Gallo Rice in Italy
Gallo Rice has a long-standing history in Italy dating back to the 19th century, and for good reason. From a marketing standpoint, Italy is the source of two very important market elements: a (significant) growth market and a dependable, though not too exciting “base” market (cash cow). Italy’s domestic consumption of rice is very similar to the U.S., only better. Because rice is a staple in the Italian diet, 95% of milled rice is for direct food use vs. 60% in the U.S. The remaining 5% is used in the production of processed foods, such as cereals, package mixes and pet food.
Rice is a major crop in Italy. In 1991, 320,000 tons of rice was sold via food service establishments (21%) and grocery stores (79%). The fact that 98% of the population used rice in various forms indicates the market is saturated. Gallo was the overall market leader, possessing 21% share of total retail rice volume in 1991 comprising of white rice (85%) and par-boiled rice (15%).
Gallo had acquired 21% of the Italian rice market by volume in 1991, which was 2% higher than in 1990. Gallo is considered trust-worthy, of good quality and somewhat of a traditional brand. Gallo had three major product lines:
In 1991, Gallo was carried in stores accounting for 80% of Italian grocery sales, more than any other brand.
The most significant competitor for Gallo was Flora, a French food conglomerate that marketed par-boiled rice exclusively. Flora competed directly with Gallo’s par-boiled "Blond" line. Another very important emerging group of competitors was the private label brands. Local and regional rice millers were selling under their own brand names at an increasing rate. In 1991, private labels as a group had equal share in Italy’s white rice market as Gallo, 17.3%. One other, less significant competitor, Scotti was a regional, family owned firm that offered only white rice products. F&P Gruppo had already approached them as an acquisition target and should continue to pursue them for a number of reasons. The first, and most obvious, is that they would automatically inherit Scotti’s 7.5% volume market share.
The price of Flora is 4 cents higher than Riso Gallo relatively, but Flora had a huge market share (43.3%) in parboiled rice in 1990. This shows that consumers are price-insensitive to the parboiled rice market, assuming the products are more or less the same. Italian retail sales of the parboiled market consist of 30% value of the Italian market. Sales of parboiled and special rice are growing 8% and 12% annually. Gallo's approach used their cheerful rooster logo to emphasize trustworthiness, good quality, and traditional branding to help their sales in the Italian price-insensitive market instead of lowering the price.
Gallo’s marketing expenditures increased from 13% (in 1988) to 15% (in 1992). Projected 2.21% rise in advertising and promotional expenditure for 1992. Gallo’s marketing strategies includes – television commercials (spot commercials and five minute promotional infomercials), print advertisements and consumer promotions (in-store sampling and community programs). Advertising portrayed Gallo as serious and reliable and focused on the brand’s tradition and culture.
Even though Italy is a mature market for Gallo, there is still opportunity to increase sales and capture market share (major competitors captured 45.2% in total). This can be achieved by adapting different expansion, pricing and promotional strategies. For example, given the relative success of Meta’Tempo, Gallo Rice has an opportunity to expand upon existing products with a new dehydrated rice line that could take advantage of consumer perception of superiority to simple parboiled rice. For Italy, Gallo should come up with new products more often, while constantly modifying the current methods in developing products. Also, Gallo should support and concentrate on its basic white rice line. Since private labelers’ sales are increasing, Gallo should also identify ways to attract more customers who buy rice brands of private label.
Gallo Rice in Argentina
Gallo Rice began in Argentina in 1905 through a subsidiary called Arrocera Argentina (who would eventually lead them to Poland). The early 1990’s were the beginning of an attempt by the Argentine government to turn around an inflation-ridden economy and bring the country out of its latest recession. The rice market was still fairly strong during this time period with around 92% of households consuming rice weekly and 30% at least three times per week. Also, the per capita consumption was nearly 5kg per annum, which was equivalent to Italy’s national per capita consumption. Also, the distribution of domestic consumption between white rice and specialty rice for Argentina was very similar to that of Italy, which had twice the volume of rice consumption by volume and was considered a mature market for Gallo. Gallo maintained production facilities in both countries as well. The main demographic characteristics of the two countries were also very similar, including such things as literacy rate and television penetration. The major difference was that Argentina held 30% of its population in one area, Buenos Aires.
