Food and Industry Essay

Political This can have two extreme effects on threat of new entrants. If the government brings out higher restaurant license cost and increased taxes and/or implements strict health and safety regulations along with more documentation procedures, this will increase the barriers to entry. However, if the government does the opposite by decreasing license cost and taxes or has a lenient approach to health and safety procedures, the threat of new entrants will be high. Economic. Due to the rising income disparity and the adverse economic conditions, the number of unemployed is increasing due to which the labor cost will decrease, and the up-class restaurants will be more in demand as the rich are getting richer. Thus, the threat of entrants is high because of increased profit margins in such ventures. In case of improvement in the economy, more people could afford to go out to restaurants which give more opportunities for new restaurants to come up. Social. The current social trend is in favor of eating out especially at expensive restaurants, thereby, increasing their demand and also owning such eat-outs is now very socially appealing thus, increasing the threat of new entrants. Technological The rise in innovative technology has made management of restaurants very easy and the new sophisticated software now enable restaurants to run with less number of employees, thereby, reducing the labor cost. Thus, this factor increases the threat of new entrants. |B |Bargaining Power of Buyers |Yes |~ |No | | | |(+) | |(–) | | |Are there a large number of buyers relative to the number of firms in the business? |[pic] | | | | |Do you have a large number of customers, each with relatively small purchases? |[pic] | | | | |Does the customer face any significant costs in switching suppliers? | | |[pic] | | |Does the buyer need a lot of important information? | | |[pic] | | |Is the buyer aware of the need for additional information? | | |[pic] | | |Is there anything that prevents your customer from taking your function in-house? |[pic] | | | | |Your customers are not highly sensitive to price. |[pic] | | | | |Your product is unique to some degree or has accepted branding. |[pic] | | | | |Your customers’ businesses are profitable. | |[pic] | | | |You provide incentives to the decision makers. | | |[pic] | Interpretation The bargaining power of buyer is low in the industry firstly because their product is a commodity item and consumers have no choice but to continue consumption, as it is also a form of entertainment in our country. This makes the industry more attractive and profitable and the PEST forces such as increasing population is an appealing opportunity, however, the economic situation of the country brings along adverse effects on the industry. Nandos should therefore, bank on the rising income disparity. PEST forces that affect Bargaining Power of Buyers Political This political factor has no direct affect on the bargaining power of buyers. Economic The increasing population reduces the power of buyers. Even though the adverse economic situation of Pakistan is reducing the consumer base, it is still not making much impact on the bargaining power of buyers. Social The trend is moving towards eating at restaurants, which is increasing the base of consumers, thus, reducing their bargaining power. Technological The advancement in technology makes it possible for the buyer to gather all the information quickly and make informed decisions. Thus, this is increasing the bargaining power of buyers. |C |Threat of Substitutes |Yes |~ |No | | | |(+) | |(–) | | |Substitutes have performance limitations that do not completely offset their lowest price. Or, |[pic] | | | | |their performance is not justified by their higher price. | | | | | |The customer will incur costs in switching to a substitute. | | |[pic] | | |Your customer has no real substitute. |[pic] | | | | |Your customer is not likely to substitute. | |[pic] | | Interpretation The threat of substitutes is medium to low, as this industry does not have any real substitutes, because restaurants offer unique experiences along with their basic product i. e. food items. In Pakistan, eating out is a form of entertainment and people generally like going to specific restaurants and cafes because of their splendid experience in the past including ambience and food. Nandos should therefore concentrate their efforts on upgrading their restaurant ambience and the taste offered by them. PEST forces that affect Threat of Substitutes There aren’t many substitutes of the restaurant industry. However, decrease in the purchasing power of the people could lessen their visits to the restaurants thereby increasing the threat of substitutes. If