Growing a Business Strategy for Coffee Angel - Coursework Example

Coffee Angel Business Analysis Coffee Angel Business Analysis Background to Business Coffee Angel is a coffee and meals business run by Chris Lynch who has been working in the Hospitality industry for a long time. Since the formation of the company, two and half years ago, the reception has been good and he is looking for further growth opportunities to expand the company to new destinations. The coffee shop is located at 24-27 Brandon Terrace, Edinburgh, EH3 5DZ. History The entrepreneur behind the start of Coffee Angel is Chris Lynch who is a 29 year old male. He is married and has a comfortable life owning his house, hence has a good rating with the banks and can be able to access funds from commercial banks for the expansion needs of the business. Chris is of Turkish background and the business is family owned. The business was started in collaboration with his family who stands by him and supports him in financing the operations of the business. Main Operations Opening time is 7.30 am on weekdays and opening times being 8: 30 am and 10: 00 am for Saturday and Sunday, respectively, with closing time at 7: 00 pm irrespective of the day of the week. Coffee Angel offers foods including breakfast, sandwiches and rolls, Panini menu, toasts, salads, and wraps, the drinks offered include freshly roasted coffee, milkshakes, smoothies, tea, iced coffee, and flavor. Catering and treats are also offered by Coffee Angel. Analysis of Current position 1. Strategic analysis The aim of strategic analysis is to have a better understanding of the position of the business in the macro environment and make a comparison with the competitors in the industry the firm is operating. An analysis of the Coffee Angel requires an understanding of the environment to be able to know the strategic capabilities of the firm. a. Environment Analysis Analysis of the environment entails the use of PESTLE audit for the better understanding of the environment and the competitiveness of the firm. i. Pestle Audit PESTLE is an acronym for political, economic, sociological, technological, environmental, and legal and is a useful tool for the analysis of the macro environment where a business operates. PESTLE is a tool for the generation of an understanding on the relation of the firm to the external environment. The main reasons for PESTLE analysis is that it is relevant in decision making as it informs the management on the situation of the firm in relation to the external environment. Political This part details the impact of political actions on the external environment of Angel Coffee. Government policies would have an impact on the functionality of Angel Coffee in some ways including laws on minimum wages that has recently been passed will influence Angel Coffee and rumors of further increase affect the company. Food safety controls by the government affect the performance of food producers. Food safety controls came about owing to loss of lives for example cucumber scare in 2011, leading to the need to regulate food producers thus affecting Angel Coffee. Economic Coffee industry is getting complicated each day in the world but is a fast growing market. The market leaders in the coffee market are fighting against each other for the control and increase of their market share creating potential in emerging markets in South America and Asia. Rising coffee prices will definitely affect Angel Coffee as this serves as a threat to all firms in the coffee industry. Sociological Concerns on health have increased bringing up a health issue in the coffee industry. This has led to people preferring new drinks including juices or tea leading to a promise of healthy products by coffee houses. Edinburgh is a strategic area of the Scottish economy since it is located in a good geographic area, connection with Scottish main cities and has good transport links. However, there is a high dependency on few employers giving high unemployment rate. Technological Development of high technology equipment and new machines has to be a priority of coffee producers like Angel Coffee. Quality technology is required to make new beverages as required by customers in the wake of the requirement for quality healthy coffee. Angel Coffee will be affected by this requirement, as it will have to augment the quality of technology in the firm to meet the high standards and quality required by the customers in terms of taste and health standards. Environmental Production of coffee and processing has to take into consideration the effect of environmental changes as a means to ensure optimal sustainability. Economic environment must augment economic stability and better standards of living for all people who deal with coffee to guarantee quality production. Legal Legal requirements affect the performance of coffee producing firms, companies and businesses. This is due to the need to follow set guidelines as required by law. The policies guiding operations in the coffee industry include certified coffee production, free trade policy that ensures producers of coffee are paid fairly. Through this fair trade policy, coffee shops and firms have the ability to differentiate products and get social reputation. ii. Competitive position Coffee Angel has a competitive advantage being the first entrant into the coffee business in the Edinburgh advantage acquiring first mover advantage over current entrance in the market. This led to the acquisition of a high customer base by Coffee Angel in the area. Competition from restaurants and supermarkets is limited, as they do not specialize in coffee and meals giving Coffee Angel an upper hand in the business. Coffee Angel has developed a culture of high customer satisfaction and great service from competent employees differentiating it from the competition leading to high number of loyal customers and continued repeat clients. The other competitive advantage is the ability to communicate with its clients through social media and newsletters