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French Luxury Foods Firms Bet on Innovation While Preserving Tradition Knowledge Each year Fauchon, one of France most celebrated luxury grocers, dresses up its best selling clairs to be launched in their haute couture collection of the season. The autumn 2008 collection features 34 individualized clairs in an extravagant display of premium foods photographed in the style of the best high fashion catalogues. Meanwhile, Parisians, expats and tourists alike line up at the celebrity Paris bakery, Poilne, to buy the famous miche, a loaf of bread that is still made by hand and whose recipe has not changed since the bakery was founded in 1932. Innovation is becoming a clear market trend as French luxury goods companies, long seen as the guardians of centuries old tradition and quality, face the pressure to change. Today market realities the maturation of the European marketplace, the consolidation of key industry players, and the increased focus on East Asia growing economies and newly affluent consumers have forced these firms to reconsider their strategy and reinvent themselves. The dramatic global economic slowdown has added to increasing pressure on companies in the luxury space. With market leaders like LVMH losing as much as 40% of their value in less than a year, and a scarcity of financing for small and medium sized businesses, many analysts predict that 2009 will be one of the worst years on record for the luxury goods industry. The battle for the luxury goods consumer has intensified, bringing the trade off between innovation and tradition front and center. This article evaluates the approaches of two celebrated names in French luxury food: Fauchon, a luxury grocer, and Poilne, a family run bakery, with different historical approaches to the changing economic landscape. While Fauchon has continuously sought to reinvent itself as the paragon of French luxury food, Poilne has gone to great lengths to keep its original concept unchanged. The historical success of these two approaches is explored, as are the benefits and risks from pursuing these strategies in a bid to stay relevant in the toughest luxury market in decades. World Archaeology defines luxury foods as those are widely desired because they offer a refinement or qualitative improvement of a basic food [They are an]indulgence and a status indicator. reach for these extravagant goods in pursuit of perceived high quality and contribution to a luxury lifestyle. The future of the industry is widely discussed throughout the country, particularly in the context of recent economic reforms implemented by French president Nicolas Sarkozy, designed to increase the international competitiveness of the French economy among its neighbors. Such reforms, meant to deal with the market shifting effects of European unification, are simply one contributor to the changing landscape of the French luxury foods industry. For many companies, the trouble had already begun at home. Second, traditionally mass market retailers such as Monoprix and Carrefour are diversifying into the luxury foods market, thereby reducing foot traffic in retail stores owned by luxury foods companies. Fauchon has experienced both the ups and downs of being a hallmark of French luxury Ducks 6 De'anthony Thomas Black Limited Stitched Ncaa Jersey foods in a global arena, lessons pertinent to weathering the current recession. During the 1990s, in an attempt to boost profitability, Fauchon entered the mass market retail space and began distributing to supermarket chains such as Carrefour. The result was lukewarm. At the time, lead financier Laurent Adamowicz commented to French newspaper Le Monde that, is the best brand in the sector In the United States, everyone recognizes the [Fauchon] name, although its products aren sold in the market. acquisition proved less successful than expected. Following these struggles in the 1990s, experts agreed that Fauchon needed a new wave of rejuvenation that would also preserve the company core competencies. When Michel Ducros, an icon in the luxury foods business in France, acquired a majority stake, reinvention became a priority. Ducros recruited a dynamic new chief executive, Isabelle Capron. A veteran of the French public relations and advertising space, Capron mission focused on developing a two part strategy first, re centering the brand on its traditional strengths and, second, using this new brand to consolidate market share in France while increasing market share in fast growing international markets. Fauchon successful brand reincarnation was a careful balance between venerated tradition and the avant garde. The new management wanted to establish Fauchon as a good reference and to implement a comprehensive advertising and store redesign accordingly. Its advertising campaign is highly eroticized, with widespread circulation in high fashion magazines such as Vogue centered on the concept of on your lips. In one stroke, Fauchon was able to distinguish itself from the competition. The second part of the investment strategy