better substitutes are provided to people such as more variety in the ready-to-cook foods could increase the threat of substitutes. |D |Bargaining Power of Suppliers |Yes |~ |No | | | |(+) | |(–) | | |My inputs (materials, labor, supplies, services, etc. ) are standard rather than unique or | | |[pic] | | |differentiated | | | | | |I can switch between suppliers quickly and cheaply. | | |[pic] | | |My suppliers would find it difficult to enter my business or my customers would find it difficult | | |[pic] | | |to perform my function in-house. | | | | | |I can substitute inputs readily. | | |[pic] | | |I have many potential suppliers. | | |[pic] | | |My business is important to my suppliers. |[pic] | | | | |My cost of purchases has no significant influence on my overall costs. | | |[pic] | Interpretation Bargaining power of suppliers is high because the inputs are not easily substituted, keeping in mind only those companies in the industries that are rather cautious about their inputs as poor quality inputs can cause them a hefty amount of business. Also, the inputs are usually of a perishable nature, thus, stock-ups are not possible, that is why reliability of suppliers is very important. Therefore, these companies usually have one or two major supplier of main inputs, who can provide good quality inputs in a timely manner. This is an unattractive aspect of this industry, that’s why; Nandos should integrate backward by probably farming their chicken, in order to eliminate this power of suppliers. PEST forces that affect Bargaining Power of Suppliers Political. If the government grants subsidies to other chicken suppliers so that they are able to produce at the same level and with same quality as KnN, then the supplier power will reduce. If the government establishes quality standards for using hygienic meat products, the supplier power would go very high since there is only one major chicken supplier. Economic The current economic situation of the country will reduce large scale companies such as KnN; thus, the supplier power will increase. Also our poultry industry is â€Å"going down†. This will further increase the power of suppliers. Social. This factor will not affect the input of food industry. Technological Technology has made it possible to manage the poultry industry, thus enabling more suppliers to come in. therefore, the power of suppliers will reduce. |E |Determinants of Rivalry among existing competition |Yes |~ |No | | | |(+) | |(–) | | |The industry is growing rapidly. |[pic] | | | | |The industry is not cyclical with intermittent overcapacity. | | |[pic] | | |The fixed costs of the business are a relatively low portion of total costs. | | |[pic] | | |There are significant product differences and brand identities between the competitors. |[pic] | | | | |The competitors are diversified rather than specialized. |[pic] | | | | |It would not be hard to get out of this business because there are no specialized skills and |[pic] | | | | |facilities or long-term contract commitments, etc. | | | | | |My customers would incur significant costs in switching to a competitor. | | |[pic] | | |My product is complex and requires a detailed understanding on the part of my customer. | | |[pic] | | |My competitors are all of approximately the same size as I am. | | |[pic] | Interpretation. The rivalry amongst the existing firms is moderate to high as each tries to outdo the other by offering cost-effective deals to the consumers especially during Ramadan. With the increasing rate with which these eat-outs are opening, the market share for each of them is deteriorating. Thus, each is rigorously competing against the rest. In such situation, it is usually the restaurants with small operations such as Nandos that suffer. Nandos should therefore, try to combat this issue by increasing their operation via market penetration or market development. PEST forces that affect Rivalry among existing competition. Political If the government grants subsidies to local competitors to match the international chains, the rivalry will increase. Economic The fake economic growth has increased the availability of funds; therefore the competitors can match international chains now. Thus, the rivalry will increase. Social This factor will not affect the input of the Restaurant Industry. Technological Technology has made it possible for competitors to affectively reduce cost, thereby, enabling to match each other and copy the others competitive advantage. This will increase the rivalry between competitors. | |Overall Industry Rating |Favorable |Moderate |Un-favorable |Implications | | |Threat of new entrants |3 |2 |7 | | | | | | | |Threat of new entrants is high | | | | | | |Unfavorable | | |Bargaining power of