INTRODUCTION

The subject of food is as diverse and complex as the many dimensions

that encompass it. We need food to survive, but once we get beyond

the basic needs of nutrition, the subject of food takes on an entirely

different character depending on ones values. People associate food

with their own personal lifestyles, culture, history, values, heritage,

history, identity, and other attributes that make them unique.1

Gianluigi Zenti

Academia Barilla and ElBulli have a lot of common themes: they have applied and are still applying

the cultural and social influences to the food industry, they are oriented and focused on innovation

and creativity, they have pioneered and restructured their own markets and business models, they

are global, they have strategic alliances with suppliers, retailers and institutions and, finally, they

have wisely used all the strategic management concepts. But, above all, I believe they are both

pursuing a break-even strategy with the abovementioned businesses in order to capitalize with other

correlated businesses, as a tool of permanent promotion.2

Beside the fact that the two cases both deal with the food world, they portray it in two very different

way, focusing: one on the dry pasta segment of the retailing industry in the United States (and

involving issues like education and tourism – Academia Barilla) and the other on the haute cuisine

segment of the restaurant industry (and involving issues like art and entertainment – ElBulli), but

both strategically are pushing on the connotative side of food, on the basis that food is connected

with products composed by three main components: physical, emotional and inspirational.3

Inded, nowadays business growth is primarily driven by intellectual assets: idea, brainpower and

creativity. In a knowledge based economy, the human variable is no longer independent, because it

1 G. Zenti, The International Food & Agribusiness Management Association Newsletter - IAMA President Report , 2007.2 Cfr. M. Norton, J. Vilanueva, L. Wathieu, ElBulli: The Taste of Innovation, Harvard Business School, 2008.D. Bell, M. Shelman, Academia Barilla, Harvard Business School, 2007.3 Cfr. J. Hartle, Gianluigi Zenti, President, Academia Barilla SpA – The Changing Consumer: Demanding but Predictable, 2006.

is necessary to evaluate the “intelligence” of a company as innovation power. This conception

underlines the fact that the future is more important than the past.4

Academia Barilla

The first case shows us the process of introduction by the world's largest pasta company (Barilla) of

a new high-quality, high-priced product line that features a range of authentic Italian food products

sourced from artisan producers. Management believed that the new line would have high appeal on

consumers seeking healthier foods, and will help extend Barilla's brand identification beyond pasta.

However, the new line was a bold departure from Barilla's core competencies of high-volume

production and sales of fast moving, low-priced goods. So far it had also a strong correlation with

the company historic principles of quality and authenticity, as well as the commitment to provide

the world with good food. But Academia had also to fit into Barilla’s long term strategy and need

for growth. Indeed, the broader issue on Academia Barilla is related to its present role into the

Barilla Group’s organization: a niche line, with limited sales but useful as a way to enhance

Barilla’s authentic Italian image and as a testing ground to identify products that could move into

mainstream distribution; or a real competitive stand-alone brand.

In this scenario, given the emotional and cultural dimension connected with food, the evolution of

consumer knowledge is becoming a really significant driver in the market. Consumers are expecting

that manufacturers just not produce manufactured products but also teach them about those products

and how to use them. This is really the big innovation, not just being a manufacturer, but also being

a big communicator of knowledge.5 Because of that, Academia Barilla and Barilla Group needed to

promote Italian food in America by communicating Italian lifestyle and working on below the line

marketing activities aimed to emphasize gastronomy at Academia Barilla.

4 Cfr. G. Barilla, Intellectual and Human Capital – The Accounting of Innovation, 2007.5 Ibidem.

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Pursuing this strategy, Academia Barilla has made an incredible impact in the American food

market that reaches far beyond pasta, becoming a beacon of Italian gourmet food culture and

gastronomy that protects and promotes authentic food products from Italy. Academia Barilla is a

success story of educating the consumer, not giving the consumer what consumer wants.6

Mission Statement

The mission of Academia Barilla is to protect, develop, and promote the art of Italian cuisine and

gastronomic culture around the world. It develops the Italian culinary art by celebrating traditions,

nourishing innovation, and promoting the knowledge and the enjoyment of Italian regional cuisines.

