The relevance of customer and stakeholder...

The relevance of customer and stakeholder competencies in a product

driven marketplace: The Case of Kauai, South Africa’s fastest

growing health food company

Author: Wayne B. Gosling Supervisor: Maha Golestaneh

Presented to: UCT Graduate School of Business

Wayne Gosling UCT Graduate School of Business

The relevance of customer and stakeholder competencies in a product driven marketplace

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Table of Contents

Acknowledgements and declaration .......................................................................................... 2 Abstract ...................................................................................................................................... 3 Introduction ................................................................................................................................ 4 Scope .......................................................................................................................................... 5 Research Problem and Objectives ............................................................................................. 8 Literature Review....................................................................................................................... 9

Customer orientation .............................................................................................................. 9 Stakeholder orientation ........................................................................................................ 12

Methodology ............................................................................................................................ 16 Data collection process ........................................................................................................ 16 Analysis of interviews.......................................................................................................... 17

Case: The Kauai Food and Juice Company ............................................................................. 18 Spreading the Aloha vibe ..................................................................................................... 19 Serving ‘Good Nature’ ......................................................................................................... 20 A menu for all seasons ......................................................................................................... 20 Kauai stores .......................................................................................................................... 21 Kauai@School ..................................................................................................................... 22 Kauai in motion.................................................................................................................... 22 Kauai & Kulula .................................................................................................................... 23 Kauai and the community .................................................................................................... 24 Kauai’s employees ............................................................................................................... 25 The Mystery Shopper Programme ....................................................................................... 26 Supplying Kauai................................................................................................................... 27 Future growth and challenges .............................................................................................. 28

Teacher’s Notes ....................................................................................................................... 30 Case summary ...................................................................................................................... 30 Case study implications: learning objectives ....................................................................... 30 Presenting the case ............................................................................................................... 31 Sample case study questions and model answers ................................................................ 32

Appendices ............................................................................................................................... 42



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Acknowledgements and declaration

This report would not have been possible without the following people whom I would like to thank: I would like to thank my supervisor and friend Maha Golestaneh for her encyclopedic knowledge on the subject, as well as her invaluable assistance and time during the research process. A special thanks goes to my mom and dad without whose financial and emotional support this year would not have been possible. Lastly, thanks to my all my friends especially those I have met on the MBA, albeit that this research would probably have been finished earlier if it wasn’t for you. This report is not confidential and may be freely used by the Graduate School of Business. I certify that this report is my own work and to the best of my knowledge all references used are accurately reported.



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Abstract

While customers and their behaviours can invariably “make” or “break” a business, the

shrewdest executives emphasise the value of stakeholders such as government officials,

employees and shareholders in shaping their business performance (McGovern & Moon,

2007). Empirical research has demonstrated that a stakeholder orientation can sustain long-

term profits and market share, and the role of organisational antecedents in promoting

stakeholder and market -oriented behaviours (Freeman, 1984). However, few studies have

focused specifically on these effects in emerging consumer markets (ECMs), which is

peculiar since ECM businesses across manufacturing and service industries account for a

substantial and growing share of global sales and profits.

In an attempt to contribute to ECM research and the practice of marketing strategy in these

markets, a nonempirical case study was devised. The case study focused on the Kauai Food

and Juice Company, a leader within the South African healthy fast food industry. The

company has gained success by not only aligning its business to serve its particular target

market, but by also taking into account the various needs of its other stakeholders. With rich

insights, the study will help future MBA students discover how stakeholder and consumer

orientation strategies are practiced in a heterogeneous market and give suggestions on how

other businesses can adopt similar strategies to drive success.

Key Words

Stakeholder orientation, customer orientation, emerging consumer markets, health food

industry, fast food industry



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Introduction

Having started as an offshoot of the Kauai Juice Company, a wholesale supplier of freshly

squeezed juice to the Hawaiian hospitality industry, the Kauai Food and Juice Company

opened its doors for trading in Cape Town in 1996. After endearing itself to Cape Town, the

company sort growth nationally through its provincial expansion plan. 12 years on and the

brand is instantly recognisable as having cut its own niche in South Africa’s fast food market.

The Kauai recipe for success seems simple enough: provide high quality health food, salads,

sandwiches and smoothies in a stylish, themed environment. The company’s astonishing

growth is deemed by most to have come from its extensive knowledge of the labyrinthine

consumer and stakeholder environment in which it operates. This customer and stakeholder

–orientation is interesting as Kauai is an operator in what is primarily considered a product

driven marketplace. As such an attempt to gain an in-depth understanding of the company

and its business will prove beneficial to the theory. A literature review, ethnographic focus

on Kauai customers and qualitative in-depth interview process using managers and

employees built a substantive foundation for this case study. Other than providing insight for

organisations already operating in this environment it should help explain the rules of

engagement to firms from developed markets hoping to compete in an economy like South

Africa’s.



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Scope

Business practitioners have more than likely focused their operations in high income

countries (HICs) in the past. This makes sense as they are the world’s most advanced

economies. However, their attention has turned to emerging markets as they having realized

that there are new opportunities in these places that were formerly isolated. Although often

vaguely defined, emerging markets are generally made up of emerging consumer markets

(ECMs) as well as low income countries (LICs) (Burgess & Steenkamp, 2006). This study

has an inherent focus on ECMs due to the fact that they are often more economically and

politically stable.

ECMs are middle-income countries (GDP per capita between $1,480 and $17,450) with

middle human development levels (Human Development Index between .51 and .80) (World

Bank, 2006). They are in the process of rapid growth using economic liberalization as their

primary engine (Hoskisson et al., 2000). ECMs score higher on the global competitiveness

index, which comprises of factors that are critical to driving productivity and competitiveness

(World Economic Forum, 2008). Moreover, the distribution of wealth for ECMs is

moderately unequal (World Bank, 2006).

Institutional dynamics are considered as being pillars that provide structure to society

(Burgess & Steenkamp, 2006). Research differentiates between three distinct but interrelated

aspects that are vital to a country’s institutional context namely the cultural, socioeconomic,

and regulative systems. The cultural system represents beliefs, norms, attitudes and

behaviours that are culturally supported. The socioeconomic system comprises

macroeconomic and demographic characteristics and dynamics caused by rapid social,

political, and economic change. The regulative system involves the capacity to establish

formal rules, inspect society’s conformity to them, and if necessary, impose sanctions

(Burgess & Steenkamp, 2006).



