Food Processing Industry Analysis

Food Processing Industry Analysis 1.0 Introduction A strategic management process like strategy analysis, strategy formulation, and strategy implementation are important for an organization. (Anthony H,2008) 2.0 Strategy Analysis Macro-environment can act as an analysis which provide early warning system for organizations to anticipate threats, opportunities, and develop appropriate responses (Ginter and Duncan,1990) in the discerning trends in general environment which may impact upon its industry and markets. Strategy analysis can make organization to focus on factors and conditions which influence a firms profitability within an industry and focus on predicting the dynamics of competitors actions, responses and intentions. (Anthony H,2008) This tool of analysis will discuss about PEST framework, Porters Five forces framework and SWOT analysis for BreadTalk in BreadTalk Group Ltd. 2.1.0 Analysis of food processing industry 2.1.1 PEST Analysis PEST analysis is a useful tool to help Breadtalk Group Ltd to help detect and monitor all weak signals to recognize the discontinuities or fractures to shape the environment. PEST refers to political, economic, social and technological. i) Political Factors The political factor encompasses all legal elements like legislation, taxation, deregulation philosophies, labour training and etc. (Anthony H,2008) All organization within the food processing industry are forced to innovate and cut costs to remain competitive to prevent new entrants as new entrants will enter the market with lower cost and more clearing understanding of consumer needs by offering more innovative products and services. Increasing globalization and trade barriers has created an opportunity and challenge to BreadTalk as BreadTalk can enter the market by emerging companies in political stable country to explore the new market especially in markets where bread could be luxury but at the same time BreadTalk will have to challenge with all type of sources to source for low cost high quality from world over. ii) Economic factors The strengthening of an economy will generally benefit industries but its effect will vary according to which factors are most affected. The economic factors include interest rate, disposable income, inflation, gross domestic product, unemployment rates, budget deficit and surplus, personal savings rate, business savings rates and exchange rates. (Anthony H,2008) The rise and fall of commodity and raw material and rise in fuel prices all over the world cause the rise of purchasing costs for BreadTalk and the extra cost has to pass over to consumers by increasing the prices of products. The credit crunch can impact BreadTalk as it might decrease the power of purchasing of consumer and BreadTalk may face competition from local small bread retailers who offer at more affordable prices though less delicious to cost conscious consumers. iii) Social factors Social factors include all cultural changes like social cultural within the environment or country and it would influence consumer spending patterns. Social cultural include traditions, lifestyles, values, attitudes, beliefs, tastes, and workforce diversity. (Anthony H,2008) BreadTalk forays into the markets of China and India and social factors come into understanding. Chinese and Indian customers have different culture in lifestyle, and they have different opinions and needs on the current products offered. iv) Technological factors No doubts that major changes taking place in the general environment that are impacting the competitive environment are technological. Technological factors include product innovation, applications of knowledge, new communication technologies and etc. The rapid rate of changes of technology has allowed new entrants to enter the market at a lower cost base. (Anthony H,2008) Modern processes and machinery with many communications devices now can now be used by BreadTalk to ensure the cost of labor and production are reduced and orders to process faster due to globalization and changes in technological factors. 2.1.2 Porters five forces framework The five forces of Porter are, threat of new entrants, bargaining power of buyers, Bargaining power of suppliers, threat of substitute product and intensity of rivalry Threat of new entrants The threat of new entrants is when new competitors decide to enter an industry and reduce profits being earned by incumbent firms and to decrease level of customers loyalty within the food processing industry. (Anthony H,2008) With BreadTalks product differentiation and high brand name recognition and customer loyalty, it will prevent new entrants to enter the market, so the threat of new entrants will be low. Bargaining power of buyers Buyers have the influence power for an industry to force down prices and offer higher quality as consumers purchase represents a sizable proportion of organizations overall sales. (Anthony H,2008) BreadTalk produced products that are potentially lower price for customers as they design its own products and have their own factories. BreadTalk enhance customer loyalty by enhancing existing customer and getting new customers by providing positive shopping experience through good customer services, so the buyer power is high. Bargaining power of suppliers Suppliers have the power of bear or apply in an industry by raising price or reducing the quality of products. (Anthony H,2008) The increase of supplier power is the mirror image of increase buyer power. BreadTalk uses a strategy of building greater loyalty and long-term relationships marketing with suppliers and retailers and then to result in improve performance in work and provide good service to customers. Threat of substitute products or services By having a products or services that meet similar needs will make customers switch to substitutes in response to a price increase on product. (Anthony H,2008) In Singapore, there are many substitutes for bread like hawker centers and restaurants like Delifrance and McDonalds are close substitutes in terms of pricing and perform the same function to sell food. Intensity