Analysis of Fogo de Chao Service Marketing
Abstract
Contemporary challenges in the business environment are determined by globalization and the increasing complexity of the operations of organizations, which grow outside their national cultures. The effectiveness of marketing strategies for these organizations given high diversity and specificity of business in each of the countries is one of the important discussions in academic context. Service marketing is significantly different from a product for several reasons. To look at the challenges specific to service industry in a context of the international operation, this document analyzes the strategy of Fogo de Chao, Brazilian multinational company, operating steakhouse restaurants in the US and Brazil. The analysis if based on the 4 characteristics of service,evaluation of the operations and challenges on the basis of Hofstede’s dimensions of culture and the diffusion of innovation. The results illustrate how a unique brand and organization have to adopt and flexibilize their marketing strategy and global strategy, in general, to build and conduct the effective and profitable operation in two different countries.
Introduction
Globalization is an important phenomenon that shapes the direction of development of the modern businesses. Internationalization of the business activities, an individual mobility of consumers, access to digital business models is some of the critical factors affecting the complexity of decisions and strategies that the companies have to consider and address to become sustainable competitive in the international arena. Diversity and culture have the tremendous impact on the activities of the organizations in product and service segment (De Mooij, 2015). While manufacturing and retail industries receive a lot of attention from the contemporary academic and business literature, service marketing from the perspective of the culture and diversity management strategies leaves significant room for analysis and discovery. That said, the purpose of this document is to compare and contrast the operations of the Brazilian Restaurant chain of Churrascaria Rodizio in the United States and Brazil with the focus on service marketing, cultural dimensions and diffusion of innovation (Erdem et al, 2006). The research is exploratory and, thus, will apply only qualitative research method through the analysis of secondary data, such as academic articles on this subject.
Background of Physical Operations
Until the 1990s Brazil was one of the most closed economies in the world. Since the change in the political system, the country has emerged as the "nation on the move" with the focus on attraction of Foreign capital and expansion of the local businesses around. The creation of Mercosul further liberalized trade and opened up opportunities for local companies to grow internationally (O’Keefe and O’Keefe, 2004, p.614; Rocha et al., 2012).
Churrascaria Fogo de Chao is a full-service Brazilian churrascaria and steakhouse. Opened in the Rio Grande do Sul in 1979 by the brothers, today it grew to an international restaurant operation with over 29 locations in the United States and 500 dining out locations across Brazil. The company praises itself for traditional Gaucho way to prepare meat and serves the buffet, brunch and traditional rodizio “Eat as Much as You Can” service (USSEC, 2016). The restaurants target meat lovers but attempt to build a proposition with differentiated pricing for kids and even vegetarians, based on a wide selection of fruits and vegetables with the strong accent on traditional Brazilian elements, such as manga, a heart of palm and cover.
Located in all the major Brazilian states and 13 American states, in such cities as New York, Dallas, Miami, Philadelphia, Atlanta, and Boston, the company is in the growth stage in both, the US and Brazil (Gorman, 2015). Fogo de Chao faces a number of challenges to bring in global strategy with personalized and customized offer to each of its locations and ensure that the Brand identity is preserved, while customers “desires” and expectations are addressed in the most effective wat to sustain a profitable and inimitable operation. Some of the major difficulties and challenges in setting service operation in the US, based on the Brazilian model are related to the cultural acceptance of many aspects, such as the choice of products, organic elements, a layout of the restaurant, dish presentation, and many others. In order to be able to enter the market, Fogo de Chao set up its first operation in Maimi, the location with the highest concentration of Brazilian and South American immigrants and descendants, allowing for smoother presentation and integration of the Churrascaria model to the American public (Rocha et al, 2012).