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Embeddedness and hierarchy are common cultural orientations for ECMs (Burgess &

Steenkamp, 2006) where people are viewed as entities within collective groups. They

identify with group goals and participate in a shared way of life where each member of

society is assigned unequal roles. Power is usually handed to the head of the household who

enforces these ascribed roles (Burgess & Steenkamp, 2006).

Many ECMs are addressing undesirable legacies of the past as part of a process of transition

from centrally-controlled economies to more market based economies (Burgess & Steenkamp,

2006). As a socioeconomic consequence, many people are transitioning from an agrarian and

feudal past to a more consumer based lifestyle which has important implications for social

identity, values and consumer behaviour (Burgess & Harris, 1999).

Within an institutional and regulative framework, emerging economies are less dependent on

formal rules but rely heavily on informal constraints (North, 1990). In essence businesses

protect themselves by building informal networks or relationships with stakeholders that help

secure trust, commitment, and loyalty in the absence of an effective regulatory framework

(Foo, 2007). For instance, the relationship-centric, or guanxi, phenomenon that dominates

Chinese businesses practices with their stakeholders.

South Africa is the only ECM in Africa. Having discarded the destructive forces of the

apartheid era, the country has often been thought of as a beacon on the continent. Its

economy has grown rapidly in 15 years. It contributes nearly 40% to the Sub-Saharan

African GDP, exerting a major influence on trade, output and investment flows for Africa

(World Bank, 2006). The South African economy is primarily based on its well spread

infrastructural network. The country’s tourism, mining and retail are the economy’s most

vibrant sectors. The post apartheid South Africa has also witnessed the emergence of

information technology, agro processing and electronics. Among the other industries, textiles,

automobiles and fertilizer are growing rapidly.

SA is characterized by the presence of two overarching and diverging market segments: a

relatively well-off minority and a much poorer majority. The elite segment of ECMs



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comprises of 20% of the population (Marketingweb, 2007). These urban elite have driven

consumerism, consumption and product advancement since the transition from apartheid.

This middle-class is often concerned with continuing their upwardly mobile path through

conspicuous consumption of a vast array of goods and services that will signal their

prosperity and save them time (Hoffman and Preble, 1993). These consumers also tend to

prefer global brands with higher quality and prestige (Steenkamp et al., 2003). The

emergence of “black diamonds” - previously disadvantage black South Africans who have

become wealthy through suitable occupations – looks set to ensure the growth of the South

African urban elite (Marketingweb, 2007). It is however the legacy of apartheid that has

created South Africa’s mass market. The majority of consumers are illiterate and

unemployed with lower living standards (World Bank, 2006) where a reliance on informal

participation in the economy is necessary for survival.



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Research Problem and Objectives

For the past 12 years, Kauai has been expanding its stores throughout South Africa. Besides

this, it has entered into new contracts with schools, gyms and a local airline to further

increase its sales and profitability. It has also the empowered SA communities by actively

employing and training residents from townships and transacting with BEE businesses. Most

of its consumers are middle and high income families from affluent, health-conscious urban

communities. Its biggest challenge however may be to convince other South Africans to

become interested in health food in order to widen its market share. The primary aim of this

study was to explore attitudes of current consumers and employees, the SA government and

other local businesses to determine whether they are valued by Kauai, despite its emphasis on

its products and the Kauai brand. It also identified a set of challenges that lies ahead for the

company in a market predominantly situated in an emerging economy.



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Literature Review

The seminal works on stakeholder orientation (Freeman, 1984) and customer orientation

(Kohli & Jaworski, 1990 and Narver & Slater, 1990) emphasise their relevance to business

performance. Attentive business practitioners need to ensure the value maximization of the

relationships undertaken all the while ensuring that the organisation remains a customer-

centric entity. Most of the stakeholder- and customer- orientation research has however been

conducted in high-income industrialized countries. Although marketing theories are seldom

tested in ECMs, attention is now being emphasised in these markets, given their prominent

role in the world economy.

Customer orientation Customer orientation has been described as the ‘cornerstone’ of marketing (Kohli & Jaworski,

1990; Narver & Slater, 1990; Appiah-Adu, 1998). Too many companies however have

insufficient understanding of this concept which often leads to problems, or at best,

superficial changes in organisational practice (Deshpande et al., 1993). Such changes

contribute little to the organisations strategic development but rather endanger it by creating

an illusion of proactivity which leads to smugness and strategic drift. However, when done

well, customer orientation can lead to business success. For example, in some studies,

customer orientation has been positively associated with sales growth, return on investment,

and new product success (Appiah-Adu, 1998); services quality and satisfaction with

employee performance (Brady & Cronin, 2001); and innovativeness and aggregated

performance (Deshpande et al., 1993).

A study of the customer orientation literature reveals a myriad of definitions. Lado &

Maydeu-Olivares (1998: 26) define it as ‘a strategy used to reach a sustainable competitive

advantage through the use of resources and capabilities and complex organisational

knowledge’. Kohli & Jaworski (1990) suggests that customer orientation represents the

degree to which customer information is both collected and used by a business unit. Narver



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and Slater (1990) refer to it as ‘the organisational culture that effectively and efficiently

creates the necessary behaviours for the creation of superior value for buyers’. Perhaps more

aptly, Deshpande et al., (1993) define it as ‘the set of beliefs that put the customer’s needs

first, while not excluding those of all the other stakeholders such as managers, employees, in

order to develop a long term profitable enterprise’.

Although the interpretation of customer orientation is varied, it is commonly accepted as an

integral component of organisational culture (Deshpande et al., 1993). Hence, attention to

information about customers’ needs must be considered alongside the basic set of values and

beliefs that are likely to reinforce such a customer focus and permeate the firm. When these

activities occur consistently and well, customer orientation is achieved (Narver and Slater,

1998).

The marketing and business literature posits three critical organisational variables that need to

be infused with a customer oriented culture. This culture must be reflected in customer-

orientated employees, a developed infrastructure, and a leadership committed to support a

service culture (Davidow & Uttal, 1989).

Firstly, scholars of all backgrounds agree that a customer orientated strategy cannot take root

without the active role of senior leadership (Kohli & Jaworski, 1990; Narver and Slater,

1990). The literature stresses the importance of senior leadership in setting the firm’s vision

(e.g. Pfeffer, 1977; Senge, 1990) and the importance of a consistent actionable message (e.g.