Products, courses, publishing and consultancy services provided by Academia Barilla serve as the

key roads towards fulfilling this mission.

A specific goal of the effort is to protect the world from imitation products and cuisines by

introducing products, courses, and consulting services to consumers, food lovers, and businesses

worldwide.

Vision Statement

With Academia, we want to tap into the world of food lovers beyond Italy. We believe that there are

strong values in the Italian way of eating, both in taste and nutrition, and that Barilla has the

legitimacy to market this around the world. Academia’s objective is to bring the best of our food

and culture to the world, becoming a sizeable and profitable business.

6 In addition, Academia Barilla is also a culinary center in Parma. It is exclusively dedicated to the art of Italian gastronomy with the core mission of safeguarding traditional Italian food products from imitations, developing and supporting the Italian food arts through culinary training that fosters innovation and creativity among chefs in Italy and abroad, promoting and raising awareness of Italian gastronomic culture around the world through events, initiatives and publishing.

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Continental Europe is our home and will remain the focus of our growth, but we will pursue

different strategies for the pasta and baked products markets. Our second most important operation

is in the United States where we mainly hope to expand our product portfolio.

ElBulli

On the other side, the restaurant world is depicted from the particular point of view of the world

best restaurant in the world. According to numerous prizes and awards won over the past few

years,7 ElBulli and its owner and chef Ferran Adrià are recognized as the symbols of modern

cooking. The very strong scarcity, the exclusivity of the setting of Roses, on the Costa Brava, and

the constant effort put into innovation and creativity are the main things that contribute to classify

ElBulli restaurant as a luxury brand and as a place where is almost impossible to get a table. The

restaurant is the first and core activity of ElBulli: this is where the business, the brand and the

recognition ElBulli started and continues to grow.

From one side, Ferran Adrià and his team must continue to develop new and different dishes for the

ground-breaking cuisine at elBulli to guarantee a continuous stream of innovation, the cornerstone

of the restaurant's success. But they are also faced with the challenge of growing the business,

exploring whether the core concepts from elBulli -this "taste of innovation"- can be applied to

domains ranging from consulting to fast food.

The problem is that since 2001 the restaurant, keeping on its exclusive strategy, has reported 500

million euro loss per year, showing that genius and business results not necessarily go hand in hand.

For sure from 2012 ElBulli will close down and it is expected to open again, maybe in 2014 as a

subsidized foundation, however, in the meanwhile, Adrià can keep on making profits through the

ElBulli related businesses.

7 ElBulli received his third Michelin star in 1997 and it has been selected as the top restaurant in the world in 2002, 2006, 2007 and 2008.

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Mission Statement

Creativity comes first; than comes the customer […] Every day we reinvent the model

Before the objective was to create new dishes, now what we seek is to create techniques and

concepts that will generate many dishes. Whether you like what we do or not, and some might think

it's crap, the fact is that this is ElBulli; this is what we do, and where we have been pioneers.

Vision Statement

There is nothing against millionaires, but ElBulli has to remain accessible to a greater number of

diners who appreciate what we are here […] The dream is to cook for one or two tables every day

and to present our new creations all over the world.

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[a] ACADEMIA BARILLA AND ELBULLI S.W.O.T. ANALYSIS

Academia Barilla

Strenghts – S Weaknesses - W

1. Very strong brand and reputation 2. Complete integration with the group strategy3. Excellent R&D function and focus on innovation 4. Competitive advantage through their logistic network5. High quality product sand suppliers, broad product line and effective packaging6. Good promotion strategy 7. Good diversification strategy 8. Excellent marketing positioning 9. Good management10. Good financial trend

1. Uneducated consumers2. High priced segment of the market3. No direct sales force4. No young customers5. Too much identification with the image of Italy (risk of adverse reputation)

Opportunities – O Threaths - T

1. Counter-cyclical products2. Increasing restaurant consumption3. Focus on healthy food diet4. Occupation of the Italian fake food's market share5. Increasing trend toward high-quality products and customer services6. Traditional cuisine and ethnic food trend7. E-commerce