The perception of service quality and effectiveness is not universal. National differences and cultural impact play the significant role in creating strong image service organization in the countries like Brazil and the US. Creating a superior market value, therefore, is fundamental for a long-term success and survival (Slater and Olson, 1997). The lack of focus, on such elements, as the culture, service characteristics, and types of the service, based on the maturity of the market and the size of the business can impede the companies from growth (Malhotra et al., 1994). With that in mind, the single-company based research is based on the insight into four major elements, underpinning the function of marketers: 4 service characteristics, Hofstede's dimensions of culture, diffusion of innovation and the types of service.
4 Characteristics of Service
When it comes to the service industry, some of the major distinctions have to be made from product companies. Productivity, quality and relationships management in service organizations is unique. It is critical to understand the connection of productivity in service companies and the quality of service as the causes of profit generation strategy (Gummesson, 1998). Service operation of a restaurant is based upon four major characteristics. First of all, in contrary to the product industry, service proposition is inseparable. That said, while the product, such as iPhone can be designed in the US, manufactured in China and sold in Brazil, inseparability is the key to a service organization as the services are unique. This makes companies create a service offer provide it at the same location, where the customers consume it. Perishability can be seen as important and even critical characteristic for a service, as products have certain life cycle and validity, service is produced and offered at specific time and location and, thus, is perishable (Gummesson, 1998). Variability has the tremendous impact on the activities of service companies in general and their international strategies specifically. Taking an example of the same iPhone, the company can ensure the quality of the product as the production and development is done in a unique way and, potentially, the same team. Service creation is highly variable as it depends on the provider, the method of service provision, location and many other factors, which build on diversity and variability. Finally, Intangibility is the key to understanding the unique nature of service marketing. Products have specific tangible qualities, like color, material,soft and hard attributes. Services, on the other hand, are intangible, which often leads to the situations, where customers feel like the decision-making process in service companies is conducted without adequate information for comparison and analysis (Fitzgerald, 1987).
Taking the above framework and translating it to the operation of Fogo de Chao, it is possible to establish the further comparison between the two countries in the focus of this research. Fogo de Chao operation is inseparable in many ways. While the upstream activities of the supply chain, such as the material supply, meat specifically, is done from Brazilian organization, the rest of the operational activities are conducted locally. That said, each of the restaurants produces the food, runs the daily operation and offers unique service to the clients. This is unique and standard for both, Brazil and the US. Such specificity of the business outlines the complexity of control over organizational culture and quality of the service. Additionally, while part of the marketing material is produced at the central location, such as the uniforms for the personnel and website maintenance, most of the marketing campaigns and strategy is executed locally, based on the needs of the regions and specificity of operational knowledge, such as language, regulations, and social identity. The approach that the company takes to overcome the challenge is the standardization of the high-level strategy, such as marketing channels and materials used for campaigns and visual marketing. That said, Fogo de Chao uses social media as the central marketing channel and widely applies visual elements, such as show, thematic uniforms, dish presentation, print material as a global service marketing strategy (Russell-Bennett, Wood, and Previte, 2013).
Importantly, the concept of the perishability of the Fogo de Chao service is different for the US and Brazil. As most of the supply for the core product, such as meat (picanha, costly and file mignon) and unique to the Brazilian cuisine vegetables, such as the heart of palm and you've come from Brazil, the validity of these products and their usability in the US restaurants are significantly shorter. While the company makes a lot of efforts to address this perishability issues through the strong focus on demand management and customer psychology analysis to understand the trends of the market, it cannot avoid personalization of the menu in the US to reduce the waste in their operational processes to increase productivity (Gorman, 2015). Fogo de Chao marketing in the US is strongly focused on the seasonality and variability of the menu and the “local taste” elements, while the marketing campaign in Brazil is centered around “same quality, same food, same price” proposition across the country. This outlines the focus on the midstream social marketing and general service marketing strategies (Russell-Bennett, Wood and Previte, 2013, pp. 224-226).