Day, 1994; Senge, 1990). As Webster states (1988: 37) “Customer-orientated values and

beliefs are uniquely the responsibility of top management. Only the CEO can take

responsibility for defining customer and market orientation as the driving forces”. Without

managerial vision and purpose driving a customer orientated approach, employees may work

diligently but they won’t be serving the customers needs (Senge, 1990).

Secondly, management and marketing scholars agree that the interfunctional coordination of

work processes is essential to ensure a customer orientated approach. As Webster (1988: 263)

explains, “Everyone’s job is defined in terms of how it helps to create and deliver value for



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the customer, and internal processes are designed and managed to ensure responsiveness to

customer needs and maximum efficiency in value delivery.”

Thirdly, and possibly more vindicated by marketing scholars than their management

counterparts, is the importance of the collection and interpretation of market research. Kohli

& Jaworski (1990), in agreement with Dawes (2000), state that the generation and

dissemination of market intelligence is critical to sustaining a focus on customer satisfaction

and ensuring that the activities are evaluated in terms of their contribution to customer value.

For customer orientation to be of any value it must flow vertically and horizontally

throughout the organization (Kohli & Jaworski, 1990; Parasuraman, 1988).

Studies by Narver & Slater (1990) and Jaworski & Kohli (1993) have demonstrated how

customer orientation leads to superior performance and success in high income countries such

as the US. However, customer orientation research conducted in ECMs (e.g. Hooley, Beracs

& Kolos, 1993) has found these principles are more imperative for ECMs. As consumer

theory is derived from universal needs, it is equally applicable to these markets. There are

however intriguing elements to consumer behavior in ECMs. In Africa, for example it is

important to understand the idea of ubuntu, a pervasive spirit of caring and community,

harmony and hospitality, humility, respect and responsiveness (Mangaliso, 2001). In the

consumer context, ubuntu has relevance in the aspects of life that interest marketers, such as

family decision making and reliance on word-of-mouth communication (Burgess &

Steenkamp, 2006).

The literature on ECMs also supports that markets should be segmented in terms of consumer

ethnocentrism and lifestyle. Kucukemiroglu (1999) found that markets can be divided into

homogenous groups based on lifestyles; these lifestyle groups will have different levels of

ethnocentrism, which are reflected in their buying tendencies. Research by Kavak &

Gumusluoglu (2007) also found a significant relationship between intention to purchase food

and ethnocentrism. As income levels increased, intention to purchase exotic foods increased.

In addition, as income levels increased, levels of ethnocentrism decreased. Ethnocentrism

and lifestyle are thus useful and important indicators in segmenting ECMs based on purchase



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intention. These findings have implications for marketers seeking to operate in these markets,

particularly the food industry.

Stakeholder orientation Stakeholder theory claims managers must consider all individuals or groups that could affect

or be affected by the activities of a firm (Donaldson and Preston, 1995) and this stakeholder

orientation should create value for all of the actors involved (Freeman, 1984). It is therefore

the task of good managers to forge relationships that seek to deliver the value a firm promises

(Freeman, 1994).

Managers incentives help emphasize the maximization of shareholder wealth. In their

research, Post, Preston & Sachs (2002), describe the need for companies to employ a

stakeholder orientated incentive system that takes into account all stakeholders’ perspectives.

This approach dubbed the “stakeholder view” places a firm’s management at the centre of a

network of stakeholder relations and demonstrates how sustainable wealth can be created

through favourable relations between the company and its stakeholders. The stakeholder

view supplements and expands upon the resource based view (Prahalad & Hamel, 1990;

Barney, 1991; Sachs & Ruhli, 2005) and the industry structure view (Porter, 1996). The

resource based view of the firm proposes that a firm is defined by the resources it controls

(Litz, 1996), with the premise that differences in firm performance occur directly as a result

of the valuable and inimitable resources or capabilities that the firm has acquired in its

portfolio of stakeholders (Barney, 1991). Relationships with these stakeholders are important

as they are the holders of the intangible and/or intangible assets that build competitive

advantage. The industry structure view focuses on the relationships between the firm and the

constituencies within the industry such as customers and competitors (Sachs & Ruhli, 2005).

These relationships determine the attractiveness of the position of a firm within an industry.

In accordance with Williamson (1991), a firm will use its “market powers” within the

constraints of these relationships to gain a competitive advantage.

Stakeholder theory also proposes that organisational behaviour can be predicted by three

fundamentals. These fundamentals include the nature of the organisations diverse



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stakeholders, the norms defining right or wrong adopted by these stakeholders, and the

stakeholders’ relative influence on organisational decisions (Jones, 1995). Descriptive,

normative and instrumental stakeholder theories have since emerged and continue to evolve.

The descriptive theory considers which stakeholders will be important, when they will be

important and how organisations interact with these stakeholders (Donaldson and Preston,

1995). It describes how the firm is organised, what its managers think about managing and

what shareholders think about the interests of their constituencies.

Normative theory suggests that the business acts in a socially responsible manner when

accounting for its diverse stakeholder interests. Proponents of this theory (Freeman, 1994;

Donaldson and Preston, 1995) argue that any groups with an interest in a company do so to

obtain benefits and there is no prima facie priority of one set of benefits over another. As

suggested by Jones (1995), the commercial benefit of stakeholder orientation can only be

secured by an intrinsic commitment to the ethics inherent in the normative approach. Critics

of this theory (e.g. Barney, 1991) dispute this due to the firm having limited resources and

capabilities and thus can’t see to the needs of all stakeholders simultaneously.

The instrumental view states that the firm is at the core of a network of stakeholders who are

motivated to participate in the firm’s activities at often incongruent times. A company

adopting a stakeholder orientation has the ulterior motive of ensuring that stakeholders who

control crucial resources work to promote rather than antagonize a firm’s commercial success.

Sternberg (1996) states that this definition requires managers to attend to stakeholder

interests so as to achieve organisational goals. A corollary to the instrumental approach is

that relationships with stakeholders that are profitable will be built upon whereas unprofitable

relationships will be promptly disregarded.

The multiple stakeholder orientation, as proposed by Greenley & Foxall (1998), defends the

view that the interests of all stakeholders must be valued. A planned ‘orientation to a wider

range of stakeholders out to provide a greater potential for developing a competitive

advantage that is rare and difficult to imitate’ (Greenley & Foxall, 1998: 54). As such the



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business must address employees, shareholders, customers and the firm’s competitors in

order to increase sales and market share.