In the early 1990’s Gallo was holding a 17.5% market share in the total rice market of Argentina. However, they held a 48% share in Buenos Aires. They were considered the market share and product innovation leader. Gallo had a varied product line in Argentina. One such product was long-grain rice for traditional cooking that had to decrease to 28% of Gallo’s volume. Another was long-grain parboiled rice called Oro, which was easy to prepare and had just slid to 59% of Gallo’s volume. A third product was parboiled long-grain rice with higher nutritional value that represented 5% of Gallo’s volume. Lastly, another long-grain rice in a risotto mix that accounted for 1% of Gallo’s volume.
Gallo was doing a majority (three-quarters) of their business in the growing channel of large supermarkets. Gallo was very weak in the more rural medium and small stores, which made up 27% of the retail rice market but only made up 15% of Gallo’s volume. Gallo’s sales agents that serviced the more remote areas were only accounting for 10% of Gallo’s total volume. Also, Gallo was only present in about 77% of Argentina’s retail food stores.
Gallo was facing competition from three other national brands, but combined with Gallo they still only represented 45% of the retail rice market. Most of the market was sold by smaller regional brands that required a lot more local analysis to compete against. The one major national competitor that Gallo faced was Molinos, who produced the Maximo brand. Molinos attacked Gallo through Maximo by spending twice as much on advertising as Gallo and by pricing the product at 12% under the Gallo competitive products. This strategy had allowed Molinos to increase the market share for Maximo from 5.3% to 7.5% in one year. Other Molinos brands were not particularly competitive due to quality issues.
Gallo had responded to this increased competition by producing its own lower-cost brand called Nobleza Gaucha and packaging it in the same style boxes as Maximo. They priced this product at 12% below the Maximo price. This resulted in the new brand growing quickly to represent 7.7% of Gallo’s sales. The two other brands were much smaller, did not compete in all of the rice market segments, and were therefore, not considered a high level threat. Each of them held market share percentages in the low 4’s. As mentioned earlier, Gallo’s advertising was half that of Maximo in 1991. The plan for 1992 was to more than triple the budget, with the majority of the advertising going toward the Oro line.
A number of issues were facing Gallo in Argentina. One was the economic problems of the country. Gallo could do more to combat those problems by spending more on advertising its Nobleza Gaucha brand. Due to the packaging of this brand being the same as Maximo, consumers may be confused about the product’s actual manufacturer. Because of its low-cost, Gallo should position this product better as a cost effective alternative for meals. There had been a sharp drop in raw materials prices and Gallo management was resistant to lowering prices on the high-end products. They could instead pass those savings on to the consumers through the new brand.
Another issue was that of matching the Maximo advertising budget, by spending some of their new larger budget on the new brand they would not need to match the budget. They could instead leverage some of their brand image and not have to try to inundate the market with advertising. Also, Gallo was coming out with a new quick-cooking rice brand. There were questions as to how to market and price this new brand since it was a market leader in this new segment. Gallo should consider again passing along some of the raw materials cost savings and keeping the price of this product low while Argentina struggles to climb out of its recession.
Gallo Rice in Poland
Arrocera Argentina started exporting the Gallo Rice product to Poland in 1988. The late 1980s was a time of radical economic transformations among the emerging Central and East European countries, and Poland was one of them. Average GDP of 5% made it the fastest growing economy in Europe. The Polish government introduced reform measures such as complete price liberalization, reduced subsidies, attempts to stabilize the zloty, liberalized trade, banking and tax reforms and privatization of the economy through the breakup of state enterprises.
At first, Arrocera Argentina was selling its product through a commission based Polish agent, but after 1991 it had established a private distribution company called Argentyna Ltd. 65% of Gallo rice was distributed directly to retailers around the capital of Poland area and the remaining 35% through secondary distributors to other major cities. The time of entry was perfect because of almost nonexistent competition, however establishing appropriate pricing; building the brand awareness and product usage knowledge were big challenges Gallo Rice had to face. Effective control over marketing operations is impossible without timely and accurate market information, such as customer behavior or price levels.
The purchasing power of Polish consumers was fairly low. About half of the country's population fell into the low income category in the1990s, only a small group estimated to be 5 to 10 percent of the population was able to buy luxury goods. Before 1990 Polish consumers had very limited choices of goods, but the economic reforms caused the flooding of imported products which created competition and gave the consumers an opportunity to make purchasing decisions based on the price for the first time. Competitive rice products by Uncle Ben, Britta, Doris and La Belle entered the Polish market shortly after Gallo Rice.