buyers |5 |1 |4 | | | | | | | |Bargaining power of buyers is Low | | | | | | |Favorable | | |Threat of substitutes |2 |1 |1 | | | | | | | |Threat of substitutes is Medium to Low | | | | | | |Somewhat Favorable | | |Bargaining power of suppliers |1 |0 |6 | | | | | | | |Bargaining power of suppliers is high | | | | | | |Unfavorable | | |Intensity of rivalry among competitors |4 |0 |5 | | | | |. | | |Intensity or rivalry is Moderately High | | | | | | |Unfavorable | | |Total |15 |4 |23 |Reasonably Unattractive | Interpretation Overall, it is an unfavorable industry as the major cities of Pakistan are swamped with many restaurants and cafes. Nevertheless, the industry position can be exploited to ones advantage, if strategically smart decisions are taken. For Nandos, the recommendations include: †¢ Constantly innovate and bring in more competitive advantage that are unmatchable, in order to reduce the threat of new entrants. †¢ Backward integration to reduce the power of suppliers. †¢ More effective differentiation to reduce the rivalry between Nandos and competitors. 1 Overall Macro-Environmental Pest Factors Political Factors: The political factors that mainly affect Nandos concern how the government relates to health issues concerning food items being served or brings out new regulations regarding the restaurant business. For Instance: when Bird Flu occurred in Pakistan, if the government would have asked for ban on chicken items or some strict regulations on the chicken items being served, then it would have highly affected Nandos as well. Government regulations regarding franchises or international chain of restaurants would affect Nandos in relations to itself or in dealing with its competitors. Economic Factors: Pakistan is a developing country and the majority of the population has low purchasing power. Nandos caters to that niche of the Pakistani society that has a relatively higher purchasing power than the majority of the nation. Any economic instability or economic recession would decrease the power of a lot of consumers, decreasing the niche segment that Nandos caters to. Thus economic power does affect Nandos as people tend to spend less on eating out at relatively expensive places when they have a tighter budget. If the economy develops and more people have the purchasing power, then more people would be able to visit restaurants like Nandos. Social Factors: The trend of eating out has been carrying on in Pakistan since a very longtime. Pakistani people have always loved eating out. It is even the main source of entertainment in Pakistan. Earlier on families would go and eat out, but since the past few years, this trend increased even further in teenagers, young adults and with corporate people. Nowadays, if we visit any restaurant such as Nandos, we get to see a diverse crowd that includes teenagers, families, couples and even corporate businessmen. Thus eating out is becoming an increasingly important social trend which works positively for places like Nandos. Technological Factors: The restaurant business works well where the management handles the service well. To be quicker and more efficient in processing and then serving the orders, restaurants need to have better technology. To keep records of day-to-business, better technology is essentially important. Cooking also requires better equipments to work faster and better. Nandos has the essential equipment to make all of its flame-grilled items which even works towards providing healthier items by not making deep-fried products. 2 Key Driving Forces Affecting the Industry †¢ The Internet and new E-Commerce opportunities The Internet can revolutionize the entire restaurant industry by including the aspects of ordering food online. In this way consumers could be provided with more convenience and be more informed about the menus. †¢ Increasing globalization of the industry Global chains of restaurants such as fast food joints like KFC and Mc Donald’s have existed since a very long time now. The aspect of a global chain leaves a positive impression on the minds of the people since they tend to believe that the product is of quality and hygiene. More and more restaurants are following this trend and opening up their chains in Pakistan. This does affect the restaurant industry on a whole. Nandos is also globally widespread but it hasn’t penetrated much in Pakistan as yet. †¢ Product Innovation Those restaurants that have had a unique menu or recipe have been able create a strong place in the industry. People have always wanted variety in Pakistan. Any new element or uniqueness in a restaurant’s menu could give it a competitive edge in the market. Nandos has banked on this opportunity by introducing an entirely new concept