making it an effective communicator to the customers. This leads to an ability to communicate better to clients than its competitors on new product offers, menus, and development of new shops in the area as part of its expansion strategy. iii. Competitive position and Porter’s five forces The competitive environment that a firm operates is well identified by Porter’s five forces that are listed below and the impacts on the operational environment of Coffee Angel. Threat of New Entrant: low The threat of new entrants is low owing to the requirement of high quality equipment to meet the changing needs of the consumers for quality healthy coffee. The other requirement that new entrants must have is good supplier relations to avoid negative impacts of fluctuating world prices to be able to have a strong foothold in the coffee industry. This makes it risky for new entrants. Further, Coffee Angel has a high market share and is accepted by consumers, it will present a huge problem for new entrants to meet the quality requirements that will out do the success of Coffee Angel and become an accepted brand in the market. Bargaining Power of Buyers: medium Owing to the substitutability of coffee for tea and juices, consumers cannot be able to pay very high prices for coffee opting instead to take tea or juice. To compensate on the high prices of coffee for the consumers at Coffee Angel, high quality coffee made from fresh coffee is offered to ensure a client receives value for their money. They are therefore willing to spend an extra sum to purchase the coffee as they get value than they would receive from juice and tea. The bargaining power of the consumers may however; increase in future owing to preference for healthier options but this is being countered by production of healthier coffee to avoid this occurrence. Bargaining power of suppliers: medium Suppliers have a long bargaining power owing to a long agreement made to ensure Coffee Angel is not affected by frequent changes in prices by suppliers to gain an advantage over competitors. However, the bargaining power of suppliers is expected to increase in future owing to frequent fluctuations in coffee prices in producing countries and in global market affecting the business. The solution to this is hedging to protect Coffee Angel from negative effects of fluctuating coffee prices and affecting the bottom-line negatively. Threat of substitute products: High There is a high threat from substitute products like juices and tea to coffee owing to increased preference by consumers to healthier alternatives than caffeine. This affects the business; control is in form of a continued aim of producing high quality, healthy coffee increasing acceptability by the consumers. Rivalry among existing firms: Medium Since Coffee Angel has the first mover advantage and that competing firms have other lines of business apart from coffee gives it an upper hand in terms of competition with rival firms. The competition is, therefore, not substantial to reduce sales by a high margin. b. Analyzing the strategic capabilities i. Resource Audit A resource audit aims at understanding the presence of resources at the disposal of a firm for use in the business giving it a competitive advantage. Resources range from physical, human, financial as well as intangibles that play different parts in the course of business operations. a. Physical resources- availability of technologically advanced machines and facilities allow Coffee Angel to produce quality, healthy coffee and other products offered at lower prices, efficiently, and to meet the quality needs of the customers. b. Human resources- employees at Coffee Angel play an invaluable role in ensuring the operations at Coffee Angel meet client demands in terms of quality and quantity. Chefs, brewers, and technicians as well as security personnel and all other members of Coffee Angel staff ensure smooth operations. Without their expertise in their respective duties, Coffee Angel would never have been as successful. The management skills and expertise of Lynch is another important human resource advantage as he has steered Coffee Angel from its start up to date, is overseeing expansion strategies, and has led to the doubling of profits. c. Financial resources- there are enough financial resources in form of family finances willing to invest in Coffee Angel for expansion and growth purposes. Credit facilities are also available that may be used to augment expansion needs of the firm. d. Intangibles- quality supplies and presence of a high customer base are the main intangible resources available to Coffee Angel. Porter’s Generic value chain Inbound logistics- supply to Coffee Angel is efficient and timely owing to good management-supplier relations. Operations & services - there are efficient operations owing to a good understanding of their jobs by employees and a skilled management ensuring good service as its success is anchored on quality service provision. Procurement- supplier contracts are used to ensure cheap yet quality supplies are made for efficient operations at Coffee Angel. Technology- there are high quality technology equipments, however owing to the need for constant improvement, there is a need for Coffee Angel to augment the sophistication level of the machinery frequently. Human resource management- currently Coffee Angel has a good retention rate owing to the high levels of unemployment in the region but there is a need to ensure a march between employees and the work they perform at the organization. Competence- Coffee Angel has a competent management and the employees are well versed with their duties with most of them having been involved in the hospitality business for a long time. Growth stage models Owing to profitability and growth needs of Coffee Angel, it is in the fourth stage of growth. Stage 1 Stage 2 Stage 3 Stage 4 Stage 5 Stage 6 Conception Survival Profitability/ Profitability/ Take-Off Maturity Stabilization Growth Greiner Growth Model Coffee Angel is at the second stage of