

Place (Distribution):• Franchise agreement

• Control cost• Limit risk exposure• Support expansion targets

• Advantages of franchising• Rapid expansion into the KSA market• Low political risk exposure• Standardized method of marketing• Motivated franchisee

• Seek a master franchisee agreement with a local entity- Americana Group (Americana)

Operating Plan

Labor Supply

Skilled labor shortage

Medium to high-skilled employment dominated by guest workers

Regulations

Labor Law – Based on the Royal Decree no. M/51

“Saudisation” and workforce diversification quotas

Religious laws prohibiting “gender mixing”

Cultural Considerations

Power Distance Strict hierarchical management structures preferred

Uncertainty avoidance Explicit rules and control mechanism required

Individualism vs. Collectivism KSA a collectivist Society

Polychronism

Operating Structure

Operating Procedures

Jamba Juice Training and support Tracking of goals and

achievements Marketing initiatives

implementation and trend data gathering

Americana HR and staffing Sourcing and procurement

activities KSA supply chain Assist in implementing

marketing initiative

Store Operations and Layout

Locate in or near malls and/or universities

Cultural differences need to be considered • “Gender Mixing” • Religious, cultural, and moral requirements

Store layout • Restricted/separated seating areas for single man, woman

and families • Additional modifications to local needs (i.e. hours of

operations)

Inventory Management

Both companies will share responsibility for products sales, needs and quality• Implement management and tracking software to monitor

levels, condition, quality, and expiration dates• Synthesize just-in-time and materials requirement methods

to arrive at an ideal supply level• Optimize purchase and delivery schedules• Monitor frequency and quality of orders • Share, retrieve and distribute information about

performance

Control and Service

Quality Control Abide by KSA’s food safety

regulations determined by the Saudi Food & Drug Authority

Implement JJ quality standards and objectives

Instill commitment through training

Customer Service Create a welcoming

atmosphere

Take the extra step to deliver a personalized service - identify and anticipate needs

Be polite, helpful, courteous, knowledgeable, and address complaints to the satisfaction of the customer

Financial Objectives

Objectives• Financial growth

• Growing JJ’s business and revenues • Generate additional cash and profits

• Financial efficiency • Raise productivity levels• Generate economies of scale and scope• Improve overall performance through effective use of

resources

Historical Analysis

Income Statement• Per store revenue

contribution increased from $650 thousand to $725 thousand

• Net loss declined from $113.3 million in 2007 to $16.7 million in 2010

• Franchising income has increased by approximately 35%

Balance Sheet• Superior asset strength• No long-term debt• Decrease in current

liabilities

Historical Analysis (cont.)

Statement of Cash Flows • Cash Flow from

Operations were negative in 2010

• BUT Positive FCF • Positive, increasing cash

position

Ratios• ROA and ROE improving• Gross margin, current

ratio, quick ratio, and financial leverage are close to industry averages

• High inventory turnover – above industry average

Pro Forma Assumptions

Est. Gross Revenue per Store: $665K

Est. Revenue Growth: 10%

Franchising Fees: • Royalties 5.5%• Marketing Fees 4%

Corporate Tax Rate: KSA only 20%

No external financing – neither debt nor equity

Pro Forma Overview

Pro Forma Highlights

PF Income Statement Initial investment $400K

Profitable by Y3

Positive NPV ($13.7 million)

PF Balance Sheet No debt

Increasing asset strength

Year 1 Year 2 Year 3 Year 4 Year 5

$(2,000,000)

$-

$2,000,000

$4,000,000

$6,000,000

$8,000,000

$10,000,000

Gross Profit Net Profit

Pro Forma Highlights (cont.)

PF Statement of Cash Flows Positive cash balance by Y4

CF from operations will be positive by Y3

PF Ratios Liquidity increases with

store count

Positive activity measures by Y3

Year 1 Year 2 Year 3 Year 4 Year 5 $-

$1,000,000.00 $2,000,000.00 $3,000,000.00 $4,000,000.00 $5,000,000.00 $6,000,000.00 $7,000,000.00 $8,000,000.00 $9,000,000.00

$10,000,000.00

$151,456 $695,506

$1,912,641

$4,207,811

$9,257,185

Operating Expenses

Gross Profit

Risks

Financial risks (currency and exchange rate risk, government regulation, inflation)

Economic conditions (global market volatility, rising commodity prices)

Competitive environment (competitors, trends, R&D, innovation)

Risk of expropriation: low JJ’s capital structure Double taxation

Financial Controls

Integral component in managing success, attaining goals, and measuring performance

Responsibility and accountability of staff and management • Adhere to corporate policies and relevant accounting

standards• Meet performance and strategic targets • Periodic (monthly, quarterly, annually) reporting of

performance• Reporting frameworks ensuring accurate financial and

accounting data• Periodically monitor and assess compliance

Balanced Score Card

Balanced Scorecard Flow Sheet

Conclusion

KSA offers many opportunities JJ can capitalize on

With proper risk management JJ can succeed in KSA and become segment leader

JJ’s values and consideration of KSA culture will play an important role in the acceptance of its products and services.

Entering KSA with the help of Americana will play an important role in achieving JJ’s strategic objectives: • Advancing the company internationally • Accelerating its growth • Generating additional cash flow and profits