of rivalry among firms in an industry When an organization exhibit a high level of rivalry, it will cause the industrys profits to reduce because of aggressive competition on price as when rivalry cut down on price, the other organizations will cut down price to sustain in their market positions. (Anthony H,2008) BreadTalk main competitors are Four Leaves, Prima Deli, Q-Bread, Sweet Secrets, Bengawan Solo, and so forth. BreadTalk is facing an intense rivalry competition from both small-scale production like small family-fun in the neighbourhood and large retailers like Sunshine and Gardenia which produce affordable products. Due to this intense competition, BreadTalk attempted to enter Chinas market for diversity purposes. SWOT analysis SWOT analysis refers to strength, weaknesses, opportunities, and threats. Strength and weaknesses refer to the BreadTalkss internal environment within the firms control while opportunities and threats refer to BreadTalks external environment which the firm has less control. Strength The BreadTalks concept is unique from the traditional bakeries in the market as BreadTalk has a wide menu of confectionery products like breads, buns, pastries and cakes which allows the menu change on daily basis to satisfy customers varied needs. BreadTalk will introduce new products every four months to cater customers changing taste.(competitive strengths,2009) Other than this, strategic locations is one of the competitive strength. BreadTalks retail outlets are mostly near the public transport systems like bus terminals, the Mass Rapid Transit Stations, and the Light Rail Transport stations.(competitive strengths,2009) Weaknesses There is very much reliant on Singapore with a small domestic market of five million and it is also underserved in the emerging economies of Asia, in result this might drag BreadTalks company performance in long term fairly saturated with little growth in local market. Although BreadTalk offers a wide range variety of products, it does not have halal certificate, so it is very hard and critical to penetrate into the Muslim market, Malaysia market and Indonesia markets. Opportunities BreadTalk oppose its main weakness by expanding and emerge its market in China, Vietnam and other Asian countries with its affordable, low-priced high volume breads. Other than this, the increase of popularity of online shopping has provided an opportunity to BreadTalk to lower expenses by expanding its business into the realm of virtual marketplace. Threats Existing bread related firms like Gardenia, Ya Kun and Sweettalk are also competing BreadTalk directly to offer bread with fillings and more variety of bread, this move will significantly effect on BreadTalks revenue of the sales of bread. If the health conscious alternative like Subway decides to sell low priced bread, BreadTalk will face a challenge. 2.2 Value Chain Analysis There are two analytical tools like Value Chain analysis and Benchmarking to asses whether BreadTalks costs are competitive with those of rivals as is a crucial part of company situation analysis. Value Chain analysis is more suitable for BreadTalk Group Ltd. A companys businesses are consists of all activities undertaken in producing, designing, marketing, delivering, and supporting its product and service which perform internally combine to form a value chain. Value chain analysis was devised by Porter (1985) which helps us to assess an organizations resources to determine its strengths and possible weaknesses. Value Chain contains two types of activities which are primary activities where most value for customers is created while support activities facilitate performance of the primary activities. For bakery goods maker like BreadTalk, its primary activities would be producing bread from raw material to semi finished products by the activities emulsifiers, enzymes, sourdoughs and yeasts, supply chain management, recipe development and testing, mixing and baking, packaging, sales and marketing and then distribution. For its support activities, it would be quality control, hu man resource management and then administration. Value Chain analysis has a few characteristic: To combine costs for all activities in a companys value chain to define the companys internal cost structure To compare a firms costs activity by the activity against costs of key rivals from raw materials purchase to and price paid by ultimate customer To pin point the source of cost advantage or disadvantage on its internal activities 3.0 Strategy Formulation Strategy formulation can be argued that it can constitute differential firm performance and allows BreadTalk to achieve sustainable competitive advantage and to accomplish their objectives and mission. An organization must be mindful of its ability before it can implement strategy during the strategy formulation stage. Business level and corporate level strategy will be discussed as BreadTalk Group Limited used these two strategies to improve the companys performance. Business Level Strategy Business level strategy can work as separating out and formulating a competitive strategy at the level of individual business unit and sometimes referred as strategic business unit (SBU) which focuses upon a particular market or markets for its products and services.(Anthony H,2008) Business unit is needed to devise a strategy to allow it compete successfully to the marketplace and contribute to corporate strategy. Business level strategy can be evaluated by using Porters generic competitive strategies as business strategy is always in pursuit of a sustainable competitive advantage.