Several scholars have suggested that companies adopt different strategies to deal with each of

these types of stakeholder groups (Carroll, 1979; Clarkson, 1995). Carroll (1979) categorized

these strategies into proaction, accommodation, defense and reaction. According to the

Carroll (1979), proaction involves doing a great deal to address a stakeholder’s issues,

including anticipating and actively addressing specific concerns or leading an industry issue

to do so. Relative to proaction, accommodation is a less active approach to dealing with a

stakeholder’s issues. A defensive strategy however is doing the legal minimum required to

address a stakeholders needs. A reactive strategy entails fighting against addressing a

stakeholders issues or completely withdrawing and ignoring a stakeholder.

Murphy, Maguiness, Pescott, Wislang, Ma & Wang (2005) define stakeholder orientation as

creating, maintaining, and enhancing strong relationships with customer, employee, supplier,

community, and shareholder stakeholders of a business. The goal of this orientation is to

deliver long-term economic, social, and environmental value to all stakeholders which will

enhance invariably the sustainable business financial performance of firms.

In ECMs however, stakeholder orientation has certain cultural intricacies with vast

implications for firms hoping to compete in this market. It is a market less dependent on

formal rules but rather an over reliance on informal relationships. Jones (1995) goes as far as

saying developed world relational contracts that result in competitive advantage are unhelpful

in ECMs because relational contracting is already used, or more specifically, overused.

Noreen (1988) describes this overuse of relational contracting as “dead-weight losses” which

has disadvantaged many ECMs. For instance, the practice by Indian corporations to hire the

children of established workers as opposed to more qualified individuals (Donaldson, 1996).

Foo (2007) however feels that established market style stakeholder orientation does provide

competitive advantage, but only to a certain extent. He notes many issues in ECMs: violation

of the rights of competitors, distortion of the capital markets, rent-seeking and cronyism.

Issues that can only be considered illegal in developed markets.



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Scholarly work on stakeholder orientation in ECMs is limited. Operators in this environment

still need to be aware that a practice that is strategic in developed nations can remain strategic

or could be detrimental for practitioners in ECMs.



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Methodology

A case study methodology is an exploratory method of research design. Researchers are to

investigate a particular contemporary phenomenon within a real life context. Multiple

sources of evidence can be employed (Yin, 1994). This method of drafting a case study is

“initially broad and becomes progressively narrower as the research progresses” (Lewis et al.,

2003: 97).

Due to the exploratory nature of the research report, qualitative semi-structured interviews

were conducted with respondents. Semi-structured interviews were done with questions

asked based on themes relevant to the case derived from the literature review. To avoid

unbiased results data was gathered from as many sources as possible.

Data collection process The prime source of data, and initial point of contact, was with the managers of Kauai Food

and Juice Company stores. The interview maintained a focus on the organisations

stakeholder and customer orientations, future strategy and trends in the South African health

food industry.

Other than being key stakeholders, Kauai employees also put customer orientation into

practice and as such proved a fertile source for interviews. Questions aimed at whether the

organization maintains an orientation towards the employees themselves formed the backdrop

of the interview. Knowledge on how employees are trained to be customer focused also

proved useful.

The face-to-face interviews were done at the respondent’s place of business to ensure their

comfort. Interviews were recorded and transcribed at the discretion of each respondent in

accordance with privacy regulation (Leedy & Ormerod, 2005).



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Channels of communication with informants remained open until after completion of the

study as suggested by Leedy & Ormrod (2005). This was primarily due to the concentrated

nature of the study which required additional data from informants during the written stage of

the case.

Further anonymous field visits to the various case study ‘sites’ created an opportunity for a

more direct observation. This added a new dimension for understanding as well as provided

an insight as to how respondents interact.

As a visible brand on the South African retail landscape, media coverage of Kauai proved to

be particularly abundant. As such, numerous electronic and hardcopy articles on the

company were also used as a resource.

Analysis of interviews Data was analysed by initially organizing the details about the case into a logical order and

then clustered into groups. This allowed for specific occurrences to be easily examined for

meanings they may have in relation to the case. Underlying patterns and themes emerged

from there for scrutiny and interpretation. Finally, the information was then synthesised and

an overall portrait of the case constructed.



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Case: The Kauai Food and Juice Company

“….its the Wild West out here” said Carl Harwin (2001), ”The ones who are here now are

going to be established and make the fortunes. But at the moment, there are huge gaps in all

the markets here just waiting to be filled.”

Emerging from the ashes of the socially destructive, but economically lucrative, apartheid

system South Africans have adopted the principles of consumerism at an astonishing rate.

Among the entrepreneurs who predicted a boom in the country are Malibu, California,

natives Carl and Brett Harwin. Inspired by a desire for clean living and the abundance of

tropical fruit on the Hawaiian island of Kauai, the Harwins started the Kauai Food and Juice

Company in 1993, selling prepackaged smoothies - semi-frozen blends of exotic fruits and

juices. Three years later they brought their business to Cape Town along with Guy Le Ray-

Cook. Joined later by Product Developer John Berry, the four opened their first store with a

seed investment of R80 000 which led to a first year turnover of R180 000. In Kauai’s fourth

year of trading, their investment rose to R7.7 million.

Today, Kauai employs 720 permanent staff. The company was predicted to grow at 40% for

the year ending February 2008. The company has also since changed its ownership style.

John Berry (now Director of Product) and Guy Le Ray-Cook (now Business Development

Director) now form part of the directorship along with Herman Redlinghuys (MD) and Geli

Briolas (Operations Director). While these four executives have taken a 45% stake in the

business, Dixie Strong, Dave Kenny, and Ingrid and Alex Dieks are other major shareholders.

Kauai prides itself as serving the health conscience South African consumer through its

‘principles of good nature’. All patrons can rest assured that all stores abide by these

principles. All ingredients are guaranteed to be fresh and MSG free. All food is made on the

spot in front of the customer. There are no trans fats in any of the products and no meals are

fried and as such there is no fry zones in stores. There is also a substantial vegan and



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vegetarian friendly menu. The retail position is unique: a fast food platform for a

consistently healthy, high quality product, presented in a stylish, themed environment,

drawing inspiration from its Hawaiian namesake.

Although Kauai was started on the Hawaiian Islands, all the operational systems, raw

materials and equipment come from South African sources and it has been South African

personnel that have helped build the brand to its current profile.