Similarly to other characteristics, variability is a challenge for the company. While restaurants have strong and developed training strategy and technical cards, which help with standardization of quality across the countries and locations beyond the material quality, the business cannot avoid variations in the service. These variations are based on the variables in the industrial kitchen, employee diversity, customer diversity and many other elements. One of the important examples for this challenge is the taste of consumers. Fogo de Chao comes from the South of Brazil, where Gaucho prefers strong and harder meat. The cuisine is focused on alcatra, fraudinha types of meat and lamp.The typical consumer in the US will prefer softer and more tender meat cuts, such as filet mignon and picanha. This causes different cognitive and emotional response of consumers on a traditional proposition of the restaurant and makes the company adopt changes to the Brand identity and incorporate variability into the quality (Gorman, 2015).
Finally, restaurant service, while offering a final product with specific characteristics, possesses some elements, which are purely intangible, such as quality of the service, provided by the staff, the overall perception of the experience, built upon the ambiance, music, and presentation of the dishes, the quality, and others. The proposition and the service of Fogo de Chao in the US is unique, based on such brand elements as "South American cuisine", "Unique all-you-can-eat offer" from a steakhouse and Brazilian identity. For Brazil, on the other hand, Fogo de Chao brand identity and customer loyalty strategy are significantly different. The clients are not attracted by the same intangible attributes as in the US, brand positions itself in a middle-class segment with the focus on "tradition", "quality of Gaucho service", recognized by consumer and availability. These completely different intangible brand attributes draw on the differences in service marketing strategies that a unique Brand has to apply to compete internationally (Bayraktat and Ndubisi, 2014; Lieven et al. 2015).
Hofstede's Dimensions of Culture
International operation in the modern environment demands strong organizational capabilities in understanding the diversity and building its long-term plan, based on the cultural and social diversity of locations, where they operate. While product organization can analyze the market and launch the offer with longer life cycle and deeper ground for customer psychology analysis, service marketing strategies are further complicated by the dynamic nature of elements, which must be factored into the customer proposition (Kenneth, 1998). According to Hofstede (2001), national values and behaviors can be characterized by several primary elements, which include power distance, uncertainty avoidance, masculinity as opposed to femininity, individualism as opposed to collectivism, long-term versus short-term orientation and indulgence.
One of the critical differences between the countries, which affect business behaviors is individualism and power distance. Brazil score of 69 contrasts with the US score of 40, demonstrating that Brazilian culture is significantly more tolerant to the organizational and social hierarchy. The different distribution of power reflects the social difference and the importance of respect to elderly and minorities in the social context and the stronger hierarchical cultures in the companies in a business element. On the contrary, American culture does not give so much importance to hierarchy and the nation believes that individuals are equal irrespectively of the social, business or another status, which they possess.
Similarly, Brazil is extremely collectivist culture, while American society is individualistic.With the score of 38 and 91 for Brazil and the US accordingly, it is possible to see the difference in the approaches that service marketing should take when it comes to the customer relationships and the proposition (O'Keefe and O'Keefe, 2004, pp.615-616). Additionally, the cultures should distinguish through the scores of uncertainty avoidance. Brazil is the country, where society needs rules and informal regulations, which drive social behaviors, while the US is more open and diverse in terms of the behavior and emotional response. This affects the manner in which businesses interact with individuals and group customers. The restaurant industry is significantly affected by this dimension as it outlines the habits and traditions, which underpin consumer behavior and preferences for dining out and food consumption in general (Ribeiro et al, 2009). Fogo de Chao differentiates its customer proposition to address this cultural dimension and build on effective marketing strategy through several elements, evident from the analysis of their physical installations and the website:
The restaurants in the US are more focused on A La Carte menu than on the “eat as much as you can” option, while Brazilian Fogo de Chao establishments often do not offer menu at all;
The restaurant layout in the US is focused on 2 and 4 seating tables, while Brazilian restaurants more often practice large table to accommodate up to 20 people;
Kids menu in the US is a “value adding” service, as many customers build their preference on the offerings for the kids.In Brazil, the restaurants offer free dining for children at least up to 7 years old and this proposition is the “need” for the client.
