How to Enhance the Brand Image of Hai Di Lao Hot Pot - Case Study Example

Business strategy in Chinese restaurant Table of Contents Introduction 3 External Analysis of the Restaurant 3 PESTEL 3 Porters Five Forces Strategy Analysis 5 Internal Analysis 6 SWOT Analysis 7 Strategic Options 8 Strategy Recommendation 10 Conclusion 11 Reference List 12 Introduction An effective business strategy helps to achieve the desired goals and objectives of a business organization. This study aims at designing a business strategy for a Chinese restaurant, Hai Di Lao Hot Pot. The Restaurant’s external and internal analyses are done in this study. The strategic options that the restaurant can adopt are evaluated and justified. Hai Di Lao Hot Pot started its operations in the year 1994 as a small food outlet that specialised in soup making. The restaurant expanded its operations with time and started serving a variety of other delicacies. Several other outlets of Hai Di Lao Hot Pot were also started and the business operations were carried through this chain of restaurants. The restaurant reached a stable growth rate over time and this enabled it to open multiple outlets and marketing stores in Nanjing, Tianjin, Shanghai, Beijing and other locations of China. The company employs about 15,500 employees (Hai Di Lao hot pot, 2014). External Analysis of the Restaurant PESTEL Political: The business operation of the restaurant, Hai Di Lao Hot Pot is subject to some political constraints. In emerging nations like China, the government often impose several extensive policies for maintaining a stable and competitive market. Sometimes due to political wars and corruption in bureaucracies, the expansion plans of the company get hampered. The restaurant also has to abide by foreign tax policies in order to expand its business globally (Griffiths and Tenenbaum, 2004). Economical: The distribution centre, warehouse and factories of the restaurant mainly operate in the Chinese market and thus, it does not have to worry about risks associated with the exchange rate. Economic productivity of China, as measured by the Gross Domestic Product (GDP), is quite stable which implies that there is an increase in the per capita income level of the population. Consumers have high demand and increased purchasing power which enables them to avail speciality dining in restaurants like Hai Di Lao Hot Pot. Social: Globalization has helped businesses to conduct integrated operations that would help improve standard of living. Hai Di Lao Hot pot offers its customers with traditional dinning habit with a blend of modern styles. The restaurant values the social and cultural aspects that are associated with Chinese food. This ensures that the restaurant maintains a stable growth (Chow, Lau, Lo, Sha and Yun, 2007). Technological: Food making techniques are essentially subject to innovations. Several innovations in cooking techniques are practised by the restaurant. An intensive mechanized production system has been developed by Hai Di Lao Hot Pot. The products are also warehoused effectively by using latest technological developments in food storage. The distribution system is also governed by highly matured and efficient supply chains. Legal: The factories of the restaurant are certified by ISO, HACCP and QS. The ingredients for the food are also compatible with the international quality standards. Environmental: The restaurant believes in maintaining an effective waste reduction system wherein, it can monitor and utilize resources efficiently. Hai Di Lao Hot Pot always strives to provide healthier and safer food products which are high in nutritive value and follows a sustainable way of procuring food ingredients (Jinbo, Danrong and Yan, 2012). Porters Five Forces Strategy Analysis Threats of new entrants: New entrants pose a high threat in the food industry. Food industry is mainly associated with high profits if planned strategically. The start-up cost for setting up new ventures is also medium to low. This leads to high chances of new entrants which affects the market share of an already established restaurant like Hai Di Lao Hot Pot (Xiao, 2012). Threats of substitutes: There is medium threat that arises from substitute goods and services in the food industry and for a restaurant like Hai Di Lao Hot Pot. Similar products by other Chinese fast food restaurants act as substitutes. The customers recognize the brand value of this restaurant and the pricing and quality of the product suits the consumer’s requirements. Bargaining power of suppliers: The bargaining power of the suppliers is low as the industry is subjugated by large supplies and the operations of the restaurant like Hai Di Lao Hot Po is significant enough to dominate over the price margins of the suppliers. Bargaining power of buyers or customers: The bargaining power of customer is medium as many similar goods and services are available in the industry. However, at the same time Hai Di Lao Hot Pot focuses on serving authentic Chinese food which may not be served by all the other restaurants (Law, To and Goh, 2008). The rivalry among current competitors: In the food industry, competition among the existing restaurants is high as all the restaurants generally follow similar strategies and product differentiation is low. Internal Analysis The internal analysis is done using the VRIO analysis. This framework helps the restaurant to identify those resources which helps it to attain a position where it can take competitive advantage sustainably (Qu, 1997). The following points should be focussed on: Valuable Rare Difficult to imitate Supported by organization Competitive Implications Physical network YES NO YES YES Temporary competitive advantage Customer Response time YES YES YES YES Sustained competitive advantage Service variety YES NO NO YES Competitive parity Promotional activities YES YES NO YES Temporary competitive advantage The table shows that the restaurant enjoys sustainable competitive advantage in case of customer response time. Then restaurant highly values and ensures customer satisfaction (Hai Di Lao hot pot, 2014). It provides high quality food and personalised services. Such practices are not often followed by the other restaurants and the competitors’ also find it difficult to imitate such high standard service due to unavailability of appropriate resources. Physical network and promotional activities of the restaurant gives them temporary competitive advantage. Hai Di Lao Hot Pot has 72 outlets in China and this gives them a significant physical presence. Such expansion policies are taken by most of the restaurants (Jinfeng and Chaoyang, 2010). However, many restaurants cannot expand because of limited human resources. Hai Di Lao Hot Pot also follows intensive promotional activities which are often imitated by its competitors. The restaurant enjoys competitive parity in case of service variety. It values diversification of products but at the same time its competitors also serves similar alternatives. SWOT Analysis Strengths Weaknesses 1. Hai Di Lao Hot Pot provides impeccable customer service (Auty, 1992). 