The American Bakery Company "Baked to Perfection" and its Digitalization Process. Between Apps and Baking

Table of Content

1. INTRODUCTION
1.1. STRUCTURE AND PURPOSE OF PAPER

2. REQUIRED CONTRACTS
2.1. PERFECTION APP
2.2. BAKERY OUTLET

3. BRAND PROTECTION

4. REGULATORY REQUIREMENTS FOR PERFECTION APP LAUNCH ..

5. SELLING THE EUROPEAN BUSINESS

6. CONCLUSION

7. BIBLIOGRAPHY

8. STATUTORY DECLARATION

1. Introduction

Baked to Perfection (BTP), an American bakery company, is performing well in two business areas. Mainly, it is operating in a (niche) bakery market as a traditional supplier of high quality bakery products, which are also often gluten free and/or organic. One success factor of its products is its own Perfection brand. Even though this business area is delivering good numbers in sales ($200 million) and gross margin ($30 million), the new CEO, Freddie Doe, decided to adopt BTP’s business model by following the digitalization. In the last years, apps for smartphones or tablets became an interesting marketing channel, which allows to target efficiently an audience by delivering personalized (e.g. location sensitive) information. Therefore, BTP launched not a long time ago an app to offer its customers transparency regarding the best bakery shops in their local area. To be part of the “Perfection network”, bakeries are paying a yearly fee. If they wish, they can additionally buy advertisement on the app to promote their bakery. But not every bakery can stay a community member. Customer reviews and good performance in mystery shopping are essential for staying in the “Perfection network” to offer customers just the best bakeries.

BTP decided to internationalize and enter the European market by launching its app and opening a bakery outlet under franchise in five European cities. New markets are a great business opportunity for a variety of reasons. For example, BTP can increase sales, improve profits and access new customers. However, in foreign markets, BTP must deal with another set of circumstances like different regulations, culture, market demands, customer needs and expectations. Replicating of its American business model is not enough. Possible problems could be related to European law. European company law is concentrating on firms that were founded or are operating in Europe. In specific facets, European (company) law is comparable to the one in USA. For instance, each of the fifty American states has its own company law as the member states of the European Union, but American federal and state law are concentrating on different areas, so they are complementary to each other. In Europe, companies are facing the company laws of the Member States, in which they are operating. However, the national company laws must follow the rules and principles of the European company laws.¹

1.1. Structure and purpose of paper

The purpose of this paper is to outline the legal issues of BTP’s market entry in five European cities. Therefore, it will concentrate on four major question. First, what contracts BTP will need to conclude? To answer this question, it is necessary to look, which contracts are required for both launches: the mobile app and the bakery outlets. For the app launch, BTP will need to interact with app developers, customers, bakeries and app stores. For establishing bakery outlets, it is important to define a franchise contract and vertical agreements. Second, how BTP can best protect its brands in the EU? For this purpose, it is necessary to introduce different types of intellectual property protection. Which intellectual property rights like patents, trademarks or copyrights are relevant for BTP and how can they be applied? Third, the paper will give an overview about the regulatory requirements that are necessary for operating the app lawfully and successfully. In this chapter, it will be shown what actions need to be taken regarding the app itself, its distribution and customer data. Finally, the paper will describe how BTP can sell its new European business. The assumption here is that BTP will create a subsidiary, which can be sold in the future.

2. Required contracts

BTP is entering the European market by launching an app and opening five bakery outlets, which are going to operate under franchise. Therefore, it is advisable to look on the required contracts of both launches separately to assure transparency.

2.1. Perfection app

An app is technically a software (application) program for mobile devices, mobile phones, smartphones, tablets etc. In the last few years, the market for apps exploded and keeps still growing. From a legal point of view, it is largely new field, so it is comparable easy to lose the overview. According to Solmecke, Taeger and Feldmann (2013), there are up to five contractual relationships involved in an app launch.²

Abbildung in dieser Leseprobe nicht enthalten

Figure 1: Contractual relationships during Perfection app launch in Europe

Source: Own illustration, based on Solmecke, C., Taeger, J., Feldmann, T. (2013)