Spreading the Aloha vibe There is no mistaking that Kauai is taking advantage of its American roots. When entering a

store patrons are met with upbeat music, vibrant interiors and engaging staff. “It’s the Aloha

vibe” exudes John Berry (2001) the Director of Product, “People are excited to see an

American brand. People here are fascinated by Americans because they are the trendsetters

of the world.” A peek at the menu confirms this. Patrons are invited to try burgers, wraps

and smoothies similar to those found in healthy alternative fast food joint in any American

mall.

This resulting merge of this American culture with that of South Africa’s is known as

acculturation. Berry feels it is their understanding of this concept that has been endemic to its

success. In order gain insight into South African purchasing behaviour of American products,

it was crucial for Kauai to understand the attitudes of South African consumers towards

American products and to identify communication channels that influence their attitude

formation. The everyday encroachment of American iconography, even during the apartheid

years, has however made understanding the South African consumer easier. In fact, the

preference for American fashion and music, for example, reflects how pervasive the attitude

is that anything American is trendy and fashionable. “People here know fast food is an

American thing,” Berry (2001) adds, “They just know Americans know how to do it”.

Although many marketers feel globalisation has meant markets have become more

homogenous of late, there are still many contradictory trends within the South African market

to prove this is not entirely so. The diverse nature of the country’s population has meant a



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range of nutritional needs have to be met. For example, vegans and vegetarians diets have to

be extensively catered for in South African society. The growth too of the Muslim

community has meant a halaal approved menu has become an essential requirement for

business success.

Serving ‘Good Nature’ While South African’s attempt to catch up economically and socially after the years of

isolation, new consumer markets have opened up. As the members of the emerging middle

class have become more entrenched in the country’s economy, so has the need for food-on-

the-go risen. Guy Le Ray-Cook (2004) also feels this emerging middle class is driving the

movement towards healthier eating: “Our loyal customer base has proved that eating at Kauai

is not merely a passing fad, but a genuine emerging market, where people are adopting vital

eating as a permanent lifestyle. Customers can expect fresh wholesome meals and snacks

that pay particular attention to nutritional value and high energy yield, geared for today’s

typical urban lifestyle. Our target market may have been the body-conscious, clean living

niche consumer, but our phenomenal growth is proof that Kauai good mood food has broader

appeal.”

A menu for all seasons The emphasis on fresh produce has often been detrimental to the success of companies in the

hospitality industry. Changing supply can mean errors on menus which leads to disgruntled

clientele. To avoid this, Kauai has adapted their menu with these seasonal variations in mind

which are marketed as suiting their patron’s needs. The typical winter menu would for

instance advertise the following: “The Magma wrap with melted cheese will provide comfort

from the cold. The wrap is made with tender chicken breasts, is high in protein and fibre and

will leave you feeling warm and cozy for just R35.95.” Or Kauai’s Vitamin C smoothie

designed to give a health boost is described as “……..a great way to get your daily dose of

vitamin C and antioxidants, so your body is fortified against winter colds and flu. This ‘C’

monster smoothie is packed with Acerola cherries, rose hip, strawberries and apricots. At

R18.95 it’s cheaper and far less painful than a flu shot!” Other good-natured products on

Kauai’s winter menu include the “get up ‘n go” coffee and muffin combo. The summer



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menu is similarly adaptable. For example, a range of refreshing juices, such as green melon

and apple with mint, appear on the menu as soon as the season changes.

Exhibit 1: A variety of seasonal menu items

Kauai stores Cape Town is South Africa’s most cosmopolitan city. Many of its multi-ethnic population

are young professionals and businessman who lead busy lifestyles and who are influenced

greatly by the western world. As such Cape Town proved to be the ideal city for the Kauai

management team to start its operations. Six Cape Town stores in Sea Point, Claremont,

Kenilworth, Durbanville, Long Street, and Mostert Street formed the initial retail offering.



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Adds Guy La Ray-Cook (2001) “Our pilot stores rapidly demonstrated they could out-trade

many national fast-food chains per square metre.”

Armed with this knowledge the team set out to expand nationally in prime A and B income

shopping centres. The Menlyn Park Shopping Centre became the first anchor store in the

Gauteng Province. A store in the Pavilion centre in Durban, Kwa Zulu Natal soon followed.

Kauai was then exposed to the lucrative Greater Johannesburg area through a store in

Sandton City, followed by the launch of the Melville branch two months later. As a

compliment to their status in the market, regional centre landlords all over the country have

placed Kauai on the most desirable tenant list.

Kauai@School A Department of Health Food Consumption survey conducted in 2005 concluded that one in

13 children in South Africa between the ages of one and nine were overweight, and that 40%

of South African Children do not engage in regular exercise. In response to this Kauai set out

to expel junk food from schools by educating students, parents, and staff on the importance of

eating well.

“As leaders in health and nutrition in South Africa, we can help to educate the children about

the importance of a balanced diet, putting them on the road to a healthy lifestyle. What better

place to start than in the school tuck shop?” says Herman Redelinghuys. Sheena Crawford-

Kempster, director of Reddam House Cape Town, adds “There is a global awareness of the

benefits of healthy eating and it would be shortsighted not to offer healthy food to children at

school. Since the launch of Kauai@School, the benefits for the kids are clear: they are

calmer, concentrate better and behave better in class. And the kids have responded well to

the concept. The brand is funky and they enjoy the food. We’ve also had good support from

the parents.”

Kauai followed up the successful launch of Kauai@School project at Reddam House

Constantia, with the opening at Reddam House Atlantic Seaboard in Greenpoint. Plans are

afoot to extend the concept to Reddam House Johannesburg in Bedfordview as well as other



23

schools in the Western Cape and Gauteng at the end of 2008. The school menu features

various meals adapted from the Kauai menu including salads, soups, hot meals and healthy

snacks. Serving sizes are also reduced to cater for the needs of children as well as to make

meals affordable to all.

Alda Heunis (2007), a Marketing and Communications executive, feels the spending power

of this market cannot be underestimated. It is thought that South African parents spend more

than R20 billion annually on their children, with more than R4 billion in the form of pocket

money. Moreover, younger members of society are considered as consumer innovators these

days which makes serving this segment of the market imperative.

Kauai in motion Developed and offered exclusively to Virgin Active members,

Kauai in Motion offers every gym member health on the go.

