Armellini Italian Ice Cream and Coffee Chain Business Issues - Essay Example

 Case Study Table of Contents Introduction 2 Armellini Ice Cream and Coffee Chain 2 Competitive forces analysis 3 Porter’s five forces analysis of Armellini 4 Franchise route of growth 8 Reference 10 Introduction Over the past century business and business environment have gone through massive change. There are lots of factors that have arrived in the past century have been found to be greatly influencing the way of thinking of business leaders. Nature of competition has also changed over the years; it has become more intense. In order to stay ahead in the intensely competitive business scenario organizations and the business leaders have developed various innovative strategic tools, management theory and technology. Today any business decisions taken by the organizations are properly backed up by some strong strategies. There are several important strategic tools such as Porter’s five forces model, SWOT analysis etc. that are heavily used in the industry. Furthermore there are various ways, developed in the past few decades, which could be used in developing business. Franchise rout of growing business is one the most widely used method of developing business. This paper is all about an ice cream and coffee chain company named Armellini Ice Cream and Coffee Chain and its strategic decision. The paper includes an in depth analysis of the competitive forces that would have significant influence on the process of strategic decision making. The paper also includes the implications for the management of quality for the company in adopting the franchise route of growth. Armellini Ice Cream and Coffee Chain Armellini Ice Cream and Coffee Chain was founded by an Italian lady named Maria Armellini during the period when the Second World War just ended. Initially it was located in a coastal town that was near to Venice in Italy. In the first café products like traditional Italian ice cream as well as espresso coffee along with cooked pies, light snacks, sandwiches and beverages were sold. After the death of Maria, the company was taken over by Alessio, Maria’s eldest son. Under his leadership the business grew as the chain of restaurant and café outlets in all over the Western Europe. In the entire process Alessio was assisted by his siblings. Alessio used to give significant importance on various things like maintenance of the quality and cleanliness and proper record keeping. Alessio or any of the family members used to visit each of the café at least once a month in order to see how things were going on. It was like a business audit most of time which was carried by Alessio himself. He used to visit the outlets without any prior notice with the objective of seeing the real picture of the outlets. Furthermore, there was a monthly financial report regarding used food items, wages, labor hours etc. After the retirement of Alessio, Helen Patterson was appointed to take charge of the company as the chief executive officer. Competitive forces analysis Like any other organization Armellini is also influenced by various competitive forces which include the customers, suppliers, competitors and new entrants. An in depth analysis of the competitive forces would give a clear understanding of the bargaining power of both buyers and suppliers, threat of new entrants as well as substitutes so that Armellini can make better business decisions in order to gain sustainable competitive advantage. In today’s competitive scenario customers are treated as the king. As a result it is very important to understand the needs, wants as well as the bargaining power of the customers. Based on this understanding organizations can change or modify its current offerings or come up with new offerings. Same is the case for Armellini which belongs to the restaurant and café industry where customer satisfaction is the key to success. As far as suppliers are concerned they play an important role as timely delivery of inputs without compromising the quality are essentials in order to run business smoothly. Total cost of operation of any business is hugely dependent on the inputs and hence on the suppliers. As a result organizations must have clear idea regarding the bargaining power of their suppliers. Like Armellini’s business is also influenced by its suppliers and their bargaining power. Another important external environmental factor that has significant impact on the business of an organization is the competition and the competitors. Armellini need to keep a close eye on the strategies that are adopted by its competitors. It must properly analyse competitors’ offerings, pricing and promotional strategies so that it can stay ahead of its competitors for long period of time. In any industry threat could come in the form of substitutes and new entrants. In restaurant industry threat of new entrants is a common threat to the existing players. As a result existing organizations like Armellini always need to be aware regarding the new entrants in the industry. So, overall it could be stated that a proper analysis of all the competitive forces of the industry would enable Armellini to make effective and efficient strategic decisions that would help it to gain competitive advantage for long term. Porter’s five forces analysis of Armellini Michael Porter is the first person who identified the five competitive forces that would play important role in shaping the structure of a particular industry. These five forces are bargaining power of buyers, bargaining power of suppliers, rivalry among competitors, threat of new entrants and finally threat of substitutes. Analysis of all these competitive forces in the context of Armelllini is given below. Bargaining power of buyers Generally buyers’ bargaining power vary between strong to weak depending on the industry and the type of product and service that is being offered to the customers. Buyers have significant amount of bargaining power when they are huge in number and buy a significant portion of the total output of the industry. Buyers who purchase huge quantity often found to be having greater negotiating power at the time price determination process. They often manage to get huge price concessions as well as various other facilities from the producers or the suppliers. Sometimes it is found that cost of switching any brand or product is either very low; in these cases also buyers have more bargaining power as compared to the suppliers. Moreover in many industries it has been found that buyers can easily change the current suppliers and go to the other one. In these industries also buyers are likely to have huge bargaining power that they can use at the time of negotiation with their suppliers. However there are several occasions where buyers would not be having strong bargaining power. Generally buyers are likely to have less bargaining when products are properly differentiated by the producers. In case of Armellini that operates in the restaurant and café industry, buyers bargaining power is strong. One of the main reasons is that there is large number of people who visit the restaurant every day. None of the cafes in the industry can ignore such large number of customers. Moreover the products are not that differentiated. Most of the restaurants offer almost same products in the industry. Moreover cost