1. Risk of cannibalization2. Limited presence in emerging markets3. Low-margin industry4. High sensibility to price5. Capital-intensive industry6. Low-carb diet trend7. Increasing women occupation8. Growth of discount retailers9. Volatility of raw materials price due to seasonality10. Fast food, pre-prepared food and junk food trend11. Economic downturn risks12. Exporting risks13. Increased regulation on food

Academia Barilla is the only Italian retailer in the U.S. pasta Industry, having a very strong brand

and an excellent image and reputation. This competitive advantage in terms of distinction and

knowledge allowed it to build effective relationship with its network of restaurants, distributors and

retailers. Indeed, Barilla’s pasta is a global product able to achieve scale economies. Its strong brand

image and reputation offered to Academia Barilla even the opportunity to occupy the big market

share of the Italian fake foods in the United States. But the cultural identification with Italy could

even resolve in a threat because adverse social, political, ethic and morale issues on Italy could

affect Academia’s image and reputation.

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Academia’s points of strength are also related to its complete integration with the overall group

strategies and goals. This gives Academia the opportunity to utilize the managerial and technical

support and experience of an established multinational group. Indeed, company’s objectives and

goals are measurable and well-communicated; managers are able to plan effectively with an

appropriate organizational structure at their back; while team morale is quite high because of a clear

shared mission and an effective system of rewards and incentives.

In addition, Academia Barilla has an excellent R&D function focused on innovation. It performs in-

house product developments and consumer researches, efficient quality-control practices and

inventory-control policies.

Academia has a big competitive advantage through the Group logistic network (called Number 1)

able to deliver not only the company products but also other firms’ products. This important

intermediation ability gives to Barilla an high bargaining power over distributors and partners,

maintaining margin very high (although they are in low-margin industry with high sensitivity to

price).

Academia Barilla means high-quality products (and as consequence specialized premium suppliers),

broad product line and an effective recognizable packaging. On top of this Academia Barilla is also

performing good promotion strategy based on public relation and below the line marketing

activities, perfect to not tread on the holding’s massive advertising strategy feet.

Academia Barilla brand has also an excellent marketing positioning: market is effectively

segmented and the brand is well-positioned among competitors (they’ve chosen the high-quality

end of the market and however the related high price is perceived as appropriate by costumers).

Indeed, firm’s market share is increasing while the pasta’s consumption in the U.S. is still

decreasing. They targeted the U.S. continental market for dry pasta making this strategy a real

competitive advantage among competitors (focused on regional markets).

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In addition Academia Barilla deals with counter-cyclical products which are more consumed when

the disposable income decrease. This is for sure a great opportunity because we are now trying to

get out from one of the worst economic recessions of modern economy. Indeed, the pasta industry

proved itself much more reactive than other sectors such as consumer goods or even other food item

areas. Because of its relative small price (compared to the typical basket) customers usually not

radically change their eating habits when they come to pasta.

Despite the recession and the consequent decrease of the disposable income of consumers there is

an opposite factor which gave to Academia Barilla another opportunity: the population ageing

phenomenon is increasing the presence of people with more buying power (baby-boomers),

fostering the restaurant consumption.

But the economic downturn shows also important threats such as the unavailability of credit needed

to sustain growth, high interest rates and increasing cost of capital (especially in a capital intensive

industry), consumers trade of for substitutes, unemployment and decreasing productivity, over-

production or under-consumption risk and decreasing capitalization due to stock exchange fall.

Moreover, Academia has started good alternative business related to tourism (through gastronomic

trips) and to education (through training culinary courses), giving even a big boost on local

economy.8

The increasing focus on healthy food diet, the trend toward high quality products and customer

services and the growing attention for traditional cuisine and ethnic food trend represent also a big

opportunity for Academia Barilla. But on the other hand Academia has to face a rising

standardization of tastes and lifestyles towards low-carb diet, fast foods, pre-prepared foods and

junk foods.

8 This allow it to collect information on the industry’s stakeholders (producers, wholesalers, retailers, consumers, exporters, chefs, restaurants, university, city and regional administrators) and on the best practices of the industry (mixing public and corporate endeavor), with the desire to capitalize on and nourish the traditional vocation of Italy as a center of excellence for food and life sciences.