2. The restaurant has highly efficient distribution centres which enhance their supply chain. 3. The restaurant has always developed an innovative & a diversified menu. 4. Hai Di Lao Hot Pot values Chinese traditions by providing authentic Chinese foods to their customers. 5. The food served by the restaurant is healthier and has more nutrient content. 1. Hai Di Lao Hot Pot has limited knowledge about other cultures and their food habits. 2. Promotional activities mainly target the Chinese population. 3. The restaurant fails to cater to global needs. The restaurant does not capitalize on the scope of expansion in the global markets. Opportunities Threats 1. Expansion opportunities in other western countries. 2. Growing demand in the market for Chinese food. 3. Mergers with other upcoming restaurants (Yu-qi, 2012). 1. Large number of alternatives available in the market. 2. Change in consumer preference (Li-juan and Jing, 2013). 3. Rise in price of raw materials. Strategic Options Hai Di Lao Hot Pot follows traditional methods of marketing wherein, it focuses on marketing specifically through television advertisements. The restaurant has advertised through television programs which are widely recognized in China. Such advertisements have performed well in international markets as well (Jian-min, 2008). However, there are marketing gaps in the promotional strategies followed by the restaurant. The section of the population who are not originally from China may not prefer watching Chinese shows and thus, they may be completely unaware of the restaurant (Kara, Kaynak and Kucukemiroglu, 1995). Hai Di Lao Hot Pot also fails to reach the young generation due to its absence in the web and social media which is the main platform for attracting the younger generation (XU, GUO and JI, 2011). So, the strategic options can be stated with respect to the problem identified as follows: Objective: To enhance brand equity by intensively promoting the products through online marketing and vertical integration. Strategy 1: The restaurant should follow viral marketing methods. Advertising on web or through the internet can help to reach large section of population. The information spreads almost immediately as people are quite technically advanced nowadays. Word of mouth is an essential factor that governs this type of marketing strategies. Customers spread information instantly and as a result other people get informed in the process (Subramani and Rajagopalan, 2003). Social media can be a platform through which the company can promote its brand image. The restaurant can also design strategies through which consumers would be able to enjoy additional services apart from dining experiences (Phelps, Lewis, Mobilio, Perry and Raman, 2004). This can highly satisfy consumers which would encourage them to give positive reviews on the internet through social media about the products and services of the restaurant. Viral marketing strategies can then be used to spread such product reviews to attract a larger customer base. Advertising the product by using YouTube videos can also help the restaurant to spread its services exponentially (Richardson and Domingos, 2002). Strategy 2: The restaurant should follow vertical integration. Hai Di Lao Hot Pot should vertically integrate and must not only focus on one distribution channel. This would give them competitive advantage as the restaurant could get access to more resources before its competitors. The restaurant market share will increase and this in turn would help to enhance its brand equity. It can get directly reach its consumers before the competitors. Vertical integration would really prove profitable for the restaurant if appropriately used. The restaurant would be able to procure raw materials easily and distribute its product more effectively. This process of vertical integration combined with effective marketing strategies would help the restaurant to differentiate itself from its rivals. Hai Di Lao Hot Pot would be able to understand its customer needs and cater to it efficiently. Brand equity of the restaurant will be enhanced in the long run and it would be able to hold a credible position in the market (Tham, 2012). Strategy Recommendation The restaurant should follow a strategy which would enable it to enhance its core values of integration through intensive marketing strategies. In doing so, the first strategy discussed is more meaningful and justified. The identified problem would be efficiently handled if the company follows intensive viral marketing strategies. This strategy can be justified on various strategic grounds. Internet is a booming medium of advertisement as it can easily reach a large section of people in a cost effective manner. In a country like China where people are highly advanced in respect to technology, internet becomes an imperative part of their daily activities. The restaurant could capitalise on this opportunity by marketing their services through giving advertisements on the internet (Han, 2012). Viral marketing is a valid marketing strategy for Hai Di Lao Hot Pot for certain important factors. This form of marketing generally emphasises on giving away additional services to the customers for free of cost. This may not generate positive results immediately, but, would ensure that the restaurant benefits in the long run by following such marketing strategies. This is due to the fact that consumers are always attracted by free services. If the consumers get satisfied with the free service, they would always prefer that product over the other alternatives. This would help the restaurant to create a massive impression among the consumers. The brand equity would be enhanced through such processes. Instant communication through viral marketing is not very expensive and it would also be a feasible option for the restaurant. The restaurant can also connect with its consumers more effectively through viral marketing. Thus, it can be seen that viral marketing can help the restaurant to establish a brand name that would be sustainable in the long run (Upadhyay, Singh and Sharma, 2009). Conclusion The study analyses a Chinese restaurant, Hai Di Lao Hot Pot, which operates in a competitive market. A business strategy is developed for this restaurant by analysing the various internal and external factors that affect the restaurant. The analysis reveals that the restaurant has huge scope for expansion in the global market if it diversifies its product line. The restaurant also focuses mainly on serving Chinese food and concentrates specifically on Chinese values. Hai Di Lao Hot Pot also faces some marketing gaps due to its traditional promotional strategies. The restaurant should thus focus on developing internal integration that would help it to implement the proposed strategies efficiently. 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