Based on their belief that a healthy lifestyle means combining

exercise with the correct nutrition, Kauai management developed

a range of balanced and nutritious meals to be sold in select

Virgin Active gyms. .

The menu is similar to that of any full concept Kauai store including the healthy breakfast

range which has proven to be very successful due to the popularity of morning workouts.

Kauai & Kulula “With Kauai, we want to counter the perception that in-flight cuisine is fatty, tasteless and

bland,” suggests Nadine Damen, marketing manager for Kulula. “By

bringing Kauai’s snack range on-board, Kulula is providing on-the-go

passengers with an expanded menu of appetising drinks and nibbles to

enjoy.”

The Kulula menu is an extension of their successful partnership with Virgin Active. Kauai’s

selection of products are available for purchase on all Kulula flights and include a chicken

mayo roll, mid-air vegetarian dijon cream cheese & rocket roll, in-flight sweet chilli chicken



24

wrap and a variety of nutritious bars and cookies. These are pre-made products that require

no preparation before serving. The Kauai bars and cookies also have the advantage of having

an extended shelf life.

Kauai and the community Realising that South Africa’s socioeconomic development is firmly in the hands of the

private sector, Kauai has made the social upliftment of South African communities a priority.

The Children’s Hospital Trust

The Children’s Hospital Trust is an independent charity organization

and the fundraising arm of the Red Cross War Memorial Children’s

Hospital in Cape Town. The work of the charity includes the

purchasing of life saving equipment, the upgrade and maintenance of

vital buildings at the Hospital as well as the development of the professional staff who work

there. Kauai supports the trust by catering for their fund raising events as well as treating the

staff and patients to monthly Kauai parties.

The IDC joint ventures

South Africa's policy of black economic empowerment (BEE) is not simply a moral initiative

to redress the wrongs of the past. It is a pragmatic growth strategy that aims to realize the

country's full economic potential. Black economic empowerment is driven by legislation and

regulation. An integral part of the BEE Act of 2003 is a sector-wide generic scorecard, which

measures companies' empowerment progress in four areas: direct empowerment through

ownership and control of enterprises and assets; management at senior level; human resource

development and employment equity; and indirect empowerment.

As a South African company that creates revenue over R35 million, Kauai has to comply

fully with the country’s Black Economic Empowerment (BEE) guidelines. In 2007, with this

in mind, Kauai spent R17 million helping its employees gain a 49% stake in the company

through a joint venture company supported by the Industrial Development Corporation (IDC).

Throughout 2008 nine joint ventures were undertaken, seven of which were BEE deals. The



25

IDC fund a special loan with interest rates of prime minus 5% for job creating companies

such as Kauai who have a record of good business practice. Kauai then loans the employee

R200 000 in order for them to access the IDC loan of up to R800 000.

This enables employees, who would not have been able to raise the funds otherwise, to take a

49% stake in a store while the 51% majority is still owned by Kauai. Herman Redlinghuys

reckons “This means the partner can concentrate on running the business while we take care

of the basic administration, national marketing plans, training, product development and

financial matters”.

One such benefactor of the programme is Omphile Mpshe, joint venture partner of the

Daytona and Benmore Gardens stores in Johannesburg. With the aid of a bursary gained

after matric, Mpshe studied hotel management before joining Kauai’s Sandton City outlet in

2002. Having worked for the company for over three years he was eligible for the joint

venture programme and Mpshe jumped at the chance and applied. “There are pressures with

being your own boss” says Mpshe, “But nothing feels better than running my own shop and

the stability that comes with it.”

Another who has benefited from the joint venture project is Gina Borcherds, a partner in the

Cedar Square outlet in Fourways. “I have always wanted to run my own business and I am

exited that it has finally happened” said Borcherds. “I do not really see any competition and

our shops offer more than food. We have customer info guides, we cater for diabetic people

and I think my location is perfect”. Kim Ryan, another who saw this as a chance to follow

her dreams of business ownership, is partner in the Hillcrest, Kwa-Zulu Natal branch. She

adds “Kauai motivates its staff to achieve bigger and better goals. I would never have been

able to afford to buy shares in a store but with Kauai’s support I am now a proud business

owner.”

Kauai’s employees Other then leading to lower turnover and absenteeism, firms have realized that committed

employees can create increased competitive advantage through increased efficiency and



26

differentiated revenue growth. Perhaps more importantly, a deeper sense of customer

orientation by employees provides an improved customer service which leads to greater

customer satisfaction.

John Berry, the Product Director, believes ensuring this starts before the hiring process.

Firstly the customer-orientated demeanor in personnel requires a concerted effort from

management. This includes a company-wide adoption of a belief system that puts the

customer first. This needs to be followed by employing personnel with the right mental

attitude who can develop the correct customer focused behaviour. For this the chain spent 5

years developing world-class training programmes and incentive schemes to give it a service

edge. “We refuse to compromise on staff selection and training” explains Berry (2004). “We

only proceed with expansion when we are sure that we have the best people available”

The Mystery Shopper Programme The Mystery Shopper Programme was developed to ensure that Kauai continuously deliver

only the best service and high quality product offerings. A Mystery Shopper's reports,

comments and overall feedback are very valuable to the company as they are crucial for the

continual development of customer service processes as well as the product offering.

Customers are invited to apply to become mystery shoppers on the official website. Having

filled in a questionnaire and then suitably screened, applicants can then assume the duties of a

mystery shopper. These duties entail visiting any Kauai store a minimum of once a month up

to a maximum of twice a month. It is more beneficial to Kauai for a variety of stores to be

visited. Upon entry to a store, mystery shoppers are asked to place their order and then take

detailed notes of the experience. Although not a requirement, it is suggested that the mystery

shopper eats in the store as more can be seen from the perspective of a seated customer. The

detailed report must then be logged online whether positive or not. Accurate time keeping is

also imperative. The mystery shoppers are asked to measure the key service moments from

placing of the order to delivery.



27

To thank the mystery shopper for their time and feedback, Kauai compensates these

individuals with the cost of their meal. This money is refunded electronically within the first

2 weeks of the following month after the store visits.

Supplying Kauai “You have to be prepared to deal with suppliers here” Geli Briolas (2001) said during the

companies first few years of operating. “Nobody is reliable. You can’t necessarily count on

the market itself either. Some days, the fresh fruit you want just isn’t available, period”. It

seems, however, that Kauai’s management of its supply chain has meant a departure from the

poor supply of those early years. Realizing that the company would have to effectively drive

the change in supply quality it desired, the management paid increased attention to building

closer buyer-seller relationships. By focusing on collaborative relationships with its suppliers

Kauai has sought to improve cooperation, commitment and most importantly cost savings.