Greiner’s growth model due to a focus by management on efficiency of operations, centralized management that is directive with the control systems being standards and cost centre, reward system is salary, and merit increases. Churchill and Lewis: Lifecycle Growth Model Stage 1 Existence Stage 2 Survival Stage 3 Success- Disengage Stage 4 Success- Growth Stage 5 Take Off Stage 6 Maturity Management Style Direct Supervision Supervised Supervision Functional Functional Divisional Line & Staff Extent of Formal systems Minimum to non-existent Minimal Basic Developing Maturing Extensive Major strategy Existence survival Maintaining Profitable status quo Get resources for Growth Growth Return on Investment Churchill and Lewis: Lifecycle Growth Model shows the following characteristics of Coffee Angel as management is supervised supervision and there is a basic extent of formal systems in operations and overall running of the business with the major strategy being to get resources for growth. Strengths, Weaknesses, Opportunities, and Threats (SWOT Analysis) SWOT analysis is the analysis of strengths, weaknesses, threats, and opportunities of an organization for its use in planning and marketing purposes of a company. SWOT also guides the firm to harness its strengths and opportunities to gain competitive advantage while using the knowledge of threats and weaknesses as a basis to make strategies to overcome these challenges to the organization. Angel Coffee has a number of strengths and opportunities that it advantage give it a competitive but is faced with some threats and has weaknesses that has to defend itself from to remain relevant and profitable. These factors are analyzed below: Strengths Coffee Angel is located in a high visibility area, has an established logo, running website, and trademark with its developed coffee brand that is fresh owing to being brewed every week is attracting high customer numbers. The other strength Coffee Angel has is the presence of valued and motivated employees able to take their work diligently and efficiently since, they are highly skilled and have a good dedication to work. Coffee Angel has developed a good customer base owing to the good reception it received when the business was opened and it is from these customers that the business gets good sales and hopes to expand it with the opening of other shops in the area. Coffee is the last socially acceptable addiction making this strength that the company can harness and expand its activities in meeting the requirements of the people in terms of coffee and other meals. Production of coffee and running of the business at Coffee Angel is knowledge based, hence ability to maneuver the business through tough terms and adapt, forming strength to Coffee Angel. Weaknesses Despite the strengths, Coffee Angel has weaknesses embedded in its operations and existence and industry factors that reduce the ability of Coffee Angel to meet its goals. Some of the weaknesses include continued increase in competition in the coffee industry and expensive pricing of products. Opportunities There are a number of opportunities available to Coffee Angel through which the business can expand its foothold in the market and augment sales revenue and profitability as well as make it a household name in the near future. Some of the opportunities include introduction of new products that meet consumer expectations and tailored to consumer needs, use of advanced technological in its production process for better quality and healthy requirements to be met. Other opportunities include expanding into new areas by opening other shops in the area, expansion into emerging markets that have high profit margins and high demand, and extension of Coffee Angel’s brand. Threats The external environment, despite providing good opportunities for the development and expansion of Angel Coffee has some threats including an increase in competition from restaurants, supermarkets, and street carts. Other threats to Coffee Angel include price volatility in production areas affecting the price of coffee purchased by the company; consumers prefer healthier ways away from caffeine affecting the coffee industry negatively affecting the ability to make sales and augment profitability. Price volatility affect prices lowering price margins and profitability, eating on the revenues of the company lowering the expansion opportunities of Coffee Angel. Analysis of vision The owner has a good vision for the company where he aims at ensuring Coffee Angel surpasses the notion of any other brand to the level of a loved and popular brand in Edinburgh and beyond. The entrepreneur has a vision for Coffee Angel to become a popular brand for the residents of Edinburgh and beyond. He envisages Angel Coffee in a position of prosperity and success as an expanded unit through opening more shops. The main vision embedded in the strategies and development needs of the owner for the basis is to oversee the expansion and growth of Angel Coffee. This is happening through the actions of the entrepreneur of actively seeking for new opportunities for growth, expansion of the business to new areas and has been demonstrated by the reopening of the South Anne St Shop, and that Coffee Angel is currently looking for opportunities to expand and set new shops. Aspirations, skills, and ability of owner a. Aspirations The main aspiration of the entrepreneur is to make the vision of Coffee Angel happen and this is demonstrated by the daily aim of Coffee Angel of providing great coffee and catering every day. This is demonstrated by the innovativeness and quality of foods at Coffee Angel with new menus being introduced often. This shows that to reach his aspiration he is willing to take the necessary risks and surmount the challenges that come along. b. Skills and abilities The entrepreneur has some functional skills including a bachelor’s degree in Economics and a Master of Science in Investment and Finance. He has a good understanding of business finance, has built a rapport