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In this scenario the real weakness of the Academia Barilla is that it has to face uneducated

consumers to which it is selling high priced products (as regards to dry pasta industry) without a

direct sales force. Another weakness is the absence of young customers for its products, indeed

young people seem to be any longer interested in cooking and traditional meals. Another concern

related to lifestyle is the increasing occupation of women (the traditional angels of the kitchen).

In addition, the high pressure of emergent market on costs (in which Academia Barilla and Barilla

Group have a very limited presence) pushed the agro-business on the cultural side of the

competition rather than the price side. The Industry is also subject to natural exporting risks: such

change in the euro-dollar balance, trade tariffs and barriers to trade or subsidizing of local

endeavor.

Finally there is a risk of cannibalization involving the possible conflict between the manufacturing

channel and the retailing channel inside the holding. Even if they tried to diversify strategies,

products, segments, products, promotions activities and the distribution channels, the two business

seem to be to much related and integrated with the risk that Barilla Group could eat the core

business of Academia Barilla.

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ElBulli

Strenghts – S Weaknesses - W1. Excellent image and reputation2. Innovation and creativity philosophy focused on R&D function, technological improvement and quality-control policies3. Employee morale very high, low turnover and absenteeism, high appeal for new talented employees4. Good management practices 5. Effective marketing positioning among competitors and adequate pricing6. Effective promotion, advertising and publicity strategy7. Excellent product quality and customer service able to create an extraordinary one-off customer experience8. Exclusivity of service9. Unique products and techniques facing a very strong demand (under-capacity)10. Excellent facilities, equipment and machinery11. Good diversification strategy

1. No brand loyalty2. High cost (variable and fixed)3. Break-even strategy, low capacity and risk of structural losses4. Low focus on customer satisfaction5. High seasonality: volatility of ingredients’ prices and business operations

Opportunities – O Threaths - T

1. Increasing restaurant consumption2. Focus on healthy diet and ethnic, themed and innovative food3. Focus on customer service and quality of products4. Tourism as strategic driver5. Focus on social and environmental responsibility6. E-Commerce expansion7. Increasing level of government intervention (patents and subsidies)

1. High-cyclical industry2. Hotspots business (fad) with much importance of gatekeepers3. Volatility of ingredients’ prices4. Increasing trend towards convenience5. Increasing adoption of fast food and take out diet worldwide6. Decreasing spending, falling level of disposable income and increasing attitude toward saving7. Decreasing and changing of consumption patterns8. Economic downturns risks9. Standardization of tastes10. Increased competition in the restaurant industry11. Increasing costs of commodity prices12. The industry is increasingly being regulated by national, local and international authorities13. Risk of special tariffs on food

The real ElBulli’s point of strength is represented by an excellent image and reputation, built up

putting together a philosophy focused on innovation and creativity, a good marketing positioning

and an effective strategy aimed to offer to customers an extraordinary one-off experience. Dining at

ElBulli means much more than eating: it’s an experience able the give sensual and intellectual

pleasure, a grand experience of tastes, textures and wonder without following any conventional

food rules (involving issues which vary from art and entertainment to education and tourism). 9

9 Cfr. S. Dyson, R. McShane, Kitchen Review, 2008.

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The magic mixture of Slow Food’s concepts,10 fusion cooking, haute cuisine philosophy and

molecular gastronomy have made ElBulli the finest restaurant in the world and the “Holy Mecca”

for gourmets.11

An unseen product quality, an excellent customer service, the uniqueness of products cooked and

techniques used, guaranteed by a deep focus on R&D function are the basis of the ElBulli’s offer

given at an affordable and adequate price. Because of this sensational offer, the capacity of the

restaurant falls short to the high demand, making exclusivity the central feature of the restaurant.

But such a business has definitely very high fixed and variable costs (organizational structure, high

quality supplies, facilities, very technological machinery and equipment and R&D policies and

procedures). High costs, moderate prices and low capacity, joint in a break-even strategy highlight

the risk of structural losses.