Collaborative approaches effectively lower acquisition and operating costs through joint

efforts of the buyer and supplier. The more collaborative approaches promote cooperation to

drive down other costs inherent in exchange.

One such company that has benefited from this closer customer-supplier relationship is

Rozigal Organic Products who provide Kauai with yoghurt for their smoothies. Helen

Fawthrop, Rozigal’s CEO, believes it’s been nothing but a pleasure supplying the company

due to the proactive and progressive way they handle the relationship. “Kauai are always

interested in things like our product flow, hygiene issues, product ingredients and packaging

specifications” she says, “moreover, we find their whole ethos to be highly effical and see

them as the trend setters and leaders in the smoothie type industry”

Briolas (2007) believes this has ultimately benefited the customer “Our philosophy is to share

the goodness; so the benefit of keen pricing through volume purchasing from selected

suppliers is passed directly onto the consumer. This helps explain the incredible loyalty of

our clientele”



28

Future growth and challenges September 27, 2007 was a big day in Soweto, a township of more than a million people just

outside Johannesburg. Nelson Mandela was among the dignitaries who gathered for a very

special occasion: the opening of the Maponya Mall. The festivities and pomp may have

seemed excessive but for a nation still plagued by the legacy of apartheid, Maponya Mall

serves as a symbol of change. The opening of a centre with over 200 stores in a location

where many black South Africans were expelled to during apartheid, was an indication that

prosperity is reaching past more than just the white elite. “There is huge potential for

development in this market”, says Bernard Drum (2008), a South African-based private

sector development specialist with World Bank.

Herman Redlinghuys concurs. In April 2008 he announced an ambitious 5 year growth plan

that included the opening of a further 130 throughout South Africa in centres like the

Maponya Mall. Stores will be opened in the Eastern Cape and the footprint dramatically

expanded throughout the Free State and Gauteng. “It is now time to educate all South

Africans about healthy eating by launching in towns such as Port Elizabeth and East London.

We will also be growing the number of stores in Johannesburg, Pretoria and Bloemfontein,”

said Redlinghuys (2008).

Many of the stores will be franchised and Guy Le Ray-Cook believes the advantages of

buying into the company are endless. The potential franchisee will get 12 years of successful

trading history, pre-approved finance for applicants with sufficient capital backing, a growing

marketing fund and being part of a market that faces limited competition. As a guideline, he

feels, franchisees of successful stores could see a complete return on investment in between

two to five years.

The cost of buying a Kauai franchise store is R1.1 million and a franchise fee of R110 000.

Applicants are also liable for a 6% royalty fee for the use of the Kauai brand as well as field

support. There is also a 4% marketing fee that is held separately and used exclusively to

build brand awareness. Government has also now realised the considerable potential for

contributing to job creation, wealth creation and the promotion of economic equality that this



29

industry can provide. This realisation has resulted in the Department of Trade and Industry

(DTI) introducing strategic initiatives for this sector with the view to identifying support

measures that could aid the further development of the sector and enhance its capacity to

contribute towards national economic objectives.

Redlinghuys does however caution that this strategy is dependent on the country’s economic

growth of the previous years. As the end of 2008 approaches there are signs of this growth

pattern being dramatically stifled. With the crash of international financial markets towards

the latter part of the year, the fast food industry has been challenged by rising food prices and

distribution costs which have lead to a tougher competitive environment and falling

disposable income. This is set to dampen demand for the foreseeable future, by how much

no one really knows. This also serves as a stark reminder to firms operating in ECMs:

although there are people who are going to get established and make fortunes, as Carl Harwin

suggested, these markets are still notoriously fickle and dependant on the rest of the world for

survival.



30

Teacher’s Notes

Case summary Founded in 1993 on the Garden Island of Kauai, one of the Hawaiian Islands and inspired by

the abundance of tropical fruits and the passion for clean, healthy living, the Kauai Food and

Juice Company was born. Enticed by the enormous opportunity in South Africa, the owners

established their first store in Cape Town in 1996 with R80, 000 seed money. The retail

position is unique: a fast food platform for a consistently healthy, high quality product,

presented in a stylish, themed environment, drawing inspiration from its Hawaiian namesake.

Since opening Kauai has been expanding its stores throughout South Africa and has entered

new contracts with schools, gyms and a local airline to further increase its sales and

profitability. It has also the empowered community by actively employing

and training residents from townships and transacting with BEE businesses. Its consumers,

however, are generally middle and high income families from affluent, health-conscious

urban communities.

The case ponders possibly Kauai’s biggest challenge yet: convincing other South Africans to

become interested in health food in order to widen its market share. It also identified a set of

challenges that lies ahead for the company in a market predominantly situated in an emerging

economy.

Case study implications: learning objectives The case can be applied as part of a Marketing Management course as a means to further

develop students’ proficiency in and their understanding of Customer and Stakeholder

orientation and the application thereof. More specifically, it is aimed at examining the

applicability of these principles and tools in an Emerging Consumer Market (ECM) and any

other product driven environment. The case may also be used as a means of instruction for

small and medium enterprises looking to establish themselves in similar markets.

Following the preparation, discussion and completion of the case and the case questions,



31

students should have a better understanding of the following:

Consumer orientation

Stakeholder orientation

Emerging Consumer Markets (ECMs)

The benefits and drawbacks of a consumer and stakeholder orientation in ECMs and

product driven markets

The South African healthy fast food industry

Presenting the case Pre-reading and revision

Before preparing this case, students are advised to revise prescribed reading material, case

examples and class discussions on consumer and stakeholder orientation in ECMs already

covered on the course.

Recommended reading material includes:

Appiah-Adu, K. (1998), Market orientation and performance: empirical tests in a transition

economy, Journal of Strategic Marketing, 6, pp. 25–45

Foo, L.M. (2007), Stakeholder engagement in emerging economies: consider the strategic

benefit of stakeholder management in a cross-cultural and geopolitical context, Corporate

Governance, Vol. 7 No. 4, pp. 379-387.

Hoskisson, R., Eden, L., Lau, C. and Wright, M. (2000), Strategy in emerging economies,

Academy of Management Journal, Vol. 43 No. 3, pp. 249-267.

