Case Study: Marley Spoon's Nordic Expansion in (a little more) than 90 days.
How do you expand to a new market in a little over 90 days? (105, actually) We heard from Marley Spoon's Managing Director of Marketing in Europe, Dijana Dimitrovska, about their recent successful expansion into Denmark and Sweden.
The Backstory: Marley Spoon was founded in Europe in 2014. They have expanded to eight countries and now employ over 1000 people worldwide. They entered the US market in 2016 and appear to be effectively scaling, doubling their net revenue in 2018. Sign up here to receive their US market entry case study.
Most pre-IPO companies will recognize the mandate of "We have to grow!" as the main reason Dijana Dimitrovska led a team within the publicly traded Marley Spoon (MMM:ASE) to a successful market expansion within Europe.
While Marley Spoon is a large company selling to consumers, we looked in this interview for lessons learned and principles that can be applied to online companies of all sizes who are going global.
How did Marley Spoon choose where to expand?
Marley Spoon started with seven potential countries, narrowed that down to four, with the result of an entry candidate (Denmark) and follower (Sweden) within the Nordic region. They looked at four factors in their market expansion plans:
1) Market Potential - how big is the market? (What does 'big' mean and how did they determine the true potential market size.)
2) Quality of ingredients. (Think Farm-fresh eggs, meat, poultry and other produce. This is their 'supply chain'.)
3) Industry and Marketing (Maturity of the consumers in the food category, the competition, and effectiveness of advertising.)
4) Unit Economics (How to determine what the price in the new market.)
1) Market Potential - Every business wants a big market, but how do you determine that market size?
Here we review the factors Marley Spoon considered, followed by our interpretation of what that mattered.
a) Marley Spoon looked at a country's population size and from that, derived the subset of their buyer personas. They didn't start with the first and biggest number found. Marley Spoon's customer persona are based around households, typically couples.
OnGlobal Opinion: Having a well-defined and understood buyer persona helped size the market from population to possible consumer and customer.
b) They considered the average salary within each country.
OnGlobal Opinion: If you're only just putting food on the table, a pre-packaged meal with fresh, local ingredients is a near-to unaffordable luxury item. Average salary determines available income for purchases beyond the basics, which determine demand.
c) Cost of living was factored in, along with the unemployment rate.
OnGlobal Opinion: Presumably cost of living sets a benchmark for what other choices could be made with the earned wages. Unemployment determines the percentage of the population that was earning an income. Taking the average salary and subtracting the cost of living determines the available amount for additional spending.
d) Internet adoption rates.
OnGlobal Opinion: Here we expect that this determine the viability of their marketing and communications channel as well as their advertising methods. They are an online business. Obvious, but not to be assumed in all countries or regions in the world.
e) Reviewing the Supermarket Index and Restaurant Index
Next they turned to two indexes: the supermarket index and restaurant index. Each of these indexes gives an idea of the prices consumers spend, relative to a well-known US city.
OnGlobal Opinion: We think these two indices serve as anchor points for determining how much consumers in the target countries were spending on products within the same space in which Marley Spoon operates. That being food. In fact, shopping for groceries and eating at restaurants , according to Fabian Siegel, are direct competitors for Marley Spoon. (See TechCrunch 2018 comments on their IPO.)
So when Marley Spoon was looking at the restaurant indexes, they are measuring competition for their meal box service. Ash Maurya says "Your true competition is NOT who you think they are, but who your customers think they are."
Eating out in restaurants and shopping for groceries are the competitive alternatives to Marley Spoon.
2) Quality of the Ingredients (To extrapolate, The Supply Chain)
It would seem obvious that your meal delivery service is going to need quality ingredients. Here we can generalize this step to 'supply chain check'. If you're not able to build the product with the same or corresponding Cost of Goods Sold, then your market expansion is going to be limited, or at worst unprofitable.
3) Industry and Marketing - What is the maturity level of the consumers in the food category. What is the competition and capability for advertising?
Marley Spoon considered the maturity of their industry. The overall grocery industry could be considered mature. Let's illustrate the concept of maturity with this example.
"...the makers of breakfast cereal and related grocery products could be considered to be part of a mature industry. Such companies have achieved a level of market penetration that may shift marginally from time to time, but they have largely reached the limits of the demographics they want to reach. Each company may have a footprint of customers it has connected with though there may be some gaps in coverage. As a collective industry, such companies have the capacity to cover the gamut of available clientele." (Investopedia Defining a Mature Industry)
If the industry was still emerging or in a growth stage then would Marley Spoon have deprioritized it? Only they can say for sure. Most North American consumers would struggle to understand that some countries still have open air produce markets and a separate shop system of butchers, bakeries, and specialty food shops. Not to mention buying fish straight off the boat. In those emerging and growth markets, a service that delivers pre-portioned ingredients to your door with cooking instructions will sound to locals as incredulous.
The competition factors into any good market entry strategy. We don't have details on who was in the market before Marley Spoon, nor could they comment on what level of competition would have called a country off a candidate list. But an assessment of the competition was part of their strategy.
The assessed the advertising potential. We know from a Techcrunch interview with Marley Spoon's CEO on the US expansion that more conventional advertising methods like TV ads predominated. To our knowledge, there was no SEO or keyword search strategy that was used. Although their pre-launch strategy did utilize Facebook ads to capture an estimate of demand.
4) Unit Economics - or how do you price your products?
There are two basic approaches to pricing. A bottom up pricing model, where you find the cost to deliver a service and add sufficient margin. There's also a top down approach figuring out how much value delivered compared to alternatives like shopping and eating out. Marley Spoon chose something in-between.
OnGlobal Opinion: Too many entrepreneurs use a cost + margin approach to pricing their product. Here the price could factor in the time saved building a menu, making a list of ingredients, going to a grocery store (or several) and food waste. A top down pricing strategy resulted in a better price than a bottom up, cost plus approach.
Case Study Application:
Marley Spoon proceeded from market potential, then supply chain, then industry maturity, competition and advertising capability (these could be separated), then a pricing strategy.
We can generalize their approach into specific areas of advice to all online companies looking to scale.
1) Start with a region, here the Nordics, and narrow down to one or two single country candidates. Use data to determine your best country candidates.
2) Know your unique value proposition and customer personas so you can refine a population size down to the number of possible customers.
3) When considering competition, keep in mind more than just direct competitors. Options like continuing to shop and cook equate to 'doing nothing', but are still a competitive alternative.
4) Price to value delivered, not cost plus. Both approaches are valid, depending on various factors.
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Disclosure: We provided Dijana Dimitrovska with an advance copy of this article. Marley Spoon is a publicly traded company and limits their disclosure and discussion of certain facts and figures.
OnGlobal Opinion: The interpretation, adaptation and comment on the named facts are the sole responsibility of OnGlobal.co. Final editorial content is the responsibility of OnGlobal.co -- a project of Sojourner Assay B.V.
Marley Spoon has a US-based affiliate program in which we do not participate. Our only relationship with Marley Spoon (at the time of publishing) was a former happy customer in the Netherlands.