Indeed, ElBulli doesn’t seem a restaurant. It doesn’t make any money. The books, the hotel, the

other related businesses, they make money. But it would not be possible to make money and

continue to do what we at ElBulli do. ElBulli is a place where limits of the kitchen are pushed

forward.12

In this scenario we must underline that the restaurant industry and the haute cuisine segment are

facing an increasing consumption connected to a rising of the buying power of the ageing of baby-

boomers generation; a growing trend toward ethnic, themed and innovative food rather than healthy

diet, and a mounting focus on products quality and customer service. These represent real

opportunities for ElBulli, but at the same time it has to face the ever-lasting pace of the

10 The application of the Slow Food Movement’s philosophy focus on the aim to preserve the cultural cuisine and the associated food plants and seeds, domestic animals and farming, defending biodiversity within an eco-region; and on the importance of conviviality as one of the most fundamental aspects of eating together. It means that the food world is more than just eating, involving cultural and social issues.11 Cfr. B. Moor, Gourmet Food, 2005.12 Cfr. The Guardian, Meet the world's best chef, 2008.

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globalization in term of standardization of tastes and fast-junk food trends connected to an

increasing focus on convenience and to the new frenetic lifestyle.

In addition the restaurant industry is really cyclical and subject to threats related to economic

downturns: the unavailability of credit, high interest rates and increasing cost of capital,

unemployment and decreasing disposable income. The overall restaurant industry has also many

substitutes and high competition of different social activities and it is subject to changing patterns of

consumption.

The restaurant arena faces a very strong competition boosted by an high volatility of ingredient’s

prices due to the seasonality and by the growing costs of commodities.

Finally an important threat or opportunity for the industry is represented by international and

governmental actions: increasing regulation, risk of special tariffs on food, introduction of patent

system, increasing level of subsidies and antitrust legislation enforcement.

[b] THE INDUSTRIES

Dry Pasta Industry

The United States pasta market can be broken down into frozen pasta, dry pasta, canned pasta and

shelf stable pasta. The big players in the dry pasta market are General Mills, Dakota Pasta Growing

Company, Archer Daniels Midland, Barilla and Nestle. The United States imports its pasta, apart

from domestic production from Italy, Canada, Mexico and China and it exports pasta to Canada and

Japan. There are many factors that affect consumption of dry pasta in the United States: economic

counter-cycles, substitution of products, overall declines in production, low-carb diet trends, fast

food meals and trade policies.13

13 In 2006 the average American eat pasta 2.7 times a week with an annual per capita consumption of 9 kg. The United States imports about 18% of the pasta it consumes in any given year. Italy exports 46% of its pasta production. The U.S. represents only 10% of this figures. Barilla has 25% of the U.S. market (while it has between 40% and 60% of the

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Restaurant - Haute Cousine Industry

The restaurant industry is divided into three segments: full service (service is provided and the order

is taken while the patron is seated), fast food or quick service (patrons generally order at a cash

register or select items from a food bar and pay before they eat) and managed Service (on-site food

service and food contractors). 14

ElBulli is in the first segment and it operates in the premium niche of the market: the haute cuisine,

pioneering molecular gastronomy.15

The haute cuisine industry represents a global industry: mature in the western countries and

growing in the emerging market and the most important player of the industry are ElBulli in Spain,

Wd-50, Moto, Alinea and The France Laundry in the United States, Pierre Gagnaire in France and

The Fat Duck in England.

Italian market and 22% of the European market). Cfr. U.S. Pasta Marketing Report, 2006.14 Very briefly and just as a benchmark, in 2010 the restaurant industry in the U.S. is worth about 580 million dollars of which 388 millions are connected to eating places (others are bars, taverns, managed services, lodging place restaurants, retailers and non commercial). It has increased more than 50% from 2000. The restaurant industry employs about 12.7 million people, or 9% of the U.S. workforce and its sales are equal 4% of the U.S. GDP while its overall economic impact is expected to exceed $1.5 trillion. Cfr National Restaurant Association, 2010 Restaurant Industry - Pocket Factbook.15 Haute cuisine refers to grand and elaborate dishes served in restaurants of the Western world. The preparations and presentations are breathtaking, and the meals are rather large, but served in small course sizes, showcasing rich and unique delicacies. Today's haute cuisine isn't characterized by any particular size, but more to a fusion of regional and seasonal ingredients, careful and thoughtful preparation, and elaborate service. It is definitely related to an upscale dining experience. On the other side molecular gastronomy is a style of cooking in which scientific methods and equipments are used. This type of cooking examines, and makes use of, the physical and chemical reactions that occur during cooking. Cfr. Haute Cuisine, Food Dictionary, 2009; J. Harlan, Molecular Gastronomy, About.com: Cooking Equipment, 2008.