(Anthony H,2008) Porters seminal work on industry and competitor analysis (Porter 1980) argues that what will drives an organizations performance and differential firm performance and it is also referred as to the positioning of the firm within the industry to take advantage and the attractiveness or profitability of an industry is determined by his five forces framework. Generic Competitive Strategies Performing different activities or similar activities in different ways which will be recognized as being superior to its competitors can create a sustainable competitive advantage. Porter (1980) argues that competitive strategy develop a defendable position in an industry which enable the firm to deal effectively with the five competitive forces and generate superior return on investment for the firm. BreadTalk can achieve it by following these steps; first, BreadTalk can offer its products at a lower price than rivals but without sacrificing the quality of products. Second, BreadTalk can produce differentiated product with premium price for customers who perceive better value than from rival firms, third BreadTalk should choose which market segments to compete within. Porter (1980) developed three generic strategies to help organization to outperform rivals and position itself against the five forces within the industry which are Overall Cost Leadership Strategies, Differentiation Strategies and Focus Strategies. Overall Cost Leadership Strategies This strategy involves firm to be the lowest-cost producer within the industry and target its products and services at a broad market to outperform rivals within the industry as it charge lower prices and its lowest-cost-base can still earn superior profits where the rival simply cannot match. According to Porter, cost leadership strategy require organization to pursue aggressive construction of efficient-scale facilities, vigorous pursuit of cost reductions from experience, tight cost and overhead control, avoidance of marginal customer accounts, cost minimization in areas like research and developments, service, sales force and advertising. (Porter 1980, p.35) BreadTalk generate above-average profitability where intense competitions exist in Singapore. Its lower cost base allows BreadTalk to still earn returns after other higher cost direct main competitors like Gardenia, Four Leaves and my bread (CIMB research report,2009) to competed away their profit through rivalry. A low cost position allows BreadTalk to defend itself against buyers who can only price down to the next most efficient competitor. BreadTalk provide a hedge against any increases in their input prices when facing with the bargaining power of suppliers as BreadTalk is being a low-cost producer. BreadTalk is at advantageous position to compete prices to prevent the threat of entry and acts as barrier to entry. Differentiation Strategies Differentiation strategy means organization produce unique or different products or services at a broad market for consumers and it also acts as an opportunity to meet different customer needs. Customers willing to pay a premium price for unique products and services. The major benefit of this strategy is that rivals will find it difficult to imitate. Organization can differentiate their product offerings like design, brand image, market abilities, reliability, creativity, customer service and so on. BreadTalk different themselves from other bakeries with their open-concept design and space-age looking store facades which actually allowed customers to view the bakers while they are working and it also generated interest in customers of their products.(Unique Concept and Branding,2009) BreadTalk also offer wide range of baked products every four months to satisfy every customers. All the creative and innovative differentiation methods will set BreadTalk away apart from their competitor.(Wide Range of Products, 2009) Corporate level strategy Corporate level strategy can be defined as the scope of the industries and markets within which the organization competes in order to achieve its organizational purpose.(Anthony H,2008) The managers of business units have freedom of action to create their business level strategy with the knowledge of local markets, customers and competitors and show their business strategy ultimately to contribute to the corporate strategy. Corporate parenting exists when an organization is made up with multiple business units which those levels of management that are not part of customer-facing and profit run business within the multi-business organization.(Anthony H,2008) There are many strategies in corporate level strategies like Growth Strategies, related diversification, unrelated diversification and so forth. Growth Strategies Ansoft (1965) invented a matrix to analyze different strategic directions organizations can achieve and there are four strategies for organization to follow, market penetration, product development, market development, and diversification. i) Market penetration Market penetration will increase market share in existing markets by using existing products aiming to get new customers to maximize organizations profits. Organization will improve its products quality and level of service and add on with promotional spend before the firm will achieve market penetration. This strategy is relatively low risk as organization will use the existing resources and capacities to penetrate to the new market. (Anthony H,2008) In 2009, BreadTalk successfully penetrate new markets and also infiltrated in countries like Singapore, PRC, Hong Kong, Malaysia, Thailand with 119 outlets and 182 franchise outlets in Indonesia, Philippines, Kuwait, United Arab Emirates, Oman, Bahrain, India, Korea, PRC.(BreadTalk Financial Review 2009) ii) Market development Market development involves entering new markets with organizations existing products like targeting new market segments and new geographical areas. Certain social and cultural adjustments will be made to ensure the products will meet the needs of particular geographical market segments. (Anthony H,2008) BreadTalk increase their market share by penetrating their near existing market like Malaysia, Indonesia, China, Taiwan and India with their existing products. BreadTalk has good store locations in Chinas fast multiplying shopping malls which are easy to be found.