focused on international expansion and differentiation. To reinforce Fauchon preeminence in France and export it to growing markets in Japan, China, Korea and the Middle East, Ducros made a simple press statement: have to move fast. new, ultra chic store concept was exported to all Badgers 32 White Rose Bowl Game Stitched Ncaa Jersey of Fauchon international locations, comprising 36 countries with 451 points of sale. At the top of this export strategy was China, where in 2007 Fauchon opened its largest retail space in Beijing. luxury is made in the West and sold in the East, Isabelle Capron comments. now on, Asia is the principal source of growth. Capron is clear on what it is she is selling, telling Les Echos that partners abroad ask us for France, France and France. rebranding and internationalization campaign has borne fruit. Sales for 2006 were 38 million,representing a 21% organic growth over the previous year. Its net loss shrank to only 5 million in 2006; and in 2007 Fauchon executives expected the company to return to profitability. Recently published figures indicate Fauchon currently draws60% of its sales from outside of France, and expects this figure to reach 80%. The future, while uncertain, looks relatively bright. Fauchon focus and reinvention Crimson Tide 12 Joe Namath Red Stitched Ncaa Jersey have come at the right time. Being the market leader in its category, Fauchon commands a formidable presence in markets that continue to grow. In countries like China, it will continue to attract an expanding aspirational consumer class. Amid a constantly shifting market both at home and abroad, Fauchon rebranding campaign has helped it remain relevant and return to profitability. Its recipe for success in the future is to remain ahead of its customers and continue to surprise them. In that sense, its new motto, takes you away, is right on point. Its story provides a second successful approach to managing innovation and tradition. Specializing in bread and simple pastries, Poilne is most famous for a round, two kilogram sourdough country bread referred to as a miche or pain Poilne. Within the context of companies that are considering internationalizing with a fresher brand image, Poilne solid embrace of its traditional French food house identity and family roots is a different kind of innovation. Perhaps due to its emphasis on tradition, Poilne stands as a success story in French luxury foods today. According to Businessweek, sales have grown steadily in recent years from 11.6 million in 2001 to 15 million in 2007. Relying on word of mouth in lieu of advertising, Poilne has also succeeded in growing its customer base both within and outside of France. Currently 20% of the company output is shipped abroad, including half a million loaves that are sent via FedEx to customers and resellers around the world. Perhaps Poilne is one of the lucky companies that, due to their well established market niche, do not need to innovate to survive. Apollonia can continue to grow within this niche. But is it reproducible, expandable, [and] franchisable on an industrial, international scale? That possible, but if so, it would lose the authenticity that has been its strongest attraction. Yet, like others in the luxury foods industry, Poilne is facing competition, in particular from mass market retailers such as the Pain Paul bakery chain, whose rapid growth has had industry experts like Steven Kaplan commenting in the International Herald Tribune on its reach. In the face of this competition, Poilne current strategy has been to remain focused on its traditional niche brand. As Apollonia Poilne also stated in the Tribune, have no competitors. It may turn out that Poilne does not require the financing to fund a bold global expansion or entry into new markets. Moreover, its loyal customers are unlikely to change the purchasing habits they have followed for decades. But it remains to be seen whether this strategy will continue to garner success for the company. The French luxury goods industry is at a crossroads. For years, it has enjoyed a market perception as a leader in quality, coupled with a growing consumer base both at home and abroad. However, the current economic crisis has brought sharply into focus the trade off faced by luxury businesses: Falling consumer confidence, stagnant incomes in the West and ever increasing competition have all added pressure to adapt and change, or succumb to failure. Our case studies of French luxury foods show that the most important strategy for luxury goods businesses is protecting competitive advantage at all costs whether it is the excitement of continuous innovation, in the case of Fauchon, or Poilne number one position in a niche market. In addition, Asia as a consumer center has created new challenges but provides a much needed lifeline and an expansion strategy that will no doubt be replicated in other emerging luxury goods markets. This article was written by Katie Catillaz, Swita Charanasomboon, Munish Gupta, Deepti Tanuku, Alexandra Thomson, and Vasil Topuzov, members of the Lauder Class of 2010.