adopted from South Africa. †¢ Technological Change Advances in technology can dramatically transform the restaurant industry. Technological developments can competitively produce significant changes in the distribution channel and logistics and reduce the costs in the value chain. †¢ Entry or Exit of major firms Exit of major firms in the restaurant industry can lead to changes in market shares of all the companies that compete with such firms. Entry is relatively easy and keeps on leading to increased competition in this industry. †¢ Changes in cost and efficiency Decrease in cost can lead to significant changes in the profit margin of the business. However increasing costs can prove to be detrimental to the businesses in the industry. †¢ Regulatory influences and government policy changes Regulatory influences or policy changes such as increased quality and hygiene standards can drive up costs of firms but would lead to better and safer food items. †¢ Changing societal concerns, attitudes and lifestyles Emerging social issues and changing attitudes and lifestyles can be powerful driving forces of industry change. The trend of eating out has been increasing consistently in Pakistan giving more opportunities for new companies to come with more and more variety for the public. 3 External Factor Evaluation (EFE) |Key External Factors |Weight |Rating |Weighted Score | | | | | | |Opportunities | | | | |Market Potential – growing market for fast casual |0. 17 |2 |0. 34 | |People’s need for variety in the food and entertainmnt sector |0. 10 |3 |0. 3 | |Rising Demand for Home delivery and Takeout |0. 08 |3 |0. 24 | |E-commerce |0. 02 |1 |0. 02 | |People’s preference for red meat |0. 06 |1 |0. 06 | |People’s attraction towards promotional offers |0. 08 |2 |0. 16 | |Increasing trends for business/corporate lunches and dinners |0. 05 |3 |0. 15 | | | | | | |Threats | | | | |Economic Problems in the country |0. 09 |2 |0. 18 | |Bird Flu Threat |0. 03 |3 |0. 09 | |Political Problems in the country |0. 02 |2 |0. 04 | |Growing market for cafes in Pakistan |0. 06 |2 |0. 12 | |Availability of nandos table sauces in the market |0. 03 |2 |0. 06 | |Only one chicken supplier (KnNs) |0. 08 |2 |0. 16 | |Huge variety of Restaurants, fastfood places |0. 12 |2 |0. 24 | |Changing tastes of people |0. 01 |2 |0. 02 | | | | | | |Total |1. 00 | |2. 18 | Analysis: Nandos, Pakistan’s total weighted score is rather disappointing considering their global background. Currently their total weighted score of 2. 18 is about 20% less than the industry average of 2. 5. They are not exploiting the opportunities in the food industry to their advantage neither are they combating the threats well. The most major opportunity staring them in the face is the rising market potential which has the highest weighted score of 0. 34, as the trend in Pakistan is moving towards fast-casuals. To handle this opportunity they must open up new outlets to cater to the untapped vicinities. Another opportunity that has a high score of 0. 3 is the peoples need for variety. The strategy for such an opportunity would be to add varieties like fancy beverages (e. g. cocktails and mocktails), sea-food and meat in their menu (available at Nandos outlets in other countries of the world). Of the threats, that needs their immediate attention is the rate with which new restaurants that â€Å"Pop-up†. To counter this Nandos must concentrate on increasing its efforts on rightly implementing their Focused Differentiation Strategy. They should further enhance their brand image to capture more loyal customers. Another threat which has a relatively high weighted score is the economic problems of Pakistan; the way this can be overcome is by establishing subsidiaries under another name. The third biggest threat with a weighted score of 0. 16 is that they have only one reliable supplier; they can definitely counter this via backward integration that would include farming their own chicken. Company and Competitor Analysis 1 Competitive Profile Matrix (CPM) |Key Success factors | |NANDO’S |BBQ Tonite |Roasters |GunSmoke | | |Weight |Rating |Weighted Score | | | | | | |Strengths | | | | |Product – their Peri-Peri recipe |0. 20 |4 |0. 8 | |Strong brand personality |0. 07 |3 |0. 21 | |Ambience at the restaurant |0. 05 |3 |0. 15 | |Customer Loyalty |0. 02 |3 |0. 06 | |Marketing efforts towards the consumer base |0. 05 |3 |0. 15 | |Strong Supplier/Distribution system |0. 10 |4 |0. 4 | |Products have essential ingredients for a health life |0. 01 |2 |0. 02 | |Strong Background from Africa present till today |0. 01 |3 |0. 03 | |Selling Experience |0. 04 |4 |0. 16 | |Strong food concept |0. 02 |3 |0. 06 | |Strong Globalize Strategy – adaptive to culture |0. 06 |4 |0. 