Boost juice supply chain

ASIAN CASE RESEARCH JOURNAL, VOL. 18, ISSUE 1, 175–197 (2014)

© 2014 by World Scientific Publishing Co. DOI: 10.1142/S0218927514500072

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This case was prepared by Dr. Jane L. Menzies and Professor Stuart C. Orr of Deakin University, Australia, as a basis for classroom dis- cussion rather than to il- lustrate either effective or ineffective handling of an administrative situation.

Please address all correspon- dence to Dr. Jane L. Menzies, Deakin Graduate School of Business, Deakin University, 221 Burwood Hwy, Burwood, VIC 3125, Australia. E-mail: jane.menzies@deakin.edu.au

Internationalization of Boost juice to Malaysia

IntroductIon

Janine Allis, the founder and managing director of Boost Juice, sat in her Melbourne-based head office, at Chadstone “The Fashion Capital”1, and pondered the achievements made by Boost Juice in Malaysia. Since 2009, Boost Juice has opened 11 stores, with exciting plans for two more stores in the not too distant future.2 By 2014, a total of 30 stores are planned for opening. She wondered, would the economic fall-out from the European debt crisis have an effect on her Malaysian plans? Was the choice of Master Franchisees the right deci- sion for Boost Juice in Malaysia, and has the process of inter- nationalization for Boost Juice in Malaysia been successful thus far?

Background

Walk into a Boost Juice outlet and you will hear the music pumping, see the staff bopping to the rhythm of making you a fruit juice and you will understand what is meant by the “customer experience” at Boost Juice3; it’s fun, loud and designed to develop a unique relationship with customers.

The Boost Juice Company commenced operations in Adelaide, South Australia, in 2000; established and run by the entrepreneur, Janine Allis, who wanted to bring healthy fruit juices to Australia.4 Allis was aware of the popularity of juice bars across the globe. She had visited many juice bars in

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the United States where the industry was much more devel- oped than in most other countries.5 Allis built the organi- sation up from its modest beginnings in the Melbourne suburbs where she started mixing up some “wicked juice and smoothie blends” in her own garage, she then opened her first retail outlet in Adelaide in 2000.6 In 2004, Janine Allis was awarded Telstra’s Businesswoman of the Year award for her entrepreneurialism.7 Since then, Boost Juice has become an incredible franchising success story and, accordingly, has been awarded a multitude of awards in the Australian business community.8

By 2005, Boost Juice had expanded to 180 retail juice outlets across Australia and its brand awareness had risen to 94%.9 Allis’s success in the Australian market (see Exhibit 1) provided her with much of the motivation to internationalize to other countries and Malaysia. Since 2004, Boost Juice has embarked on an international expansion program and, in 2012, now operates over 240 retail outlets in 15 countries, plus Australia.10 Boost Juice’s turnover was approximately A$135m in 2011.11 In 2007, Boost Juice acquired a majority holding in the Australian Mexican Food chain, Salsa.12 Then, in 2010, Boost Juice sold a majority stake to a US private equity company, The Riverside Company, for A$65m.13 The purpose of this was to raise the much-needed capital to finance Boost Juice’s further international expansion plans. See Figure 1 for Boost Juice’s development timeline.

Boost Juice entered Malaysia in 2009, with its first retail outlet in Suria, Kuala Lumpur (see Exhibit 2). By 2012, it had expanded to 11 retail outlets (mainly located in the Klang Valley, with one in Penang at Gurney Plaza)14. Locational decisions made by Boost Juice are usually based on sound research, foot-traffic, and demographic analysis.15 All Boost Juice outlets in Malaysia have been established in high-end shopping centres. These locations were selected because the

Fig. 1. Boost Juice Company Development Timeline.

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InTERnATIOnALIzATIOn OF BOOST JUICE TO MALAYSIA 177

volume of foot-traffic in shopping centres is high, and there is a belief that customers would be willing to pay a premium for juice and other juice products in shopping centres. These are also locations where it is “cool” for young people — a major segment of the juice bar market — to hang out. Boost Juice plans to continue to expand in Malaysia and have 30 outlets operating there by 2014.16 The company’s international expansion is driven by Boost’s global brand strategy; “To become to juice, what Starbucks is to coffee”.17

Industry

The juice bar industry structure in Malaysia is fragmented, incorporating many small single owner/operator businesses. While sophisticated juice bars are becoming more common in Malaysia, especially in shopping malls and new urban areas, Boost Juice must also compete with the local Malaysian road- side drinks and juice stalls that service more than 50% of the market.18 The juice bar industry in Malaysia is in the early stages of development and is characterized by high growth. The two critical influences that apply to the juice bar industry in Malaysia are the economic and socio-cultural forces (Table 1). The economy is performing strongly and there is an increasing need for consumers to be health and weight conscious, thereby driving the consumption of healthy prod- ucts such as fruit juice. These two factors make the juice bar industry in Malaysia attractive.