Both countries demonstrate very intermediate score in the dimension on masculinity and femininity. This indicates that the service marketing should give attention to such elements as "family", "caring", "additional comfort", "coziness" and other aspects of the service, which build on feminine nature. At the same time, a formal and regulated environment are important as part of the overall proposition from the industry. The example of Fogo de Chao illustrates this approach through:
Specific design and planning of the restaurants, that are focused on the families.
Most of the restaurants offer kids play room or corner and kids menu;
The ambiance is calm and cozy, in spite of the large size of the establishments;
Branding uses strong, but very "cozy" and "warm" colors.
The above-mentioned cultural aspects and the strategic response of the company illustrate the potential impact of service marketing on the success of the company in both countries.
Diffusion of Innovation
It is interesting to look at the concept of diffusion of innovation from the standpoint of Fogo de Chao as a single business model in restaurant sector of a service industry. The theory suggests that the core elements, which influence the spread of an innovation and a new idea include communication channels, time, social system and the innovation itself. The reality shows that innovation has to be widely adopted to be able to sustain itself and offer the competitive advantage to the company. Fogo de Chao can be considered as the restaurant in the general dining out the segment with the proposition of all-you-can-eat steakhouse. In this sense, the analysis looks at the all-you-can-eat concept as the innovation proposition and the position of the organization in the US and Brazil with regards to this offer (Greenhalgh, 2004).
The above table outlines the tentative lifecycle of the Fogo de Chao restaurant proposition in the US and Brazil. Given the fast-growth of the restaurants and the overall organizational profit in both countries, which is estimated at USD 262 million in 2014 and the return on investment by the end of the third operational year for over 50% of the restaurants in both countries, it is possible to assume that the company has similar lifecycle in both countries (Gorman, 2015). According to the same source, the announced growth for Brazil over the period of 2010-2015 is 11.4%, while in the US the chain growth at an average annual rate of 2.9% over the same period (USSEC, 2016). This indicates the similarities in the strategic level goals that the management may have to both international locations. Given the fact that Fogo de Chao is at the growth stage in both countries, the organization chooses to grow dramatically on the geographical scale to benefit from the economies of scale in the US and Brazil. The analysis of the innovators over time allows arguing that the growth potential in Brazil is higher, probably due to the fact that the concept is not new to the market, while the Brad reputation and identity built around the all-you-can-eat steakhouse is central to profitability. On the US market, on the other hand, the company sells all-you-can-eat steakhouse as the central element of Brand identity. The rate of adoption is slower and, consequently, the growth rate of the restaurants in general. Innovation life cycle in the US, therefore, is longer, but the pace of growth is slower in general. That said, Fogo de Chao should introduce new service in Brazil with more frequency and adopt radical innovation strategy at some stage, while it can sustain its growth pace in the US with the current service proposition for the longer period of time proportionally, further looking at incremental innovation.
Conclusion
Operations of a restaurant in two or more countries is an example of a complex operation, the success of which is underpinned by professional and forward-thinking serve marketing strategy, change and diversity management strategies. Foo de Chao is a chain of all-you-can-eat steakhouses, operating in the US and Brazil. The complexity of the operations of this organization can be analyzed from various perspectives and utilize a number of marketing models (De Mooij, 2015). This report looked at the most important elements, such as characteristics of the service, cultural and national characteristics, influencing and shaping marketing and operational strategies of the company as well as the service lifecycle and diffusion of innovation in the context of the current proposition of Fogo de Chao. Both markets are at the stage of growth, but the cultural differences and the social identity of the consumer in the US and Brazil demand Fogo de Chao adopt not only different operational, but marketing and Brand strategies to meet clients expectations and create inimitable business model, grounded on unique for the country desires of the public. While the restaurant is equally successful in both countries, the culture, tradition and the pace of adoption of innovation define the maximum potential for growth under the current strategy and with current service proposition. The company demonstrates exceptional knowledge of consumer psychology and the ability to apply global strategy to local thinking.
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