with consumers, having been in hospitality business for a long time developing an ability to make business decisions. He also has human skills, technical skills, and conceptual skills. He also has managerial skills in terms of leadership, adapting to new situations and time management. The marketing skills the entrepreneur has include patience, knowledge of products, and ability to convince customers. The entrepreneur also has financial skills on understanding the internal and external situation of his business and continued self development in financial management literacy. Attitudes towards risk Owing to his academic and business background, he is fully aware of the risks, present and potential, and he has proven his capability to take average financial risks in order to earn above average returns. This attitude towards risk has been influential in the doubling of sales since he began the business. Implications for growth The implications aspirations, skills, ability, attitudes of the owner for growth of the company are those of harnessing available opportunities to open new shops. The entrepreneur has enough funds from the family and is currently considering opportunities for the business to expand. Coffee Angel has a good opportunity to grow, as the entrepreneur is willing to take risks to expand the business into new areas and has the necessary funds to make this a possibility. Current Growth Strategies available to the Entrepreneur Sustainable economic advantage can be achieved by a firm in a number of ways including cost leadership, market segmentation, and price differentiation as the main strategies using Porter’s growth strategy. However, other channels can be used to know the current strategies implemented by a firm including Bowman’s strategic clock and Ansoff’s Matrix. Using both Porter’s and Bowman’s clock analysis, the strategy currently implemented by Coffee Angel is differentiation due to the availability of different products based on the quality requirements of the clients at different prices. Ansoff’s Matrix Product Market Existing New Existing Market Penetration Market Development New Product Development Diversification Market Penetration- Coffee Angel should try to augment sales within the Edinburgh area to reach people who have never been to the shop. This can be done through increasing advertising using fliers and promotions as opposed to word of mouth advertising that has been the main advertising technique. Market development- since the market near the Edinburgh shop has been tapped by Coffee Angel there is a need to increase the market area through expansion. Areas beyond the Edinburgh area that will form good ground for the increase in market size, as they do not have a firm that specializes in fresh high quality coffee Product Development- there is need for the introduction of new and innovative menus to meet the needs of people interested in full course meals at the shop. This will allow Coffee Angel to cater for the needs of all people who will pass information on the shop when they receive quality food and coffee to others, hence marketing the shop. Diversification- since Coffee Angel produces coffee and other foods for breakfast and lunch it is not necessary to diversify now before the demand in the market is not fully satisfied. Coffee Angel should aim at satisfying demand for the existing products before considering diversification. Recommended strategy Despite the presence of varied strategies that Coffee Angel can employ for example strategic growth and organic growth strategies for successful growth, strategic growth is most suitable. Strategic Growth Strategic growth is suitable because the firm has expanded in terms of physical assets for the operation of the business and already has a good business plan to guide the achievement of the main objectives of the firm. The other reason is that the firm has enough capital; hence, organic growth has already occurred at Coffee Angel. The steps that the owner and the business have to undertake to meet this goal include product development to by introducing new and innovative menus to the line of business of Coffee Angel. This will increase the market potential of Coffee Angel, because a new product will attract more people. Market development through an expansion into a new area is the other step through setting a new shop beyond the Edinburgh area. This will be facilitated by the presence of enough finance and the understanding of the operations of the business by the entrepreneur. The other step to take is market penetration through the introduction of new advertising techniques to reach many customers in the region. The advertising techniques that can be implemented are use of fliers, social media platforms, advertising in both soft and print media (Television, dailies and magazines), and event sponsoring. Feasibility- the plan is feasible owing to availability of funds and skills, attitude and willingness of the owner to pursue a long-term strategy for the firm. Acceptability- this strategy is acceptable to the entrepreneur as his vision for the company is to grow and expand from the current region and augment sales to a higher level. He is also willing to take risks and try new ventures; hence, he will readily accept the proposition. Sustainability- this strategy is sustainable because it considers the needs of future cash flow streams for both the firm and entrepreneur. The plan will open up the possibilities of increasing sales for the firm as well as opening new market opportunities for the firm to allow it to expand the cash base as well as utilize available funds. This strategy will lead to the ability to make good relations with the market, geographic region and the banks, as this will propel the company to long term financial stability and capital inflow. Reference Robbins, J., Stout,D., Cooney, J., Liberatore, J., & Connelly, J. The XYZ Investment Company: A Project Management Case Study. AICPA Case Development Program Case No. 2002- 01: The XYZ Investment Company. Read More