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[c] THE PORTER FIVE FORCES MODEL OF THE RESTAURANT - HAUTE CAUSINE

INDUSTRY

Potential Development of Substitute Products or

Services1. Many substitute products2. No cost for the costumer in switching to a substitute 3. Customers are likely to substitute4. Substitutes have performance limitations which do not completely offset their lowest price

Bargaining powers of suppliers

Rivalry among Competing Firms

Bargaining Power of Consumers

1. Inputs are really selected and very much differentiated2. There aren't many potential high qualified suppliers according to the excellent standard of the firms in the industry3. Cost of purchases has significant influence on company's overall costs4. There are many competitors to choose from for suppliers 5. It is difficlt to substitute inputs readily in a labor-intensive industry; 6. It is not easy to replace inputs with substitutes without rethinking the business model or switching between supplies without incurring additional costs and it is unlikely to receive favorable pricing

1. Strong competition among firms2. Not rapid growth (it is almost related to increasing population, positive economy and rise in the demographics of eating out consumers)2. Cyclical industry with intermittent over-capacity or under-production3. The fixed costs of the business are a relatively high portion of total costs4. Diversified competitors5. No significant costs in switching to a competitor

1. Unique product and brand2. Increasing trend toward restaurant consumption3. Large number of buyers in relation to the number of firms4. Demand higher then supply5. One-off experience 6. Demand is a function of discretionary incoming7. Large number of customers each with relatively small purchases8. No costs for customers in switching suppliers9. Very difficult vertical integration for the customer 10. Customers are sensitive to high prices11. There are no incentives to buy like promotions, coupons and offers

Potential Entry of New Competitors

1. Rivalry among new entrants is strong2. Branding makes a bigger difference3. There is a strong differentiation in term of product, services, technologies and tecniques4. Established firm have favorable contracts with long term suppliers and better brand recognition4. Customers don't incur in any significant costs in switching suppliers5. Set up costs of a haute cousine restaurant are expensive but they are not prohibitive6. There is no difficulty in accessing distribution channels for newcomers7. Newcomer have no problems in obtaining the necessary skilled workforce, materials or suppliers8. Licenses, insurance or qualifications are not difficult to obtain9. Management experience helps to analyze and reduce costs

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From the analysis, we could summarize in this way the industry profile: it has relative low barrier of

entry, customers have moderate bargaining power although branding is a strong differentiator, and

substitutes do exist for customers. The industry has many suppliers without strong bargaining

power and the rivalry among competitors is intense, making hard to earn above average profits.

Beside this, ElBulli has forced the limits of the industry trying to build up higher and stronger

barriers to entry in term of knowledge, techniques, and equipment in order to keep newcomers out

of its segment and lowering the elevated competition, peculiar of the restaurant industry. The

excellent ElBulli’s brand identity represents another way to maintain high control over suppliers

and to the decrease the bargaining power of consumers. Although the break-even strategy of the

company ended up with no profit and sometimes losses (but there are very profitable businesses

related to elBulli).

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BIBLIOGRAPHY

D. Bell, M. Shelman, Academia Barilla, Harvard Business School, 2007.

R. Nolan, S. Kotha, Harley-Davidson: Preparing for the Next Century, Harvard Business School,

2007.

G. Barilla, Intellectual and Human Capital – The Accounting of Innovation, 2007.

S. Dyson, R. McShane, Kitchen Review, 2008.

J. Harlan, Molecular Gastronomy, About.com: Cooking Equipment, 2008.

B. Moor, Gourmet Food, 2005.

G. Zenti, The International Food & Agribusiness Management Association Newsletter - IAMA

President Report, 2007.

National Restaurant Association, 2010 Restaurant Industry - Pocket Factbook, 2010.

U.S. Pasta Marketing Report, 2006.

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