Since it is unknown, if the European app is going to be standardized or adapted, there is the need to look eventually on the necessary contracts with the app developers³. The Perfection app is launching in five different European countries, in which four different languages are spoken, so the apps need to be adapted at least regarding the language in those five countries. Contracts with external app developers should list the major agreements (e.g. purpose, duration, compensation and termination) on which BTP and the app developers agree on. For instance, one major issue could be the existence of several deadlines concerning app development to minimize BTPs’ risks. Furthermore, the contract details should deal with issues like testing, updating, confidentiality, intellectual property and ownership of customer data including data protection. Moreover, it should be clearly stated that BTP owns the Perfection app including the brand, visuals, programming code and the customer data. In these cases, it is important that the contract is always formulated as clearly as possible to eliminate misunderstanding and misinterpretation, so it can be ensured that the app is operating successfully and lawfully. For the app launch in the different app stores, BTP must apply to create app developer accounts that allows to distribute the app. If BTP wants to distribute through different app stores, it needs to send several applications. Every app store has its conditions, so it should be examined, which conditions are fitting to the Perfection app. For example, app providers in Apple’s app store are always bound to the terms and conditions of the Apple Store⁴ (e.g. Program License Agreement and the Human Interface Guidelines⁵ ). In general, there exist a variety of reasons why submitted applications are rejected by app stores. For instance, the app store has the possibility to reject the app distribution, if the app often crashes or it has inaccurate descriptions and information. After successful review of an app’s application, the developer has access to a developer account and can publish and update the app in the app store.

After the app is available in the different app stores, BTP needs to conclude contracts with their two main cooperators: bakeries and customers. To become a member of the network, bakeries must sign an agreement with BTP, in which they confirm to pay a fixed annual membership fee as long they are part of the community. In specific cases, BTP can use just one contract with bakery chains to allow several bakery shops to join the community. In this contract, one major issue is the definition of the duration of membership. When is the bakery allowed to exit the community and what cancellation period does it have? Of course, BTP must also mention that bad performance in customer reviews and/or mystery shopping can lead to an exclusion from the network, since BTP wants to secure its quality promise. This means that nonfulfillment of predefined criteria (e.g. customer ratings) can lead to termination of the membership. Additional contract attachments are the possible 5-10% discounts coming from the Perfection loyalty cards or the possibility to buy pop-up advertisements.

Although the app is distributed via different app stores, BTP is the user's contract partner when the download is made. After opening and while using the app, the customer needs to agree to the terms & conditions. Those are vital for every app, since they set the basic law framework. For instance, there will be intellectual property regulations, which are protecting BTP’s content and brand (e.g. logo). Moreover, the customer should find here information regarding treatment of his customer data and its termination. Apart from that BTP must include a third-party clause, which is underlining that BTP is not responsible for the actions taken by the bakeries from the app community. The issues of intellectual property and data protection are going to be underlined in the chapters three and four.

2.2. Bakery outlet

In the case of franchising, a franchisor (BTP) provides a franchisee with the use of a business concept for a fee. According to the European Franchise Report (2012), there are several required elements to identify a “proper franchise”⁶. First, the franchisee can use franchisors’ brands, its logo, its visuals etc. in its everyday business. The franchisor should transfer knowhow, which allows the franchisee to operate efficiently from the beginning on. Then, it is also necessary that BTP assists the franchisee during the contract duration in emerging challenges. For instance, the right franchise location is often the key to success. Of course, BTP must show willingness to help during the location search, in evaluating alternatives, in negotiations and consulting regarding the next steps. In fact, it would be better for BTP to have the freedom of location choice, so unattractive locations could be excluded from the beginning on. In the end, BTP should develop further its knowhow and share it with the franchisees to protect BTP’s competitiveness in the European market.

Mendelsohn (2004) states that the franchising contract must deal with at least the following fields.⁷ First, the franchisor transfers the brand name and a license to use it. The franchisee gets a brand, which stands for quality and is easy to remember for customers. Second, the franchised bakeries get access to the franchisor’s business system, which means that BTP is transferring its knowhow with an according business concept. A concept can be a wide field, which leads to the fact that there can be variations in depth and BTP should deal with the extent of predefined business settings. For instance, should be the product portfolio of the bakery outlets be standardized to classical BTP products or adapted to the needs of national consumers in the different countries? Third, the contract must define the responsibilities regarding the different payment and investment types, which are going to be vital in this B2B.

[...]

¹ De Luca, N., European Company Law, 1 ed. (2017), Cambridge University Press at p. 6.

² Solmecke, C., Taeger, J., Feldmann, T., Mobile Apps: Rechtsfragen und rechtliche Rahmenbedingungen, 1 ed. (2013), De Gruyter at p. 25-27.

³ Here, the basic assumption is that external app developers are developing and updating the Perfection app. If the app is developed internally, then the employer agreement covers this area.

⁴ Apple Developer (2017), Terms and Conditions, URL: https://developer.apple.com/terms/ Access on 11th June 2017.

⁵ Apple Developer (2017), Human Interface Guidelines, URL: https://developer.apple.com/ios/human-interface-guidelines/overview/design-principles/, Access on 11th June 2017.

⁶ European Franchise Federation, European Franchise Report, (2012), at p. 2.

⁷ Mendelsohn, M., Franchising Law, 2.ed. (2004), Richmond Law & Tax Ltd.