(Daily Bread,2008) BreadTalk is trying to get halal certificate in order to fully develop its expansion in Malaysia and Indonesia. Other than this, BreadTalk had made some changes on its current existing baked products to fulfill the demand of china and India customer as they have different cultural beliefs and preferences in baked products Product development Product development will develop new products to sell in existing markets. A strategy of product development is necessary where organizations are faced with rapid changes in consumer markets and shorter product life-cycle. In food processing industries, organizations are forced to continually develop new products to keep competitors on the defensive and maintain and grow their market share. (Anthony H,2008) In bakery industries like BreadTalk, BreadTalk has to produce new products to maintain its position in the market to prevent its competitor to overtake it positions as customers will change to competitors products and services if BreadTalk never change its menu of serving. BreadTalk always produce with new baked products every four months to satisfy customer needs to sustain its position in the existing markets. The latest special was spring summer(fresh from oven,2009) Diversification Diversification can be defined as develop new products to serve new markets, in another word, organization that move away from its current products and markets to turn into new products and new markets to broaden its scope of activities are the steps of diversification for organizations. Broadening the scope of the organization can help to spread risk by reducing the reliance of any one market or product. (Anthony H,2008) Not only they offer convenient atypical of other typical bread stores, BreadTalk diversified their business by opening restaurants like Din Tai Fung targeting on family market as their priority market other than relying too much on the competition in the local food processing industries. BreadTalk diversify their operations in other countries like China to open a new market trying to dominate the new market and be dominant by importing the concept of smart food beverage retail and sells western-style baked goods.(Daily Bread,2008) BreadTalk now not only have Bakery business, they have diversified into Restaurant and Food Atria businesses. On 17 December 2007, BreadTalk Group Limited acquires and manages the franchise agreement with J.co Donuts coffee. 4.0 Strategy Implementation The best formulated strategy in the world would fail if the strategy is poorly implemented. In order to implement effective strategies, it requires organization to be sufficiently flexible in its organizational design and effectively communicated and properly resourced, the changes must be clearly understood and properly coordinated with stakeholders inside and outside the organization. Strategy implementation allocates resources for strategy-critical activities and establish strategy-supportive policies and to motivate people to pursue the 4.1 Management issues There are a lot of management issues in BreadTalk like annual objectives, policies, resources organizational structure, restructuring, rewards, resistance to change, natural environment, supportive culture, operations, and human resources to be implemented. BreadTalk has to manage conflicts in the management issues but not all conflict is always bad and no conflict may signal apathy. Conflicts can energize the opposing groups to action and also can help managers to identify problems. (Fred R. David, 2009) According to Chandlers (1962) strategy-structure relationship, he says when a new strategy is formulated, new administrative problems will emerge and cause the organizational performance to declines and then a new organizational structure will be established and finally organizational performance will improve and BreadTalk experienced this issue when they start implementing their formulated strategies. In order to let BreadTalk to be more effieciency, workers must be treated well in order for them to work willingly for the firm as employees are the greatest asset for company. Human resources strategic responsibilities are to assess staffing needs and costs, develop performance incentives, employee stock ownership plans, child care policies, work-life balance issues. (Fred R. David, 2009) By implementing all the extra benefits to workers, it will diverse workforce like improves corporate culture, improves employee morale, increases creativity, increases productivity, enables the organization to move into emerging markets, maximizes brand identity, leads to higher retention of employees, decreases complaints and litigation, decrease interpersonal conflict, reduces training costs and so forth. 4.2 Marketing strategies In a successful strategy implementation, organization will be in a good market and providing and experiencing well services and products and raise needed working capital. Marketing variable will affect success or failure of strategy implementation. Marketing issues like market segmentation and product positioning are centrally important to implementation. (Fred R. David, 2009) Marketing segmentation can be defined as company subdividing markets into smaller segments which can be reached more efficiently and effectively with products and services that match customers unique needs and buying habits while product positioning can be defined as the way of a product defined by customer on important attributes like the place of the product occupies in customers minds relative to compete products.(Kotler P, Armstrong G,2008) BreadTalk is facing problem of marketing segmentation around all its outlets around the world when implementing and formulating its corporate strategy level. 4.2.1 Marketing segmentation Marketing segmentation is linked to corporate level strategys growth strategy on market-development, product-development, market-penetration, and diversification. Market segmentation will directly affect the marketing mix variables like product, place, promotion and price. (Kotler P, Armstrong G,2008) Product Product means the combination of products and services offer by a company to their targeted markets. Product influence can affect on consumer behavior and it is important for the marketers to differentiate their products from competitors to create a perception to consumer that the product is worth purchasing.