24 | |Creative and unique Menu |0. 02 |4 |0. 08 | | | | | | |Weaknesses | | | | |Low Marketing Budget |0. 08 |2 |0. 16 | |Stagnant Growth – Not penetrated |0. 15 |2 |0. 3 | |Communication system within dept- not strong |0. 04 |2 |0. 08 | |Weak Technological system in the Administration Department |0. 04 |1 |0. 04 | |No Beverage Variety |0. 04 |2 |0. 08 | |Total |1. 00 | |3. 02 | Analysis: The total weighted score of 3. 02 is 20. 8% more than the average industry weighted score. The reason for such a phenomenal score is their PERI PERI recipe which is their main strength with the highest weight. Basting, marinating and table sauces are usually the most important ingredients and they are definitely quiet effectively banking on this strength. Their delicious basting and marinating sauces still remain a mystery to the rest of the world. Along with this, they are handling all their strengths really well with the exception of their healthy ingredients, which they are handling in an average way, although, it has a low weight considering the psyche of Pakistanis, they can definitely improve their score by communicating the nutritional values of their ingredients. On the other hand, they are very poorly countering their weakness. Their main weakness is their stagnant growth with the highest weight and with only a sore of 2. There is no evidence, that they are willing to do anything about it as their outlets are still missing in the major cities of Pakistan, like Islamabad. They should definitely improve their growth rate and try to improve their marketing budget. This will definitely enhance their total weighted score. The strategies to improve the growth rate would include market development and product development via establishing more outlets and increasing the variety in their menu, respectively. Strategic Analysis and Recommendations 1 Generic Strategy [pic] Although, Nandos Pakistan claims to be following a Focused Differentiation Strategy, they haven’t really implemented it that well. Nandos Pakistan caters to that Niche market which requires a different taste and value and is prepared to pay the price for it. Their focus is entirely on the Upper Middle and Upper-Upper class. The strategies implemented by Nandos have not exactly catered specifically to this focused differentiation strategy. The company needs to make effort in targeting and communicating their real value to its specific set of consumers. Another contradiction in this strategy is that there is no outlet in Islamabad, Pakistan, where mostly the rich and the influential reside. Now is the time to really bank on the rising income disparity in the economy via increasing their prices. This will also attract more customers from upper-middle/high class, as it is quiet socially appealing for them to dine at expensive places. Nevertheless, Nandos offers only chicken items; this is in line with their current strategy. They should really check their strategic approach or correct their focus. Nandos should stick to its focused differentiation strategy. The following strategies have recommended for improving their strategic position: †¢ Increase their prices to capture a larger share of their current target market. †¢ Open up outlet in the major cities of Pakistan like Islamabad and Faisalabad. †¢ Effectively communicate their niche marketing strategy to their target audience to further emphasize what their brand actually stands for. †¢ Add value by offering an outstanding service which is unforgettable and unmatchable. ———————– ‘Nando’s is devoted to providing its customers appetite for life, who love to laugh and live to eat. At Nando’s we believe in our flame-grilled Peri-Peri Chicken, we believe it’s the best in the world. We aim to be the most successful grilled food restaurant in the world at delivering the best customer experience in markets we serve and to do so, Nando’s will meet its customer expectations through highest quality food prepared with leading technology and by hiring and retaining personnel with exceptional capabilities. We believe in offering quality and value to our customers and grow in such a way that creates profitability and value for shareholders and structure the society in such a way so as to improve the quality of life of the whole community. Our distinctive competence is our open style of informal restaurants, through the wonderful saying â€Å"Mi Casa so casa – My home is your home. ’ ‘Our vision is to be the first choice in grilled food restaurant business around the globe. ’ HIGH LOW HIGH LOW HIGH LOW HIGH LOW HIGH LOW Customer Home Delivery Dine-in Take-Away Kitchen Restaurant/Retail Outlet Store Warehouse in Pakistan Fries from McKainz Ketchup from Knorr Chicken from KnN’s Peri-Peri Sauces from South Africa.