An unsuccessful advertising campaign by Uncle Ben proved how small brand awareness was among Polish consumers, which was caused mainly by the fact that competitive brands did not advertise at all. The consumers had no real knowledge about product differentiation; they were only willing to buy as long as it was long grain white rice. Gallo was selling in Poland under the Gallo Oro product line, which was parboiled, long grain, white rice. The research showed that potatoes were mainly used in Polish cuisine; rice was merely an occasional substitute. The main reason for that was the lack of product knowledge and the fact that before competitors entered the market rice that was sold was very low quality.
This situation offered a real opportunity area for Gallo Rice to position itself in the Polish market. Presenting Gallo Oro as a high quality product would distinguish it from other, lower quality competitive products. Communicating value of high quality to consumers would justify higher price. Educating consumers about the nutritional value could help to reposition rice from merely a substitute to potatoes, to an equally used product. It could also help introduce new types of rice in the future. In the early 1990s, promotions were still in an embryonic stage, which created another opportunity area for Gallo Rice. Offering free cooking recipes would provide necessary education on using the product, and free samples would promote brand recognition.
Emerging markets always bring challenges but at the same time they offer great opportunities for early entrants who know how to position themselves in these new environments. Poland is no exception.
Conclusion
This case is a good example of the differences a multinational corporation can encounter when operating in various market environments. In terms of the rice industry, Gallo Rice is encountering the typical challenges found in mature markets, growth markets, and emerging markets.
Italy gives the best representation of a mature market in that 98% of Italy’s population currently uses rice of some form in their daily lives. Even though Italy’s rice market would seem to be mature and saturated, with many local and regional competitors competing alongside large companies such as Gallo, there is still opportunity for growth. While traditional white rice was losing popularity, sales of both parboiled and other special rices were growing at a respectable 8% and 12% respectively per annum. This fact, along with the success that Gallo experienced with the introduction of their Meta’Tempo line, would seem to be encouraging for the future expansion of Gallo Rice in Italy.
Argentina gives the best representation of a multinational corporation’s experience in a growth market. The most glaring features of Gallo Rice’s experience in Argentina were the country’s state of economic problems and the relative price sensitivity of consumers. Much like Italy, Argentina’s population tended to use rice in their daily lives with 92% of households consuming rice weekly. Unlike Italy though, given the current state of economic distress, consumers were more concerned with price rather than brand. The main advantage that Gallo had was in the fact that while they only held a 17.5% market share in overall rice sales, they held a 48% market share in the largest market in Argentina, Buenos Aires, which made up 30% of the total population. Gallo’s best avenue for growth in this economically depressed country would probably be by increasing awareness of its discounted rice line, the Nobleza Gaucha brand, through advertising. Due to the fact that this product line is priced 12% below that of rival product Maximo, it has experienced impressive growth in these economically troubled times by becoming 7.7% of Gallo’s sales.
Poland probably holds the most potential out of all three countries because it is an emerging market in the rice industry. Unlike Italy and Argentina, rice is not a staple in the lives of the Polish population. Since rice is considered more of a substitute to potatoes than a replacement, the opportunity exists to educate Polish consumers on the benefits of using rice in hopes of changing their eating habits. Due to the changing political and economic conditions in Poland, consumers were just beginning to learn about the varying benefits of imported products, and for the first time they were learning that they had choices between the different brands. In this emerging, price sensitive market, Gallo Rice would gain the most advantage by being a first-mover to establish a early presence. The best way they can establish their brand name would be through educating the Polish society on the differences in types of rice, the recipes that can be used to make rice, the role of nutrition, and the difference in brands.
Overall, Gallo Rice would seem to be a good company to use as an example of the appropriate way to approach marketing in foreign countries. Gallo Rice has been aided in their international expansion by the fact that they have kept an eye on consumer interests in the respective countries they have chosen to operate in. Rather then releasing a single homogeneous product line throughout the world, they have done a good job of adapting to the wants of needs of local consumers. Gallo has also done a good job of keeping track of the individual actions of their major competitors in the respective markets in which they operate. By keeping pace with the different consumer expectations in individual countries, as well as keeping tabs on the actions of local competitors, Gallo Rice has created a strategic advantage over its competitors that will continue to aide them in the future.