(J.Paul Peter and James H.Donnelly,2003) In order to sustain and maintain its strong brand name, BreadTalk has to offers more than 150 varieties of baked products, special occasions products and other services to provide more choices to customers and make its company to be different from its strong competitors like Gardenia in order to sustain in the market and success on its strategy formulation. Place Place means how the offer of product available to target consumers. Places of a product and services can influence on consumers buying power. A perfect location of a services or products should be in a convenient and strategic place to ensure consumers can find and buy them easily.(J.Paul Peter and James H.Donnelly,2003) In order to support to its strategy formulation and implement it, BreadTalk only open its outlet location near public transport systems like bus terminals, Mass Rapid Transit, and Light Rail Transport, departmental stores, supermarkets to attract potential customers and to mark down sales territories as having high customer traffic flow is crucial to Breadtalks success of retail outlets and avoid customers change their buying power to competitors offerings. Promotion Promotion means activities that communicate the merit of the product and persuade target customer to buy it. Promotions can influence consumers thoughts, emotions and experiences about purchasing and using the products.(J.Paul Peter and James H.Donnelly,2003) Every 4 months BreadTalk will offer special new baked products with promotion and for normal promotions with discounts for customers so that customers will not get bored and turn to alternative or competitors and inform consumers about products and services while creating favourable images and perceptions. Price Price is the amount charged on the products which need to be paid to obtain the products. The price of products and services often influence consumers whether to purchase them or not.(J.Paul Peter and James H.Donnelly,2003) BreadTalk has to offers affordable prices on their products even sometimes at loss to capture potential customers and capture the loyalty of existing customers as their local competitors are offering lower cost to compete with BreadTalk but at the same times, BreadTalk offers some offerings with higher prices but this will not deter customers to purchase as customer believe their products or services are higher quality or more prestigious . Market Segment Basis Organization must try different segmentation variables in alone and combinations to find the best way to view market structure and there are few major variables mostly used in segmenting consumer markets, the Geographic, Demographic, Psychographic and Behavioral. .(J.Paul Peter and James H.Donnelly,2003) Geographic Geographic can divide a market into different geographical units like region, country size, city size, density, climate and so forth. (J.Paul Peter and James H.Donnelly,2003) Although Singapores population is higher than Madium, singapores competitor is much higher and intense as it is a modern country, Madium has bigger field and resources and it is a potential opportunity for BreadTalks business. Demographic Demographic can divide a market into groups based on variables like age, family size, family life cycle, income or occupation, education, religion, race or nationality. (J.Paul Peter and James H.Donnelly,2003) Madiun is a small city in Indonesia and small population, despite small but there is no store that can satisfy their needs from south to west, but BreadTalk enter the market with its innovative and creative products and they understand what different cultured customer wants as they have been successful in all business wide, from small population to big. Once they obtained the halal certificate, they started to penetrate into muslim markets like Jakarta, Malaysia and then Madiun. Psychographic Psychographic can divide a market into groups based on social class, lifestyle and personality. (J.Paul Peter and James H.Donnelly,2003) Customers in Madiun likes healthy food, BreadTalk as offered four new varieties to compromise as healthy meal and giving the state in rice in their country. Behavioral Behavioral can divide a market into groups based on use occasion, benefits sought, user status, usage rate, loyalty status, readiness stage and attitude toward product. (J.Paul Peter and James H.Donnelly,2003) BreadTalk has developed a strong brand name and brand loyalty to customers, therefore customers are willing and they have the readiness to buy. BreadTalk sometimes will offer promotions to stimulate purchases. 5.0 Strategic Leadership Management issues can be solved by using strategic leadership. Leadership is concerned with creating a shared vision of what and where the organization is trying to aim and achieve, and formulate strategies to bring up needed changes to achieve this vision while management is about coping with the complexity to produce orderly and consistent results. Leadership activities are more to formulating strategy and then motivate and inspire employees while management activities implement strategy and control behavior and solving problems to ensure the strategy is implemented. (Fred R. David, 2009) The role of leader can help creating a learning organization and help to develop in shared vision and shaping the value of an organization. The learning organization can be defined as an organization which facilitates the learning of all its members and continuously transform itself and (Senge,1990) it comprises adaptive and generating learning. Adaptive learning is the ability to cope with change s in ones environment and generative learning is about creating change by being prepared to question the way we look at the world. (Fred R. David, 2009) The chairman of BreadTalk, Dr. George Quek, as known as the founder is a very good leader in leading its marketing team as he has 30 years of experience in the food and beverage industry. The chairman is always assisted by his senior management whom have vast experience in the food and beverage or retail industries, when a leader leads a team successfully, the performance rate will be maximum.