of switching restaurants is not that high as there are huge number of restaurants and café in the industry. If customers do not like the food items, quality and ambience of a particular restaurant, they can simply move to any other café or restaurant. Although, Armellini can differentiate its products in the form of quality and price so that customers find it more attractive as compared other restaurants. So, it can be stated in general that buyers have significant amount of bargaining power over the cafes and restaurants. Suppliers’ Bargaining Power There are no industry that can run smoothly without raw materials and inputs. As a result apparently it seems that suppliers have huge power at the time of bargaining. However there are several factors that influence suppliers’ bargaining power. Generally bargaining power of a supplier can vary with the market condition as well as with the significance of the product that is being supplied by him. Suppliers are likely to have strong bargaining power when the number of suppliers is small and when the product that is being supplied is rare or unique in nature. Furthermore if the inputs are available from a specific group of suppliers then also they would have significant amount of bargaining power. However if supplied item is a standard commodity that can easily be accessible by the customers then suppliers’ bargaining power would decrease. Producers always try to build and maintain good relationship with the powerful suppliers as they can easily increase the prices of the inputs which would reduce the profit margin of the industry. In café and restaurant industry suppliers are found to be having great bargaining power as without timely delivery of inputs none of the café or restaurant can run its business properly. If Armellini cannot manage to get the best possible inputs from its suppliers in time then the quality of the food items would be greatly affected and this in turn is likely to affect the relationship with the customers. Rivalry among existing players One of the most important competitive forces is the rivalry among existing players. Rivalry among existing players is intense when the market is either shrinking or growing slowly. Furthermore when potential of selling products is declining or stagnant then also competition among organizations becomes more intense as it becomes difficult for them to grow. As a result they have to take away the market of their competitors. It has been found that in many industries there is high chance that one organization or a small number of organizations can become the dominant player or rather market leader. Two or three big players are found to be experiencing intense rivalry among them in order to achieve the status of market leader. As far as café and restaurant industry is concerned, it is a highly competitive industry. Each and every organization is in a continuous process of attracting customers by their innovative items and excellent services. Armellini is operating in different countries in Europe and Asia. As a result it has to face different competitors whose strength varies from strong to weak. Moreover since the product as well as the target market is not properly segmented, competition is more intense. Threat of new entrants New entrants are expected to come in the market with new ways of production, the aspiration of securing an important place in the market and with substantial resources in order to be competitive. The intensity of the threat of new entrants is dependent on two important factors namely ‘barriers to entry’ and ‘existing players’ expected reaction’. Factors that are likely to work as barriers to entry are economics of scale, inability of accessing technology, customer preference, required capital and brand loyalty. In café and restaurant industry new entrants are found to be posing moderate to weak threat. Technology, economics of scale are less important factor for a new comer in this industry. However loyalty of the customers to the existing brands and necessary capital to start the business could be work as strong barriers for the new entrants. Armellini is an established brand in the industry. It is operating since the end of Second World War. Its customers are extremely loyal to it and this make it moving ahead for such a long time. As a result any new entrants would not be a big threat for Armellini. Threat of Substitutes Threat of substitutes arises when there is an alternative product in the market with lower price and same or better features. Complimentary products may also serve as a threat to the main product. The threat from substitutes is influenced by various factors which are described below. Substitutes are likely to pose a great threat when the existing product is not offering any significant benefit or when switching cost of products for the customers is not high or when there is hardly any loyalty from customer’s side. Substitutes are not big threat to the café or restaurant industry. As such there is no other industry or product that can substitute café or restaurant business. Armellini, being a popular as well as old café would not be affected by any substitute. Franchise route of growth Franchise route of developing business is one of the most widely used methods of business development that has been adopted by the organizations over the years. In franchise model outlet operators are the owners. They are independent to make any decisions regarding distribution of the products, trademarks and techniques. As far as Armellini is concerned it can expand its business throughout the world in the franchise model. The company is a financially strong company. Its customers have loyal to it for a long time. The brand Armellini is an established brand in the European and some of Asian market. As a result if it decides to expand through franchise it would be an easier way of expanding as compared to others. If Armellini advertise its requirement of franchisors there would be many people who would be interested to invest. Even the managers of the present outlets of the company would feel free to modify or change the food items or promotional strategy or prices of the products. Manager of a particular outlet would have more knowledge regarding the needs and wants of the customers of that outlet, local competitors as compared to the top management of the company. So if the managers are made the owners of the outlets quality of the service would increase and customers would be better served. Moreover people who would be new franchisors might come up with new ideas and capital to improve the business. This is likely to improve the overall brand image of Armellini. Furthermore if the company likes to be a global brand then franchise would be the easiest and cheapest way of achieving that objective. Conclusion Analysis of competitive forces is crucial for any business organization as these forces are likely to have great influence on the sustainability of the organization. With the help of the analysis of five competitive forces, Armellini would be able to make better decisions. Franchise route of expanding is a very common method of business development in café and restaurant industry. Armellini would also be benefitted if they choose this route. Reference University of Leicester, No Date, The Armellini Italian Ice Cream and Coffee Chain Case Study Read More