The juice bar industry is relatively new in Malaysia — juice bars have been popping up over Malaysia since around 2005. Before that, juices tended to be “do it yourself” (DIY), supermarket bought products, or were bought on the side of the road and in hawker centres. Therefore the juice bar industry in Malaysia has a large number of new market entrants. All new entrants, including Boost Juice, have to invest substantially in promoting the juice bar concept to develop the market, especially since juice bars usually charge a premium for their products. In Malaysia, there are a number of branded juice bar competitors for Boost Juice,

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which include “For Fresh People”, “New Zealand Natural”, “Juice Works”, “Juice Bars”, “Bobalicious Smoothies”, “Sharing Planet,” “Desserts Bar” and “Black Canyon”.19 These competi- tors mainly operate in the same locations as Boost Juice — shopping centres, and high-end urban centres. There are a number of unbranded competitors, which include juice stalls on the side of the road or in hawker centres. An analysis of the competitors in Malaysia suggests that Boost Juice has the most brand awareness.

The degree of rivalry between competitors is quite low and Boost Juice benefits from their size, resources and skills in developing the market. The other rivals competing in a similar manner to Boost Juice are comparable in size and economies of scale, being either a small chain of franchises or just a single independent juice bar. The single independent juice bars do not generate the same level of brand awareness as chains such as Boost Juice. The product ranges and basis of competition are similar for all of the juice bars in this segment of the market; they compete by offering quality to a broad

Table 1. PESTEL Analysis of Boost Juice’s International Environment

Macro-environmental

Force

Intensity Reason

Political forces Low Government support is strong for FDI

and business development

Economic forces High Malaysia has a relatively positive

economic situation, with moderate

growth, low interest rates, and optimistic

outlook

Socio-cultural forces High Malaysian consumers are becoming more

health-conscious

Technological forces Low Technology has a limited role to play as

the product is produced to demand and

often customized

Natural environment

forces

Low The industry’s environmental impact is

low so it is easily able to comply with

current expectations

Legal forces Medium Franchisees each require a food retail

licence

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InTERnATIOnALIzATIOn OF BOOST JUICE TO MALAYSIA 179

market. Competitors do not aggressively use pricing strate- gies to attract a greater market share because of the rapidly developing market opportunities. Customers make frequent low-value purchases (possibly buying a juice every day), or when they visit a shopping centre during the weekend.

The threat of market entry is high as barriers (mainly set-up costs) are low. For example, a Boost Juice fran- chise investment costs between A$240,000 and $300,00020 in Australia, with predicted lower costs in markets such as Malaysia, because of lower factor costs. Furthermore, estab- lishment costs would be significantly lower for independent operators. The barriers to exiting the industry are also low, reflecting the low set-up costs. Malaysian government policy is strongly supportive of the entry of either local or foreign new businesses into its markets.21 Economies of scale are less important to juice bars, except in the area of purchasing and transportation of the fruit. The cost of the raw materials is fairly low, compared to the overall operating costs (site rental, power and labour costs), so economies of scale in purchasing and transportation offer only limited benefits. Otherwise, products are highly customized and, therefore, little benefit results from increased economies of scale in the juice bars themselves. There would be slight product differentiation between competitors, as competitors offer different flavours and blends.

Juice bars rely on a regular and dependable supply of fresh fruit and on the local labour force. The tropical climate contributes to the low cost of fruit in Malaysia where both fruit and vegetables are inexpensive and readily available. As the agricultural industry in Malaysia is fairly fragmented and comprises many small growers22, the range of suppliers avail- able to meet the relatively modest demands of a juice bar is extensive.

Customers in this industry are able to switch easily to another juice bar or substitute products such as fruit juices purchased from supermarkets. From a socio-cultural per- spective, however, Malaysians are becoming more health conscious. One of the reasons for this health-consciousness is reflected in a 2006 national Health and Morbidity Survey

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