Mangaliso, M.P. (2001), Building competitive advantage from ubuntu: Management lessons

from South Africa, Academy of management executive, 15(3), pp. 23-34.

Case preparation

Students should be asked to read the case and work through the questions before the class. It



32

is estimated that the case will take approximately two hours to read and analyse. The

questions are all amenable for class discussions. The students could be broken into smaller

groups to discuss the questions.

Sample case study questions and model answers Questions

A) Discuss Kauai’s consumer orientation strategy citing examples.

B) Discuss Kauai’s stakeholder orientation strategy citing examples.

C) “Proaction involves doing a great deal to address a stakeholder’s

issues, including anticipating and actively addressing specific

concerns or leading an industry issue to do so. Relative to proaction,

accommodation is a less active approach to dealing with a

stakeholder’s issues. A defensive strategy however is doing the legal

minimum required to address a stakeholders needs. A reactive

strategy entails fighting against addressing a stakeholders issues or

completely withdrawing and ignoring a stakeholder.” Carrol (1979)

In light of Carrol’s statement, discuss Kauai’s orientation with each of its

stakeholders and the relevance of the relationship.

D) Kauai service LSMs 8-10, a relatively small share of the South African

market. How should the company go about expanding market share in the

future?

E) With reference to the case, discuss the differences and similarities between

customer and stakeholder orientation in an emerging consumer market (ECM)

and a high income country (HIC).



33

Answers A) Any discussion including: Halaal, vegan and vegetarian menus; the seasonal menu;

Kauai@school, Kauai in motion; Kauai and Kulula, employee training etc.

B) Any discussion including: Kauai’s supplier relations; IDC partnership; BEE; The

children’s hospital trust; employee relations etc.

C) Customers: Proaction – actively sources supply, location, staff to suit their customers

needs.

Suppliers: Proaction/accommodation – needed to actively develop supply to reach acceptable

levels.

Employees: Proaction – Belief that people are most important for customer satisfaction

therefore developed training programs and the best available staff. Staff also rewarded with

IDC partnership.

Government and BEE compliance: Proaction – IDC partnership.

Community – Accommodation – Monthly parties etc. for the children’s hospital trust.

D) Take advantage of brand equity by selling products with shelf life in SA retail outlets.

Roll out Kauai@school into SA public schools with government support. International

expansion etc.

E) Many similarities especially in there customer orientation strategies: Pricing, promotion,

customer service etc. Major stakeholder orientation differences probably include BEE

concerns and the corresponding government interaction. Supply needed to be developed

which would probably not have been the case in a HIC.



34

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Bizcommunity.com (2008), Healthy fast food group announces massive expansion, URL:

http://www.bizcommunity.com/Article/196/173/23534.html


Moneyweb.com (2008), Kauai’s aggressive franchise plans, URL:

http://www.moneyweb.co.za/mw/en/page1639


http://devdata.worldbank.org/ict/zaf_ict.pdf�

http://www.weforum.org/en/initiatives/gcp/Global%20Competitiveness%20Report/index.htm�

http://www.africanscrbe.co.za/index.php�

http://www.bizcommunity.com/Article/196/173/23534.html�

http://www.bizcommunity.com/Article/196/173/23534.html�

http://www.moneyweb.co.za/mw/en/page1639�



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QSRmagazine.com (2008), South Africa is a promising market for American fast food brands,

URL: http://www.qsrmagazine.com/articles/features/112/South _Africa-1.phtml


Espace.com (2007), IDC supports Kauai’s R17 million project to sell staff 49% of the slice,

URL: http://www.espaces.wordpress.com/2007/08/08


Dispatchonline.co.za (2007), Health food chain gives employees a 49% stake in its stores,

and a salary!

URL: http://www.dispatch.co.za/2007/08/13/Business/b1.html


Whichfranchise.co.za (2007), Kauai takes Durbanite from cashier to co-owner,

URL: http://www.whichfranchise.co.za/franchiseprofile.cfm?articleID=225

http://www.qsrmagazine.com/articles/features/112/South%20_Africa-1.phtml�

http://www.espaces.wordpress.com/2007/08/08�

http://www.dispatch.co.za/2007/08/13/Business/b1.html�



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Appendices

Question set

Kauai management

Customer orientation To what extent are strategies driven by customer needs? How are customer needs monitored? (give options if necessary) What sets Kauai apart from other franchises? In other words, what is Kauai’s competitive advantage? How does Kauai create loyal customers? (give options if necessary) Is Kauai well placed to take advantage of the emerging black middle class? Why? Has there been growth in sales in this segment? Explain please.

General stakeholder orientation Do you have a BEE scorecard? Please explain. What is your BEE strategy entail? What % of your stakeholders is BEE compliant?

Employee orientation How are staff evaluated on their performance? Is there a system in place to monitor staff needs? Please explain. What makes staff want to work for Kauai as opposed to any other food outlet? How are employees taught to achieve excellence? How are employees motivated to achieve excellence? How are employees taught to be customer centric? Does Kauai have any CSR initiatives? If so, please explain. Do Kauai have initiatives that serve the local community? If so, please explain.

Kauai franchise owners

General stakeholder orientation What sets Kauai apart from other franchises? In other words, what is Kauai’s competitive advantage? How ready is Kauai to take advantage of the emerging black middle class? Has there been growth in sales in this segment? Please explain. How is the Kauai franchise set up to create value for customers? Staff? Suppliers?

Customer orientation To what extent are strategies driven by customer needs? Please explain. How are customer needs monitored? How does Kauai create loyal customers?

Employee orientation How are staff evaluated on their performance? Is there a system in place to monitor staff needs? Please explain. What makes staff want to work for Kauai as opposed to any other food outlet? How are employees taught to achieve excellence? How are employees motivated to achieve excellence?



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How are employees taught to be customer centric?

Kauai staff

Employee orientation Does Kauai set out to serve your needs? Why? Do you think you are well remunerated compared to the market? Why?

General stakeholder orientation Do you think Kauai is perceived to be serving the community? Why?

Customer orientation How are you trained to provide better service to customers?

School head, Kulula and Virgin management responsible for relationship with Kauai

Customer orientation How does Kauai set out to serve your needs? Are they constantly monitored? Do you think Kauai is delivering a value added service? Why?

General stakeholder orientation Do you think Kauai is perceived to be serving the community? Why?

The relevance of customer and stakeholder...

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